Decypha- Riyadh: Entrepreneurship is, for many countries, a driving force of innovation, productivity, and plays an active role in the country’s economic growth. In the Kingdom of Saudi Arabia, entrepreneurship is fundamental in weaning off the country’s dependence on oil and diversifying its income. The global crude oil price glut and the consequent austerity measures have made diversification of the government’s revenue a necessity, now more than ever.
Ranked the 94th in the World Bank Index of business-friendly economies, the Kingdom has two indicators hindering its growth: ease to starting a business and trading across borders, according to Forbes Middle East. In Saudi Arabia, small and medium-sized enterprises (SMEs) account for 20% of the country’s GDP while in many advanced economies, SME’s can account up to 70% of the nation’s GDP.
2030 Saudi Vision: Opportunities
Fostering the development of the entrepreneurship sector is a key pillar of Saudi Arabia’s 2030 Vision. As one of its ambitious economic diversification target, Saudi Arabia plans to increase the S”MEs contribution to GDP from 20 percent to 35%. The country, according to its 2030 Vision, will strive to create suitable job opportunities for our citizens by supporting SME entrepreneurship, privatization and investments in new industries”.
In lieu of these targets, The Kingdom has established the SME authority and has pledged to reform regulations and simplify access to funding and international partnerships. Through the newly established SME authority, the government plans to review laws and regulations and remove obstacles to starting up a business. In addition, the government pledged to facilitate access to funding as well as encourage financial institutions to allocate up to 20 percent of overall funding to SMEs by 2030, according to Saudi’s 2030 Vision.
Challenges
The latest figures from the World Bank are an indicator of how challenging the startup climate is in Saudi Arabia. Over the past few years, there have been many changes on the ground to improve the business environment in the Kingdom. While entry barriers to large foreign investors have been effectively addressed, small businesses and startups still find it painful to open a business in the Kingdom. Starting a new business can, unfortunately, be unnecessarily slow and involve many complex legal and administrative procedures.
Securing financing remains one of the biggest hurdles for Saudi start-ups. Entrepreneurs often lack the necessary skills and capabilities to secure funding with financial institutions. Prospective business owners that are able to secure funding from financial institutions can only acquire 5 percent from the overall funding – much lower than the global average. Local financial system lack incentives for banks to support start-ups, according to Forbes Middle East. Reforms to credit regulation and providing stimuli to public and private sector companies to work with entrepreneurs can help boost the startup sector in the nation.
Some of the complaints cited by banks and business angels are that entrepreneurs are unprepared when pitching their ideas and they lack the necessary skills to for their ideas to see the light of day. Incubators, similar to the government’s BADIR program, can effectively address some of these complaints.
Another major obstacle for the startup sector is crude oil prices. Crude oil prices have further declined by 15 percent this year to reach $48 per barrel, much lower than what’s needed for the government to balance its budget, according to Bloomberg. Heavily reliant on oil, about 87 percent of the government’s revenues come from the petroleum sector. And as government revenues plummet, initiatives and government funding will also plummet, affecting all sectors and industries, including SMEs.
Women and Entrepreneurship
The entrepreneurial ecosystem for women, while not fully developed in the Kingdom, does, in fact, exist in the patriarchal nation. Women who wish to start up their own business face a multitude of challenges, whether societal or institutional. Despite the challenging atmosphere and barriers, the Kingdom favours entrepreneurship for women as a good career choice for women, according to the 2010 Global Entrepreneurship Monitor (GEM), Women's Report.
The number of female entrepreneurs in the conservative nation is on the rise. Data records from the Ministry of Commerce and Industry revealed that by the end of 2014, the total number of women’s commercial establishments reached 100,572, representing 9.5% of all establishments in the country, according to Arab News.
The entrepreneurial scene in Saudi has tremendous potential for growth. Are there challenges? Definitely. Yet the time for starting a business is now. With the government envisions moulding a country with a diversified economic portfolio and Saudi’s 2030 Vision, the entrepreneurial scene will see a shift towards the better in the upcoming years.
Potential for Growth
Entrepreneurship is slowly gaining traction in the Kingdom. There are multiple government bred initiatives on the ground to nourish and develop small and medium enterprises.
Universities in Saudi Arabia are recognizing the potential of youth’s entrepreneurial spirit. King Abdullah University of Science and Technology (KAUST) focuses on innovation and startups. Just this past year, the Saudi British Bank (SABB) launched the KAUST-SABB University Entrepreneur Accelerator, TAQADAM, which is an intensive six-month program that will provide 20-30 startup teams with support from KAUST Entrepreneurship Center as well as grant funding to kickstart small businesses. King Khalid University is also providing entrepreneurship classes.
Programs supporting entrepreneurship are under consideration and being planned by the Ministry of Education in schools – all in an effort to galvanize and encourage today’s children to be business owners in the future.
In a similar vein, public and private sectors are starting to work with and support entrepreneurs. Angel Investor Network (Sibr), Oqal and the Wa’ed Entrepreneurship Center of Saudi’s Aramco are well-known examples of the trend in supporting start-ups.
Incubators in Saudi Arabia provide a beacon of hope for future and young entrepreneurs. Take the Badir program. Launched in 2008, Badir is a government supported program that, to date, has incubated 127 technical projects through its five incubators – generating a market value of SAR 331 million (USD 88.26 million) for 34 projects, according to Arab News. A total of 786 jobs for young Saudis have been created as a result. Following the success of the program, new incubators will be opened in the cities of Abha, Buraida, Dammam, and other cities around the Kingdom.
By Heba Eid
