31/01/2011 00:00 AST
Capitas Group International (CGI), a Jeddah-based management consultancy and advisory firm, has recommended a framework for the establishment of an small and medium enterprises (SME) Authority in Saudi Arabia.
In its SME sector analysis released on Monday, CGI stated that an SME authority was needed in Saudi to serve as a steward to the interests of the small enterprises and to facilitate the development of policies that encourage SME sector growth.
The Authority will also help enable accurate evaluation of the sector through regulatory and financial reforms and help in the collection of data on the sector, said CGI, which focuses its practice on initiatives that are of importance to SME and housing sectors.
Last year CGI was retained by the Government of Qatar to launch – Enterprise Qatar – that country’s stand alone, centralized SME Authority.
“The Shoura Council has recently given its approval for the creation of an SME Authority in Saudi Arabia,” said Naveed Siddiqui, chief executive officer of CGI.
'This is a critical development for Saudi. Today there is not a single body responsible for policy formulation and co-ordination within this vital sector. The launch of the authority will be the most effective means to enhance the contribution of SMEs to the Kingdom’s economy,” Siddiqui added.
The study by CGI underscored the importance of the sector for the development of the national economy – as SMEs constitute 90 per cent of all Saudi companies.
In addition to expanding employment opportunities, SMEs contribute to economic diversification and increased productivity within the labour force. Nonetheless, statistics indicate that the sector yields limited impact on the Kingdom’s overall economy.
Despite their vast numbers, and the availability of numerous SME support programs and initiatives, SMEs contribute only 25 per cent to employment and 33 per cent to GDP. This places the sector at odds with majority of advanced economies, explained Siddiqui.
For example in Spain, SMEs contribute to 64.3 per cent of GDP, and in Austria they contribute 44 per cent. Given the size and growth of Saudi Arabia’s economy and the nation’s focus on economic diversification, CGI said the SMEs should contribute to more than 50 per cent of the country’s GDP.
According to CGI, the foremost among SME challenges is their inability to secure capital.
“Being able to access both debt and equity is crucial for SMEs. There is a scarcity of venture capital and angel investor funds that are targeting early stage companies,” said Tariq Hameed, senior vice president at CGI.
'Meanwhile on the debt side only 2 per cent of banks’ total lending is going to SMEs compared to over 14 per cent in non-GCC countries,' he stated.
Both the Saudi government and the private sector have recognized the potential of SMEs and their need for a wide base of support including capital (debt and equity), training and business support services.
The recently announced Ninth Economic Plan seeks to expand SME support by increasing the ability of specialized funds and financial institutions to provide credit to SMEs, along with providing various forms of technical assistance.
“Saudi has the largest number of public and private sector SME support programs of all GCC countries,” said Siddiqui.
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