SMEs in Saudi Arabia

Saudi Arabia’s business ecosystem has become more conducive to SMEs thanks to the streamlining of finance, leading to a multi-fold rise in the number of SMEs in 2022.

The proliferation of  SMEs is often a positive omen for any economy. As SMEs tend to engage in genuine business activities and are often locally managed, they can distance an economy from monopoly and centralization. Saudi Arabia has seen a growth in the number of SMEs in 2022, thanks to the Kingdom’s Vision 2030, which encourages the expansion of SMEs. Well over 90% of the companies registered in Saudi Arabia as of 2022 can be categorized as SMEs.

There is no universal consensus about the definition of an SME, but they are loosely defined as companies with up to 250 staff members and an annual revenue of under USD50 million. SMEs are most common in prosperous developing economies, where they organically emerge to fill the niches in the supply chains of various sectors. SMEs can also be particularly beneficial to Saudi Arabia’s business climate, as they are an excellent remedy for single-product economies. SMEs rarely cluster in a single sector.

Saudi Arabia’s decision-makers have been calling for diversification for years, which has been met with limited success. Saudi SMEs, however, seem to be perfectly diversified already. Statistics show that no single industry dominates the SME scene in the country.

The retail industry is ahead of others, with some 14% of the SMEs in the Kingdom operating in the retail market. This is followed by construction (13%) and food and beverage (10%), among many others. These low percentages indicate a highly diversified economic landscape, without any significant reliance on oil and gas. The more SMEs are established in Saudi Arabia, the closer the Kingdom will be to achieving true economic diversification.

The rise of SMEs in the Kingdom can be partially explained by the increasing popularity of entrepreneurship. Saudi Arabians have come to regard entrepreneurship as an honorable pursuit in recent years. Looking up to Arab and international entrepreneurs who have made a difference in the world, the youth are interested to turn their business visions into reality.

Young middle-class Saudis are less likely these days to apply for positions in the public sector or even huge private corporations. They are instead more interested in founding or co-founding new enterprises from scratch. As most young businesses are—almost by definition—SMEs, the Kingdom is witnessing a golden age of small businesses.

Such companies are increasingly financed with the help of fintech solutions, which are high in popularity across the GCC region right now. The diversity of finance options, however, is growing further. Amer Siddiki, CEO of THEMAR, told TBY his fintech company offers finance to micro enterprises in those segments of the economy that are usually un-financed.

The most well-known fintech service provider in the country is Funding Gate (locally known as Tamweel). It offers a semi-automated platform that speeds up the lending process for SMEs approved by the General Authority for Small and Medium Enterprises (Monshaat). As of 2021, some 2,770 enterprises had arranged their financing through Tamweel. The funding platform has reduced the companies’ waiting time for borrowing from around 90 days to a week.

Data released by the government shows that Saudi SMEs applied for finance at an unprecedented rate in 2020-2022. Monshaat reported a nine-fold year-on-year jump in the number of applications for finance approved by Tamweel in 2021, a clear indicator of the SME scene’s vibrancy.

Venture capital is also available in the Kingdom, offered by a long-established Saudi giant that is extending a helping hand to small businesses. Saudi Aramco, as one of the world’s most valuable listed companies, is running an entrepreneurship center called Wa’ed Ventures to empower SMEs. Wa’ed is an all-rounder venture capitalist that seeks to contribute to the organic growth of the business ecosystem in Saudi Arabia.

To make financing even more easy to access, Monshaat recently signed an MoU with two fellow government entities to support SMEs specializing in non-oil exports—namely the absolute majority of them. The entities include the Saudi Export and Import Bank and the Islamic Trade Finance Corporation. The MoU is intended to facilitate “finance, training, consultancy, and capacity‑building initiatives,” according to a joint statement.

The government of Saudi Arabia, too, has adopted a supportive stance, letting SMEs grow by relaxing certain regulations for the registration of businesses. Among other things, SMEs were exempted from paying registration fees for three years in 2022. Given that finance is already widely available to aspiring entrepreneurs, the ease of registration is likely to pave the way for a wave of Saudi SMEs in the short term.