SMEs Promotion In Saudi
SMEs: On a Growth Trajectory with Government Support
In December, 2019, Saudi Arabia’s Public Investment Fund launched a 4 billion riyal ($1.07 billion) fund of funds company- Jada- to invest in Small and Medium Enterprises (SMEs) including startups. This comes as the latest big push from the government aimed at increasing the contribution of the SMEs to the country’s economy and diversify it away from oil.
First announced in 2017, Jada aims to support small and medium-sized enterprises (SMEs) by investing in venture capital and private equity funds. It will act as a catalyst for small and medium enterprises, secure rewarding incomes, and ensure financial sustainability, thus supporting the Kingdom’s priorities in terms of backing small and medium enterprises. It will also lead to creation of a large number of jobs and boost the country’s GDP as well.
Earlier, Saudi Arabia’s Public Investment Fund (PIF) – the kingdom’s sovereign wealth fund- set up a four billion Saudi Riyal fund (US$1 billion) to provide for capital needs, specifically for the SMEs. The government also established Monshaat, Saudi’s Small and Medium Enterprises General Authority in 2016, to regulate, support and develop the country’s SME sector, and to create and regulate incubators and accelerators. Recently, Monshaat and the Local Content and Private Sector Development Unit (Namaa) announced four major initiatives to support SMEs in the Kingdom. These initiatives aim to boost, regulate and develop the private sector in general, and increase SMEs’ contribution to the local economy in the form of reimbursing the government fees, indirect funding, raising the capital of Kafalah and the venture capital fund. The government also wants financial institutions in the Kingdom to allocate up to 20 percent of overall funding specifically to SMEs.
SMEs are the key partners in the national development, and act as key pillars for the national economy and GDP. One report suggests that amongst the member countries of the Organization of Economic Cooperation and Development (OECD), SMEs account for approximately 99 percent of total enterprises, and provide the main source of employment, accounting for about 70 percent of jobs.
Saudi’s National Transformation Program has outlined a number of initiatives to enhance SMEs contribution to the private sector. The Financial Sector Development Program pays focused attention to SMEs and mentions a number of initiatives, such as raising the share of SME loans as a percentage of total bank loans from 2 to 5 percent by 2020, raising the level of private equity and venture capital financing to SMEs, introducing exclusive Fintech companies to facilitate SME financing and expansion, and helping SMEs to get listed in the Nomu parallel market.
Business-friendly regulations, easier access to funding, international collaborations and a greater share of national procurement and government bids are other related areas that the government has initiated reforms in. Raising the contribution of small and medium-sized enterprises (SMEs) to 35% by 2030 is listed as a top priority under the Vision and as things are moving, it seems pretty much achievable in the near future.