CAIRO: Small and medium enterprises in Saudi Arabia have opened doors and demolished barriers in traditional sectors with proven resilience.

Saudi Arabia’s entrepreneurial ecosystem has played a huge role in the country’s economic growth as startups and SMEs use innovation to open new horizons in traditional sectors.

According to data by Saudi Arabia’s Small and Medium Enterprises General Authority, also known as Monsha’at, SMEs represent 90 percent of all businesses in the Kingdom but still are excluded from major industries.

SME-driven sectors

In an interview with Arab News, Devin Kohli, co-head of London-based venture capital firm Outward VC, said that Saudi SMEs can catalyze growth in existing and new sectors as witnessed in the fintech industry.

“SMEs will be crucial to driving the future growth of the economy and will help the country achieve its current objectives. The government is sponsoring the growth of SMEs to help diversify the economy away from natural resources and I think artificial intelligence and digital technology in particular will be key pillars of Vision 2030,” he added.

He further elaborated that AI, 5G, and data management are extremely important sectors for the Kingdom and are ripe to be driven by entrepreneurial talent and innovation.

“Initiatives like Monsha’at promote a culture of entrepreneurship in the country.

I think if this kind of work is continued, we will see the opening up of funding horizons and the facilitating of more commerce and international cooperation across lots of different sectors. SMEs will be leading this change from the bottom up,” Kohli said.

The number of SMEs in Saudi Arabia reached 892,063 in June 2022 increasing by 25.6 percent from the fourth quarter of 2021.

The number of SMEs in Saudi Arabia reached 892,063 in June 2022 increasing by 25.6 percent from the fourth quarter of 2021, indicating massive growth in the rising startups, Kohli stated.

Huda Al-Lawati, the founder of UAE-based private equity firm Aliph Capital, told Arab News about the SME sectoral contribution in the Kingdom.

She explained that SMEs have seen a 25 percent increase in revenue with traditional manufacturing, wholesale, food and beverage, and retail sectors being largely driven by startups.

“From a scale perspective, wholesale, retail, and auto repairs followed by manufacturing are sizeable contributors in the SME space. From a growth perspective, tech and innovation-driven sectors including entertainment and tourism are seeing a lot of activity and new establishments,” she explained.

The Kingdom witnessed massive growth in startup investments last year increasing by 72 percent compared to 2021 with the fintech sector attracting around 25 percent of all the capital.

“Within the tech startup space, fintech and e-commerce stand out. Fintech has been a particularly important driving force allowing a broad distribution of digital tools across the economy,” Al-Lawati said, adding that Saudi Arabia is ranked 26th globally in terms of e-commerce volumes.

Kohli, on the other hand, reiterated the importance of investment in SMEs and startups giving the example of fintech companies that unleashed new opportunities for employment and innovation driven by talent.

Room for more

SMEs all over the world have led the technology landscape by disrupting the aforementioned sectors to create quality products and services for better-quality living. Traditional sectors that mainly drive economic growth are still unreachable for startups due to entry barriers and giants that dominate the space.

“Any capital-intensive businesses like complex manufacturing, hospitals, schools or hotels requiring high upfront capital expenditure or working capital are difficult for SMEs as are businesses that are highly regulated, require highly specialized technical skills or big ongoing investments in research and development,” Al-Lawati explained.

Moreover, Kohli stated that the energy sector has been the bastion of the old economy in the Kingdom thus indicating more progress needs to be made in diversifying these market areas and opening them up to new technological changes.

“Notable sectors to highlight are oil and gas, which is obviously a key sector in Saudi Arabia,” Al-Lawati added.

She further elaborated: “This tends to be dominated by large companies because, in addition to capital, businesses need to have a high level of compliance with safety and quality standards, be ‘prequalified’ with clients such as Aramco, and invest heavily in technical skills.”

The Kingdom’s economy has been based on natural resources for decades but with the national initiative Vision 2030 and the drive for green energy, the country will start to loosen its restrictions for other players to participate in the sector.

“I think that as Saudi Arabia explores green energy solutions and innovation in energy, SMEs can play a pivotal role in removing the barriers present in these areas of the economy,” Kohli explained as he gave the example of the Kingdom’s financial sector’s development which was driven by startups.

Kohli and Al-Lawati added that sectors like construction, health- care, and defense are also ripe for disruption.

Opening doors

Saudi Arabia has already demonstrated significant support for startups and SMEs and has manifested the importance of economic growth powered by talent.

Monsha’at has announced the return of Saudi Arabia’s largest startup and SME conference Biban 2023 set to take place in Riyadh Front Exhibition and Conference Center from March 9-13.

This year’s event will host its largest audience ever with more than 350 speakers and 105,000 attendees under the theme “Attract-Connect-Achieve.”

“On the backdrop of the success SMEs have seen in 2022 in the Kingdom, expectations are that Biban 2023 will be well attended. I expect a lot of activity, networking opportunities, meeting interesting businesses, and hearing from experts. I think people would also expect the announcement of policies and initiatives that support SMEs,” Al-Lawati stated.

“Biban is an opportunity for the country to demonstrate its potential to become a leader in tech and SME growth in the region. For countries with nascent tech industries to flourish, it is important to demonstrate the potential for local entrepreneurship and innovation. I expect Biban 2023 to shine a spotlight on the talent present in the country’s SME sector,” Kohli concluded.