Monday 20, November 2017 by Jessica Combes

Saudi supports its SMEs

 

Saudi Arabia’s Public Investment Fund is focusing on helping small businesses in the Kingdom to thrive.

Saudi Arabia’s Public Investment Fund (PIF) announced the creation of a $1.07 billion “fund of funds” to support the growth of small and medium-sized enterprises (SMEs). According to a statement  the fund is designed to boost SMEs’ access to capital by investing in venture capital and private equity funds.

The mandate taken on by PIF is quite significant with a long-term view. Funds such as these are all elements in the overall equation required to stimulate sectors of the economy, especially the SME sector, according to Omer Saleem, Chief Financial Officer at Saudi-based business support agency, Proven SA. “It is our belief that liquidity within SME sector will boost investor confidence and subsequent investment. However, given the current inflated asset and commodity prices it will be critical to monitor closely the dissemination of funds and their effective value creation in targeted areas critical to the growth and health of the Saudi economy keeping in view the long-term vision of PIF mandate.”

Investments are expected to create around 2,600 jobs and contribute SAR 400 million to the GDP by the end of 2020. Those figures are expected to rise to 58,000 jobs and 8.6 billion riyals to GDP by the end of 2027.

The fund is one of a number of commitments which the PIF is taking on under economic reforms designed to reduce Saudi Arabia’s dependence on oil exports. Saudi officials aim to use the proceeds from the sale of some five per cent of state oil giant Aramco, which they expect to fetch $100 billion for the PIF, to stimulate the domestic non-oil private sector and expand the fund’s global investments. Crown Prince Mohammed bin Salman, who is also chairman of the PIF, has said that 50 to 70 per cent of the fund’s cash would be invested domestically, according to media reports.

More important than the large amount of monies being made available is the signalling to the marketplace that Saudi Arabia desires entrepreneurs to realise their ambitions, said David Daly, Partner at accountancy firm Argent Gulf Consulting.

“Economic history teaches us that Government-driven preferential sector development will ultimately deliver sub-optimal results. This is due to pet sector coddling that pays lip service to market demand. Should the Saudi Government use this welcome announcement to kick start a plethora of larger supporting and complementary private funds, the possibilities are immense. By establishing a rigorous baseline in legal and regulatory governance, as indicated in the Government’s Public Investment Fund Program (2018-2020), it could provide the confidence to unleash an era of SME-led innovation,” said Daly.

The growth of the SME sector in KSA is central to achieving the Saudi Vision 2030 for the future generations, said Nawaf Al Sahhaf, Chief Executive Officer of Saudi-based tech incubator the Badir Programme. “Venture capital is one of the necessary mechanisms to support SMEs, and the fund will assist in developing venture capital establishments. The fund is also an indication that the Government is interested in this important sector and its role in implementing Saudi Vision 2030, by increasing its contribution to the GDP from 20 to 35 per cent.”

He added that the new fund will play an important role in providing funding opportunities and open new channels to provide the necessary financial support for technical small and medium enterprises (SMEs) projects.

Since Saudi’s economic reform plans were introduced last year, the PIF has announced a considerable line-up of investments, including $45 billion in a SoftBank technology fund and $20 billion in a Blackstone private equity fund that focuses on US infrastructure. Plans were also announced toredevelop Jeddah’s waterfront corniche as well as develop new projects in Mecca and Medina.

 

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