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SAUDI LAYS GROUNDWORK FOR SMES’ SUSTAINABLE FUTURE
Benefiting from robust public backing, substantial venture capital investments, and sustained private sector engagement, Saudi Arabia witnessed a significant expansion in its small and medium-sized enterprises (SMEs), reaching nearly 1.27 million in the third quarter of 2023, according to Monsha’at, the Small and Medium Enterprises General Authority
Riyadh served as a vibrant hub, accommodating 43.3% of these SMEs and driving the surge in entrepreneurial activities. With a remarkable quarterly growth of 3.5% in Q3 2023, SMEs contributed to the kingdom's non-oil economy, which expanded by 3.6% year on year in the same quarter. These entrepreneurial strides underscore the tangible outcomes of the country’s ambitious diversification agenda.
Monsha’at saw more than 100,000 SMEs availing themselves of various upskilling, training, empowerment, funding, franchise, or expansion programmes and platforms in the third quarter, according to latest available data. In addition, over 67,000 trainees have enrolled in Monsha’at Academy and other related platforms during the quarter.
Private sector credit facilities extended to SMEs surged by 18.8% year on year, escalating from USD 58.9 billion in Q2 2022 to USD 70 billion in Q2 2023, according to Monsha’at.
“This notable increase underscores the growing confidence of the financial sector in the country's SME landscape. Among SMEs, medium-sized enterprises with 50-249 employees emerged as the primary recipients, securing 59.3% of total lending in Q2 2023.”
All told, there were 1.27 million SMEs in the kingdom by the end of the third quarter, a rise of 3.5% from the second quarter of 2023. Of these, 1.1 million were micro-sized companies, around 151,000 small-sized companies, and more than 18,000 medium-sized companies.
PRIVATE FUNDING
SME financing by banks grew 19.3% in the third quarter compared to the second quarter, with medium sized businesses securing USD 39.8 billion, small businesses receiving USD 20.2 billion, and microbusinesses attracting USD 5.4 billion.
Meanwhile SME financing provided by financial companies rose 12.5% during the period to USD 4.6 billion, with small businesses securing USD 2.2 billion, medium businesses getting USD 1.7 billion, and the rest by micro companies.
During Q3 2023, Saudi Arabia's venture capital sector experienced a resurgence, witnessing a substantial investment of USD 87 million, nearly tripling the funding compared to Q2. Deal activity also saw an uptick, rising from 19 to 22 deals over the quarter.
Despite a year-on-year decline in both funding and deals, Saudi Arabia outperformed the broader MENA region, which experienced a year-on-year decline of over 40%, according to Magnitt, which tracks venture capital activity in the region.
“In the first nine months of 2023, the kingdom topped the funding leaderboard in the region, attracting investment of USD 536 million, largely partially driven by the Halan and Floward mega deals in Q1. The largest deal closed in Q3 was for retail inventory platform management firm Rewaa, at USD 27 million,” according to Magnitt.
There had also been significant government-led developments to improve business regulations , as well as notable fund announcements from key players like the PIF-powered JADA Fund of Funds, King Abdullah University of Science and Technology (KAUST), and Saudi Venture Capital (SVC).
MANUFACTURING FOCUS
SMEs also have an important role to play in advancing the kingdom’s manufacturing sector through the National Industrial Development and Logistics Program (NIDLP), a cornerstone of the Vision 2030 agenda aimed at expanding energy, mining, logistics, and industry sectors. In 2021, NIDLP launched the Made in Saudi programme to bolster local manufacturing, particularly for SMEs.
The kingdom had 11,110 operational factories by mid-2023, a year-on-year increase of 3.8%.
To bolster the local manufacturing landscape, Saudi Arabia has forged agreements with global industrial leaders in areas such as electric vehicles (EVs), petrochemicals, defence equipment, mining assets, carbon-negative concrete, and renewable energy. These initiatives signal promising opportunities for SMEs to tap into emerging markets.
As the manufacturing sector matures, the kingdom is actively nurturing SME growth within the industry. This is facilitated by the strategic objectives outlined in the National Industrial Strategy (NIS), which include the adoption of Fourth Industrial Revolution (4IR) technologies, increased access to finance for industrial SMEs, development of new infrastructure, and robust supply chains.
The NIS, launched in 2022 by the Ministry of Industry and Mineral Resources, aims to catalyse investment in 12 industrial sub-sectors and advanced manufacturing, with the target of doubling industrial exports and tripling industrial output by 2030. Spearheaded by the Supreme Council of Industry, the NIS seeks to establish an integrated governance model supportive of the kingdom's industrial localisation efforts.
Under the NIS framework, Saudi Arabia is expanding its industrial business base and fostering local production by fostering an entrepreneurial ethos and implementing financing programmes tailored to meet the operational requirements of industrial start-ups and SMEs. These initiatives are designed to elevate SME participation within the sector, propelling Saudi Arabia closer to its industrial development goals.
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