Saudi Arabian small-and-medium-sized enterprises (SMEs) have increasingly been on the government’s radar for their economic potential, who has helped by pumping funds to drive their growth and thus lay the foundation for a post-oil economy. The coronavirus pandemic, however, has put the brakes on this initiative.
The Saudi Arabian Monetary Authority (SAMA) has not failed to recognise the economic vulnerability of SMEs caused by the virus, laying out a generous stimulus package amounting to over SR70 billion ($18.5 billion) to support the private sector. The package will certainly contribute to helping SMEs stay afloat during the crisis - the question is, will they be in a position to hit the ground running as “agents of economic growth” when the stimulus has run its course?
If additional measures are not introduced by the government to specifically target SMEs for their economic potential, the kingdom may take longer than expected to recover from the economic blow of a slump in oil prices and the long-term consequences of the coronavirus.
Central to a future turnaround
The government’s targeting of SMEs in their stimulus package is without doubt a sound decision - recovery is directly contingent on the growth of SMEs. According to the Ministry of Labour and Social Development, SMEs constitute the backbone of the Saudi workforce, accounting for almost 90 per cent of all business enterprises. The government has swept in to their aid in a time of unprecedented change, and its quick response has laid the first steps for an eventual recovery.
But what lies ahead? The problem, of course, is that it is impossible to assess the full effect of the stimulus package for the private sector when the crisis is still sweeping through the economy. While SMEs will continue functioning at the base economic level needed for their survival, what awaits them is a precarious future.
Prioritise the help
The entire private sector cannot be treated with the same cure - particular attention must be paid to enterprises that established solid business models prior to the coronavirus. These businesses - often micro enterprises driven by entrepreneurs - are capable of supporting the local economy in the long-term. Entrepreneur-led SMEs hold the promise of creating more jobs to combat unemployment caused by the pandemic, and developing a skilled local workforce.
Supporting businesses with agile operating models will be the name of the game, and it is precisely these businesses that future stimulus packages should target. The government has already taken initial steps to recognise their importance, announcing SR2 billion ($533 million) to support 6,000 entrepreneurs belonging to micro- and small enterprises.
While this is a commendable start, a young population and their promise of providing the kingdom with an innovative talent pool suggests that nurturing entrepreneurship will require more than the initial stimulus packages.
A workable exit strategy
The slump in oil prices is not a first for Saudi Arabia - yet the volatility of the market has become glaringly apparent during the pandemic. Now more than ever SMEs need to be protected, as they are the exit strategy from the country’s dependency on oil.
The lack of demand for crude oil will naturally impact the kingdoms’ expenditure budget, yet all efforts must be taken by the government to ensure this does not take a toll on future stimulus for SMEs. Current stimulus of SMEs during the pandemic should not substitute the funding allotted to SMEs prior to the pandemic - economic recovery depends on resumed growth rather than simply getting by.
As it is, Saudi SMEs contribute approximately 20 per cent to GDP in comparison to 53 per cent in the UAE and an average of 45 per cent elsewhere. Although Saudi Arabia has already recognised the importance of SMEs, the oil crisis and pandemic is now showing their worth.
- Abdullah Faisal Alothman is with AO Holdings. He is also co-Chairman of Geidea Financial Tech.