REFORMS AND VISION 2030 GIVE HOPE TO SAUDI SMEs

Easy licensing, deployment of electronic services and Vision 2030 are seen as key drivers of growth by Saudi’s small and medium enterprises (SMEs).

The kingdom’s General Authority for Statistics’ latest survey on SMEs underscores a strong sector that is also a job creator with the potential to be a major economic contributor.

The Saudi government has made great strides in creating a business environment conducive to the growth of SMEs. The SME 2017 survey by GSTAT shows that there were 977,535 SMEs established in the country, with 852,268 considered micro entities with one to five employees, 117,461 small enterprises with six to 49 employees, and 7,806 medium-sized companies with 50 to 250 employees

Close to half, or 462,293, of the businesses are focused on wholesale and retail trade, repair of motor vehicles and motorcycles. Manufacturing accounted for 106,788 businesses in total, while accommodation and food services activities made up 104,525 of the total number. Other major areas of economic activity are agriculture, which accounted for 93,923 establishments, and other services, which made up 69,581 of the total.

The SME sector employed 4.48 million people in the country at the end of last year, according to the survey. Of these, 1.14 million or 25.5% were Saudi nationals, while the remaining 3.37 million were non-Saudi employees

Wholesale and retail employed 348,716 Saudis, followed by manufacturing with 108,874 and education services which created 93,732 jobs for Saudis.

For non-Saudis, wholesale and retail was the biggest source of employment, accounting for 1.17 million, followed by 520,597 jobs in manufacturing and accommodation and food services, which has created 416,601 jobs.

The GSTAT survey shows that 45% of micro businesses consider ease of licensing application as their biggest contributor to growth. Around 18% of micro-enterprises also believe the use of electronic services will help them boost their business, while 14% say Saudi Vision 2030 will offer them great opportunities to expand their operations.

For 36% of small enterprises, the deployment of electronic services tis considered the major driver, with 29% focused on ease of licensing, and 15% on Vison 2030.

As much as 67% of medium-sized enterprises believe electronic services is going to be the biggest contributor, while 32% think government support and loans will help build their business and 18% believe ease of licensing is an important factor.

The importance of electronic services is evident in the respondents’ use of digital devices to market their products and services. As many as 58% of companies involved in financial and insurance activities deploy electronic services to attract customers, 56% in information and communications services, 49% in water supply services, 44% in education, and 42% in electricity and air conditioning services.

For now, SMEs are primarily relying on the private sector to boost growth, with public establishments not seen as key customers for most businesses.

The survey shows that information and communications services has the highest percentage of government customers, at around 18% (for companies with 50 to 250 employees). However, most other sectors have low patronage from government entities.

The Saudi government is looking to address the issue with major public sector companies and institutions creating programmes to outsource some of their requirements to the SME sector.

The survey also highlights the major obstacles facing SMEs as they look to start their services. Micro enterprises pointed out electricity prices as their major issues, with 30% believing it to be the biggest obstacle, 16% cited lack of availability of skilled labour as an issue, while 15% said government procedures and bureaucracy was among their big impediments

For small enterprises, lack of skilled labour and labour laws and regulations were equally vital issues, representing 19% each, while 17% considered land and rents as major impediments. Around 16% said government procedures and bureaucracy was an issue for them.

For medium-sized enterprises, 23% cited availability of skilled labour as an issue, another 23% see labour laws and regulations as an obstacle and 16% believe government procedures and bureaucracy were obstacles during creation and start-up.

For established companies, the challenges were different. 25% of micro-enterprises felt availability of finance was a challenge, and 13% focused on low demand as an issue. Among small enterprises, 14% thought availability of finance, and another 14% pointed to local competition as their main challenges.

And for medium-sized companies, 21% pointed to availability and skills of labour as their most vital issue, while 13% each considered availability of finance, local competition, machinery equipment and technology and foreign competition as one of their key challenges.

The SME survey underscores the sector’s strengths and weaknesses, but it is clear that there is a strong foundation to build on.