Experts call for new legal framework to protect SMEs

Although young unemployed Saudis find small and medium enterprises (SMEs) an important sector for seeking employment or venturing into entrepreneurship, some experts don't give credence to it as vital to the national economy. They however underscore that laws related to the sector should be modified to suit the modern economic trends. They attribute the weaknesses SMEs to factors including lack of official support for their promotion, lack of authority for their protection and absence of support from big companies. Statistics show that Saudi SMEs contribute about 14 percent of total industrial production and utilize about 35 percent of the energy consumption of industry. Nabil Al-Noor, CEO of EC Holding, told Arab News that SMEs sector is devoid of adequate funds and lacks enough governmental support. "Problems facing SMEs in Saudi Arabia are many, the major one being availability of adequate funds. Those involved in this sector are usually short of paid-up capital. They thus become vulnerable to instability in the highly competitive market. Even those with innovative and creative ideas are not encouraged by large companies fearing risks of supporting such SMEs," he said. "Unfortunately, according to the Kingdom's law only companies having more than SR 4 million can participate in government tenders. So SMEs with less than SR 4 million capital have no place in undertaking major economic projects," he added. According to Al-Noor, big companies like Saudi Aramco, Saudi Basic Industries Corporation (SABIC), Saudi Telecom Company (STC) and Mobily don't prefer to fund SMEs that are less than three years old. "In general our leading businessmen and traders do not want to take any chances or risks, so they fund new or startups, but only the SMEs that have a good track record in the market," he added. "SMEs operate on small budgets and so they are forced to work in retail sector. This sector is very tough and only big investors always win. However, I believe that we should have a strong SME sector in order to have a strong middle class society," Al-Noor said and suggested new measures for establishing SMEs. "One of them is introduction and adoption of new technologies. Major corporate houses can contribute to the sector a great deal by funding SMEs that want to innovative ideas and facilitating their implementation," he added. Hosam Al-Qurashi, director of business development and co-founder of Smart Business Solutions, said SMEs contribute 20 percent to the Kingdom's GDP and offers careers to 40 percent of Saudis. "In spite of the SMEs sector playing a vital role in offering job opportunities for Saudis, it continues to face challenges in terms of competition posed by the corporate giants," he said. According to Al-Qurashi, profits of the SMEs get eroded through subcontracting from their larger counterparts across the Kingdom. "Official agencies can do a lot to promote and protect SMEs by seeking to update the 1972-old laws and allocating 10 percent of government projects to the sector," he said. A study published in October 2002 confirmed that 90 percent of total enterprises in the Kingdom lacked funds, skilled human resources, management skills and modern technology. Bander Al-Mutlag, founder and CEO at N-Tech Media, said: "SME owners are not able to face the competition posed by large companies who are favored with government projects. Moreover, entrepreneurs face difficulties in processing their documents," he said. He advised ambitious Saudis to get some work experience in the market before venturing into SMEs. "I believe that SMEs generally provide good service to customers as they tend to be more specialized than large companies. The SME sector also lacks management skills. That's why I suggest that young Saudis should learn management skills during their job career and then start their own enterprises," he said. Al-Mutlag also called the youth to think out of the box and come up with more creative ideas. "One innovative idea could help develop a cluster of businesses, boost the economy and offer many job opportunities," he said. From: arabnews