Saudi SMEs v overseas enterprises. Who is the winner?
The issue of Saudi's SMEs has been debated over the last few years (File/AFP)
The small and medium enterprises (SMEs) issue in the Kingdom has been debated heavily in the last few years.
The commitment of Custodian of the Two Holy Mosques King Abdullah to empower SMEs by incorporating the concept of knowledge-based economy has come at a time when Saudi Arabia is showing its readiness to facilitate all national and foreign stakeholders interested in trade and investment. Investment in SMEs in Saudi Arabia is expected to grow to more than SR260 billion by the end of 2015.
The contribution of SMEs to the Kingdom's gross domestic product could rise to 37 percent by the end of 2015 when growth in the number of licensed SMEs will reach to 2.5 million by end-2015 from 1.97 million as of January 2014.
While gloating over these impressive figures, what we need to do is to draw a comparison between the Saudi SMEs and their counterparts in developed or even emerging economies.
Of course, the situation in the Kingdom is different. The size of SMEs is very small in comparison and all that they concentrate on are trade and construction, and certain other sectors such as manufacturing and professional services.
When we zoomed into these SMEs’ sectors we found them to be heavily relying on non-Saudis. So, basically, SMEs in Saudi Arabia are largely dependent on non-Saudis. If the idea is to develop or promote SMEs, you may have to consider whether such a move will help in job creation, or whether it will aggravate unemployment further.
So, let us make a beginning by understanding the structure of our SMEs. It is true in developed economies SMEs make a visible contribution to GDP and account for a large share of employment generation but those economies rely heavily on local labor force, whereas our SMEs depend largely on foreign labor. That is the big difference between SMEs in the Kingdom and those abroad.
Innovation is a key driver of growth of SMEs.
This is something the Kingdom seems to lag behind. What we have are mostly repair shops, maintenance centers, grocery stores and restaurants, which are heavily dependent on labor force and very little or none on innovation and creativity.
We need to introduce incubators at universities and chambers of commerce and industry where they promote the culture of innovation and creativity. These are places where they support people who come up with their own inventions and help commercialize them.
If we do that only then we will be able to promote SMEs that are compatible with those in developed or even in emerging economies.
By Khalil Hanware
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