Saudi small businesses to regain strength post COVID-19 on government support: analysts
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The small and medium enterprises (SME) segment in Saudi Arabia is expected to make a comeback as a new set of entrepreneurs test the market following the COVID-19 disruption, with the Kingdom stepping up efforts to boost opportunities for the sector.
“Saudi Arabia has announced a number of fiscal and financial measures to support SMEs, such as direct and indirect lending schemes and loan guarantees,” Jean Claus, CEO Middle East at Euler Hermes, told Argaam.
The success of such support, however, largely depends on its size, he added.
Under Saudi Arabia’s Vision 2030 roadmap, the Kingdom plans to raise the contribution of SMEs from the current 20% of GDP to 35% by facilitating their access to funding and encouraging financial institutions to allocate up to 20% of overall loans to them.
Earlier this week, Saudi Minister of Investment Khalid Al-Falih on the sidelines of G20 Trade and Investment Ministers meeting said SMEs hold the lion’s share in the initiatives launched in Saudi Arabia.
He added that such enterprises were the hardest hit by COVID-19 outbreak due to their weak financial structure and fragile nature.
“We expect the next few years to be challenging, yet provide a great opportunity for the transformation and growth of the SME sector overall,” Mazen Pharaon, partner-consulting at Deloitte Middle East, told Argaam.
“In time, we expect the sector to reach a tipping point where SME businesses, whether start-ups or well-established, will benefit dramatically from a business-friendly ecosystem and levelled playing field,” he said.
‘Crisis is not over’
“Counter measures in the form of economic easing programs launched by the government have provided a relief to the sector yet the crises is not over,” Pharaon said.
The Saudi government has fiscal constraints as low oil prices for longer will curb its revenues and it may not be willing to withdraw excessively from the sovereign wealth funds, according to Claus.
Hence, the financial support for the SMEs, which were already battling weak financials before the COVID-19 crisis, will be limited.
Moreover, Claus said, the Saudi government has increased its share of activity in the non-oil sector -- where most of the SMEs are active -- from 29% in 2014 to 33% in 2019, crowding out the private sector investment to some extent.
“We expect this unfavorable trend for SMEs to continue and perhaps to intensify in the wake of COVID-19,” he added.
In the Gulf Cooperation Council (GCC) region, commercial registrations have seen triple-digit increases in recent months with tender boards awarding tens of millions of dollars in contracts to these enterprises, Bahrain Economic Development Board (EDB) said in a recent report.
In United Arab Emirates, as of last year, the Ministry of Economy estimated that the SME sector represents more than 98% of the total companies operating in the country and the sector contributes towards 52% of non-oil GDP – a figure the ministry wants to increase to 60% by 2021.
Meanwhile, in August, the Bahrain Tender Board announced that it had awarded 47 public tenders worth $21.8 million to SMEs in H1 2020.