The contribution small and medium-sized enterprises, including architecture and interior design firms, make to Saudi Arabia’s economy could be improved with reforms to bank loans and the business environment, a new report claims.
The International Monetary Fund said economic reforms in Saudi Arabia were starting to yield positive results, paving the way for non-oil growth and job creation.
Real non-oil growth could rise to 2.9% this year. But to capitalise on this and unlock economic potential to support Saudi Arabia’s Vision 2030 strategy, the IMF said the kingdom should improve the financial landscape for small and medium-sized enterprises (SMEs).
This includes architecture and interior design practices, both local and international. And it comes with the likes of Broadway Interiors and U+A strengthening their market presence in the Gulf's biggest economy.
The share of bank loans Saudi SMEs receive is currently at around 5%. While it is not clear if this is due to low supply or demand, greater access to credit information and improvements to the business improvement and underpinning legal framework could help SMEs get that need financial support get it, the report said.
There is a compelling case to provider greater support for SMEs in the kingdom.
They account for approximately 97% of businesses, but contribute only 22% to gross domestic product (GDP). This is slightly below the average in the Arab World, with Bahrain, UAE, Lebanon and Jordan ahead.
It is also significantly below the average in the European Union, with SMEs accounting for up to 55% of GDP. Saudi Arabia is ahead of Kuwait and Oman, though.
The size of the sector suggests the promotion of entrepreneurship could yield economic results and the IMF suggests younger firms, as opposed to smaller ones, may be the main driver of “economic dynamism”.
So what action is Saudi Arabia taking?
The Small and Medium Enterprises Authority has launched four initiatives in recent years. This includes a reimbursement of government taxes and fees for three years for businesses registered between 2016 and 2021, and a venture capital fund worth $746m (SAR2.8bn) targeting start-ups.
SMEA is also reviewing regulations to remove barriers that improve the idea of doing business. A new public procurement law will also include preferences for SMEs.
The IMF report concluded that reforms to the business landscape should put in place an institutional framework to support SME financing.
It made the same recommendation in 2018 and Saudi Arabia responded, with an increase in bank lending to SMEs.