FUNDING OPPORTUNITIES OPEN UP FOR SAUDI START-UPS

Start-up funding in Saudi Arabia rose 9% in the first half of 2019, as venture capitalists scoured for new opportunities in the burgeoning industry.

MAGNiTT, MENA’s provider of start-up information, has noted that Saudi Arabia was among the top three countries, along with the UAE and Egypt, in the MENA region that saw strong growth in the SME space in the first six months of the year.

“In a record start of the year in terms of transactions, much of this investment had been focused at the early stage. Multiple governments have made announcements on the creation of Fund of Funds to help fuel investments across all stages of start-up growth,” said MAGNiTT founder, Philip Bahoshy.

“We are also seeing corporates play an active role in corporate venture capital activity and much of the MENA regulation is focused on supporting start-ups and investors connect. All these factors will help the acceleration of the MENA start-up ecosystem.”

The Saudi authorities are paying close attention to the development of small and medium enterprises.

The Small and Medium Enterprises Authority (SMEA) has launched several initiatives, including reimbursement of government taxes and fees for three years for businesses registered between 2016 and 2021, and an increase in the capital of Kafalah, the public credit guarantee scheme.

Other measures include indirect funding of SAR 1.6 billion to investment institutions – aside from banks – to broaden low-cost funding sources for SMEs; and a venture capital fund of SAR 2.8 billion targeting start-ups.

SMEA is also reviewing regulations to remove barriers to doing business and is helping innovators market their ideas and products. In addition, the new public procurement law will include preferences for SMEs.

According to the International Monetary Fund (IMF), SMEs account for 97% of businesses in Saudi Arabia, slightly higher than the emerging and developing economy average, with micro enterprises (companies with one to five employees) accounting for 85% of businesses.

SMEs predominantly employ expatriates (75% of labour force) and only account for 34% of private sector employment. SMEs’ contribution to GDP at 22%, according to the National Transformation Program, is slightly below the Arab world average and much lower than the EU average of 55% of GDP.

While the kingdom has made inroads in nurturing SMEs, the IMF recommends pushing forward with more incentives.

“Fostering a vibrant and competitive SME sector requires a comprehensive approach. Efforts should focus on improving human capital and the business environment and putting in place the institutional framework to support SME and entrepreneurship financing while avoiding market distortions and contingent fiscal risks,” the IMF said in its latest report on the kingdom.

A number of tech labs and bootcamps have been set up to boost entrepreneurial activity in the kingdom. This includes the Mohammed bin Salman Foundation (MiSK Foundation), which recently partnered with Vision Ventures and Seedstars to launch its own growth accelerator for tech start-ups in MENA.

“The programme is filling a void in the ecosystem by working with slightly later stage start-ups and focusing on growth,” according to Osama AlRaee, entrepreneurship director at MiSK Foundation.

The partners have chosen 11 tech start-ups up from Saudi Arabia, Egypt, Kuwait and the UAE to provide online trainings through webinars, one-on-one sessions with mentors and more; while also having three bootcamps in Riyadh to support the start-ups.

Saudi Arabia’s financial services industry is focusing on the funding needs of SMEs in its effort to nurture the nascent segment of the industry, which is seen as a vital plank to achieve some of the Saudi Vision 2030 goals.

Saudi Arabia Monetary Agency’s latest report shows credit facilities to SMEs in the second quarter jumped 11.6% to reach just over SAR 113 million, compared to the same period last year, or 6.2% of total credit facility provided by the industry. The financial services industry’s credit facility during the same period last year stood at SAR 101.2 million, or 5.7% of total.

Banks led the way in the second quarter of 2019, accounting for SAR 105.15 million of credit facilities, or 5.9% of their total, versus SAR 93.6 million during the same period the previous year.

Medium-sized companies accounted for the lion’s share with SAR 79.4 million in credit facilities, with small companies garnering SAR 23.1 million and micro-sized entities securing SAR2.6 million in funding.

Finance companies provided SAR 7.8 million of funding, or 16.6% of their total credit facilities offered in the second quarter. Small companies secured SAR 3.6 million in funding during the quarter, with medium-sized companies obtaining SAR 3.2 million from finance companies, and micro enterprises netting just over SAR 1 million.