Small and medium enterprises (SMEs) are the backbone of any economy, as they provide employment, innovation, and diversification. In Saudi Arabia, the SME sector has witnessed remarkable growth and development in the past decade, thanks to the government’s support and the Saudi Vision 2030.
What are SMEs?
SMEs are defined as enterprises that have less than 250 employees and less than 200 million SAR in annual revenue. They operate in various sectors, such as manufacturing, services, trade, construction, and agriculture.
How have SMEs grown in Saudi Arabia?
According to the latest report by the General Authority for Small and Medium Enterprises (Monsha’at), the number of SMEs operating in Saudi Arabia increased to 752,560 in Q1 2022 from 650,550 in the same period last year, representing a 14.6% year-on-year increase.
The SME sector contributes to around 30% of the gross domestic product (GDP) in Saudi Arabia, which is lower than the average of 46% among the top 15% of global economies. However, this share has increased significantly from 21% in 2013 , indicating a rapid growth of the SME sector in the past decade.
The SME sector also contributes up to 45% of total employment and 33% of non-oil GDP in Saudi Arabia. These figures have also improved from 25% and 20%, respectively, in 2013. This shows that SMEs have created more jobs and diversified the economy away from oil dependence.
What are the factors behind the success of SMEs in Saudi Arabia?
The growth and development of SMEs in Saudi Arabia are largely attributed to the government’s policies and programs that aim to support and empower SMEs. Some of these initiatives are:
- The Kafalah program: This is a loan guarantee program that facilitates access to finance for SMEs by providing guarantees to banks on behalf of SMEs.
- The Tamweel platform: This is an online platform that connects SMEs with potential investors and financiers.
- The Saudi Venture Capital Company: This is a state-owned company that invests in startups and SMEs with high growth potential.
- The Indirect Lending Initiative: This is a program that provides loans to SMEs through intermediaries, such as microfinance institutions and non-bank financial institutions.
- In addition to these initiatives, the government has also implemented various reforms and regulations that aim to improve the business environment and reduce the barriers for SMEs. Some of these reforms are:
- The introduction of the new Companies Law in 2015, which simplified the procedures and requirements for establishing and operating companies.
- The launch of the National Industrial Development and Logistics Program (NIDLP) in 2019, which aims to boost the industrial sector and enhance the competitiveness of local products.
- The establishment of the National Center for Privatization and PPP (NCP) in 2017, which aims to promote private sector participation and public-private partnerships in various sectors.
What are the challenges and opportunities for SMEs in Saudi Arabia?
Despite the remarkable progress made by SMEs in Saudi Arabia, there are still some challenges and opportunities that need to be addressed. Some of these are:
- The impact of Covid-19: The Covid-19 pandemic has affected many businesses around the world, including SMEs. However, some SMEs have shown resilience and adaptability by shifting to online platforms, offering new products and services, and adopting digital solutions. The government has also provided various relief measures for SMEs, such as tax exemptions, subsidies, and deferments.
- The need for innovation: Innovation is essential for SMEs to survive and thrive in a competitive market. Therefore, SMEs need to invest more in research and development, adopt new technologies, and foster a culture of creativity and entrepreneurship. The government can also support innovation by providing incentives, grants, and incubators for SMEs.
- The role of women and youth: Women and youth represent a large segment of the population and potential entrepreneurs in Saudi Arabia. However, they face some challenges, such as social norms, cultural barriers, and lack of skills and opportunities. Therefore, there is a need to empower women and youth by providing them with education, training, mentoring, and access to finance. The government can also promote women and youth entrepreneurship by creating awareness campaigns, role models, and networks for them.
How does Saudi Vision 2030 support SMEs?
Saudi Vision 2030 is the ambitious and comprehensive plan that aims to transform Saudi Arabia into a leading global economy and a hub for innovation and trade. One of the main goals of Saudi Vision 2030 is to increase the share of SMEs in GDP to 35% by 2030. To achieve this goal, Saudi Vision 2030 supports SMEs by:
- Enhancing the competitiveness and productivity of SMEs by improving the quality of their products and services, reducing their costs, and increasing their exports.
- Developing the human capital and skills of SMEs by providing them with training, education, and certification programs.
- Strengthening the ecosystem and infrastructure of SMEs by providing them with access to finance, markets, technology, and logistics.
- Encouraging the diversification and localization of SMEs by supporting them to enter new sectors, such as tourism, entertainment, renewable energy, and health.
Conclusion
SMEs are the engine of growth and innovation in Saudi Arabia. They have achieved remarkable progress in the past decade, thanks to the government’s support and the Saudi Vision 2030. However, there are still some challenges and opportunities that need to be addressed. SMEs can make an economy more recession resistant by creating more jobs, offering more variety, innovating and adapting, and diversifying the economic base. Therefore, SMEs deserve more recognition and appreciation for their contribution to the economic development of Saudi Arabia
How do SMEs make an economy more recession resistant?
SMEs make an economy more recession resistant by:
- Creating more jobs and income for the population, which boosts consumption and demand.
- Offering more variety and choice for consumers, which increases competition and efficiency.
- Innovating and adapting to changing market conditions, which enhances resilience and flexibility.
- Diversifying the economic base and reducing dependence on a single sector or resource, which reduces vulnerability and risk.
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