Abdullah Alnabhan, Palladium Regional Director, Middle East
In the countries of the Gulf Cooperation Council, or GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE), small and medium-sized enterprises (SMEs) make up about 90% of all businesses. But they contribute as little as 20-30% of their countries’ GDPs. Some of the over 1.5 million SMEs in the region have grown to become the large family holding groups at the core of their respective economies, but many more struggle to grow and scale.
Around the world, we’ve seen how a thriving small business sector creates new economic opportunities, opens up jobs and boosts employment, and in doing so bolsters national economies. GCC economies have set ambitious diversification targets. Saudi Arabia recently announced a US$51 billion program called ‘Shareek’ Diversification Plan as part of efforts to diversify the economy away from oil to create more than 64,000 jobs by 2030.
And in the UAE, we have seen structural reforms that include introduction of VAT and residencies that aim at diversifying the economy further. Central to those efforts will be developing a vibrant SME sector.
How can we boost SME growth and help these businesses reach their full potential? The key is to provide them with tools across each phase of maturity using a balanced approach between financial incentives and technical assistance. It’s simpler than it sounds.
What Needs to Be Done
Traditionally, financial incentives such as capital allocation and funding have been the go-to intervention form for small businesses. But increasingly, policy makers are turning to a holistic approach that considers enabling conditions and core capabilities to develop a thriving SME environment. A few key areas stand out, including policy, skills, technology, and success stories.
The development of any sector starts with the right mix of legislation and policy. There are many examples of developing and developed countries that prioritise local SMEs, whether in local or export markets or as government suppliers contributing directly to their growth, while at the same time maintaining a competitive market.
Having a clear vision of the priority development sectors will help focus policy and incentives in a way that helps to create value-adding SMEs.
Since the launch of Vision 2030 in KSA, Saudi SMEs have more than doubled. This was largely driven by policy reforms that include legislature and regulations, automation and facilitation of business procedures, improvement of the business sector, supporting increased female participation in the economy, and new financing products to allow SMEs access to the funding necessary to support their growth.
Skills and Capabilities
The development of people’s capabilities is at the core of the SME development agenda. Education systems must create pathways for employment in SMEs and develop relevant skills such as entrepreneurship, digital, and technical capabilities. Building the right partnerships to enable this includes bringing together academia and industry leaders to create commercially and technically focused programs.
Recently, Dubai SME, the agency of Dubai Economy mandated to develop small businesses, launched Dubai Entrepreneurship Academy. The Academy has charted out a series of programs aimed to impart education and training on innovation and positioning start-ups for sustainable growth. Such approaches will help focus efforts on identifying entrepreneurial talent and promoting entrepreneurship as a career alternative in younger generations.
Technology and Digital Focus
SMEs are the bedrock of the future economy. It is essential that what they do today has the future in mind, which means that a digital-first mindset is needed.
There are plenty of tools available today that can be easily leveraged to optimise costs, efficiencies, and add value to customers. Technology has made it easier to operate a business and build products, but we need to make sure we have the right skill sets to utilise it. This is also important as customer expectations and demands are rapidly changing and business that do not cater to that will have limited growth opportunities.
Already we’ve seen how consumer demand and the transition to online shopping has created promising investment opportunities for small businesses in the Saudi retail sector and trends indicate a clear shift to social media utilisation by SMEs to support growth,
Acceleration of Success Stories
Policy makers need to put in place mechanisms to identify and scale high potential SMEs. We see this model in the private sector with venture capital funds and tech accelerators, but it can also be replicated in high priority growth sectors to help scale SMEs.
By allocating seed capital and funds to high potential SMEs and investing in support with the right policies, and strategic and commercially focused support to expand market share, policy makers will create success stories with a compounding effect on small businesses.
In that vein, the UAE has prioritised the AgTech sector and launched a Dh1 billion-program to support the establishment of agricultural technology companies. The initiative is part of an accelerator program to establish the UAE's capital as a global centre for agricultural innovation in desert environments.
The Path Ahead
The future of the region depends on our filling in the gaps in critical value chains (from renewable energy to agriculture) and going beyond the traditional industries of the region that may not necessarily have the capability to add value, compete, and scale.
We learned in real time the challenge of not having localised strategic value chains during the height of the COVID-19 pandemic, and the time has never been better to build new businesses and entrepreneurs. This is a critical inflection point where our SMEs can step in and fill those gaps, especially at a time where governments are allocating significant resources to diversification and investment.
There are vast opportunities in the GCC for small businesses to harness their potential, meet growing needs, support sustainability efforts, and further contribute to national GDPs. It won’t happen overnight, but with the right environment, assistance, and guard rails in place, the future of SMEs is bright.
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