The regulator takes a new approach to encourage listings from SMEs

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The capital markets sector is expected to play a key role in the government’s ongoing push to encourage the development of small and medium-sized enterprises (SMEs). A focus of the government’s plans since the mid-2000s, SMEs are seen as integral to Oman’s future for a variety of reasons. They drive private sector growth, much of it in the non-oil economy, and create jobs along the way. Indeed, the effect of SMEs can be seen across other sectors. “Government spending and the increasing focus on SMEs is driving growth in the leasing segment,” Shahin Mohammed Al Balushi, CEO of Oman ORIX Leasing Company, told OBG. “The demand for capital is high, and capital markets offer an affordable, easy-to-access vehicle to deliver funds.”

In early 2014 the Capital Market Authority (CMA) announced that it was working to attract more SME participation in Oman’s capital markets, with plans to introduce a range of incentives for small firms to list or participate in other ways. “SMEs are an incredibly important component of strong economies around the world,” John Spencer, head of strategy and business development at the CMA, told OBG. “It is still early days for SME development here in Oman, but plans are under way. We expect SMEs to play an integral role in the future of capital markets here, and vice versa.” Though the authority has continued to investigate the issue, working alongside the Ministry of Commerce and Industry and the Public Authority for SME Development, as of late 2014 few details had been announced.

Support 

However, the CMA is clear that capital market plans for SMEs will not concentrate on trading SME shares, as the CMA is more concerned with creating business benefits for SMEs and the economy at large. To that end, the authority has carried out substantial research on SME involvement in foreign capital markets, including studies of London’s Alternative Investment Market and Taiwan’s GreTai Securities Market, among others. The CMA sees the mark of a thriving SME market as the strengthening of SMEs through the provision of financing, valuations, improved credibility with business counterparts, improved business opportunities with customers and strong corporate governance practices, in addition to giving investors and other market participants exposure to new, potentially high-growth companies. “To join a strong capital market an SME has to be vetted, which means that it becomes a known entity in many ways,” said Spencer. “This formalisation process has all kinds of positive implications for most SMEs, in the areas of raising capital, attracting high-quality employees and competing for contracts.”

Early Stages 

With the CMA expected to roll out a comprehensive SME strategy in 2015, some challenges remain. For one, SMEs have yet to be clearly defined.

Firms with 250 employees or less are generally considered SMEs; however, this definition is problematic, as it encompasses a huge number and wide range of firms in Oman, from micro-enterprises to publicly listed companies. Reliable long-term data is also hard to come by, posing problems for long-term planning in the segment. Lastly, it is challenging to bring SMEs to capital markets. “You cannot charge them listing fees or they simply will not list,” Spencer explained. “You have to make it worth their while, both in terms of upside financing potential and other benefits, such as valuation, improved business opportunities and logistical support.”

For its part, the CMA aims “ to support the development of SMEs across a wide range of growth enablers, to provide fair and attractive returns to investors and market participants and to provide clients and supporters of SMEs with better access to information on the opportunities of doing business with SMEs”.

With the government’s broader development push and growing SME demand for financing and other services, market observers expect greater SME participation in coming years. “There is certainly a lot of demand for new investment products here at the moment,”

Spencer told OBG. “The SME segment stands to be a major beneficiary of this excess liquidity. This activity, in turn, should boost economic growth and employment throughout Oman for the foreseeable future.”

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The Report: Oman 2015

Capital Markets chapter from The Report: Oman 2015

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