SMEs and economic growth



WHEN we discuss small and medium enterprises (SMEs), many interrelated ideas and concepts such as innovation, entrepreneurship, business incubation, training and rehabilitation come to fore. In the end we reach the conclusion that the most important challenges facing SMEs are finance, business accelerators, red tape and training. There may be other challenges as well.

The relevant ministries and agencies in the Kingdom (Labor, Commerce and Investment, and the Small and Medium Enterprises Authority) are working on initiatives to address some of these challenges. These ministries have provided business incubators and accelerators as well as consultancy services to help establish enterprises in the Kingdom.

It is true that funding is one of the main challenges of SMEs. The common notion that government procedures and conditions have been blocking enterprises is inaccurate because the relevant ministries have simplified procedures. A lack of entrepreneurial awareness and readiness is a real problem facing SMEs but this can be bypassed as the state provides lots of assistance in this respect.

I believe that choosing the type of business activity is another important issue as I have noticed that it is often done in a haphazard manner without making proper feasibility studies. This happens due to the absence of centers that publish reports of the most traded goods and services in the country as well as their demand and supply in local and international markets.

Also, economic feasibility studies are often conducted in a haphazard manner just to obtain loans and support. This is another major issue that has contributed to the failure of many projects.

A lack of productivity is a major challenge that obstructs the success of SMEs and I believe that the authorities should address this issue by encouraging entrepreneurs to focus on industries that will supply new products and services, create more job opportunities for Saudis and pay handsome salaries to the workers.

There are more than a million small and medium enterprises in the Kingdom and it will not be possible to double this number, as most of them are purely service-oriented focusing on restaurants, retail trade, construction and general services. Moreover, financial institutions will be reluctant to fund similar ventures.

We are in need of enterprises that are highly feasible and that rely on innovations and scientific research such as computer programs, advanced industries and information technology. We should be able to produce everything that we currently import from other countries, laying a solid foundation to build a strong economy that will create more jobs and reorganize the job market. When we succeed in developing such a competitive market, financial institutions will be more than happy to support our entrepreneurs.

The real indicator of SME growth is the volume of private sector investments in research and development. Innovations are not just ideas, but designs for innovative solutions developed by scientists, engineers and laboratory specialists who work on projects over a long period of time. We have reached the saturation point by one million small and medium enterprises and the Kingdom will not be able to accommodate another million of similar enterprises that may not contribute to boosting economic growth and creating jobs.

The success of SMEs in the Kingdom is closely related to reducing imports and manufacturing all required products locally. Moreover, we should target exports, support scientific research and invest in research and development to make progress in the sector.

Small and medium enterprises play a significant role in strengthening the economies of all countries. For example, 30 percent of all US exports come from SMEs and are valued at $435 billion a year. About 39 percent of American scientists, engineers, IT experts and technicians work for strengthening the country’s SMEs.

Small and medium enterprises in the East and West represents an added value to their countries as they contribute to developing their economies and ensuring progress and prosperity of their sons and daughters. As long as we ignore the productivity aspect of SMEs we will not be able to achieve any remarkable breakthrough in this vital sector.

If we do not target an increase in the volume of exports and a reduction in imports, it means we help other countries to create more job opportunities at the expense of Saudi jobseekers.

On the other hand, giving less importance to manufacturing of goods and services locally means avoiding in-depth research to develop solutions. We should discourage the private sector from importing readymade goods and services at the expense of the Kingdom’s industrial development and jobs.