The role of SMEs is being re-evaluated in the light of Vision 2030, which has made boosting their contribution to GDP a key part of its strategy to create opportunities in a thriving economy. A new government agency, the SME Authority (SMEA), was created in October 2015 to champion small businesses. SMEA notes that while in many advanced economies SMEs contribute 70% of GDP, the Kingdom’s smaller firms generate 20%. Many small businesses in Saudi Arabia are hampered by complex regulatory procedures, weak capacity and poor access to commercial finance. According to the IMF, SMEs receive 5% of credit and 2% of bank loans; SMEA aims to increase the latter figure to 20% by 2030.


In addition to the GDP contribution made by exports, SMEA sees the development of small businesses as an opportunity to address Saudi unemployment, particularly among young people and those living in regions with the highest unemployment rates. In Saudi Arabia, SMEs are defined as businesses that employ 249 or fewer staff and have less than SR200m ($53.3m) in annual revenue. According to data from the General Authority for Statistics (GaStat), in the second quarter of 2018, of the 4.5m people working in the private sector, 2.6m worked for SMEs and 1.9m worked in companies with over 250 employees. Of this total, 32% were working for micro-enterprises, employing five people or less; 26% worked for small companies, with between six and 49 people; 14% were employed by medium-sized companies, with between 50 and 249 staff; and the remaining 28% worked for large companies, with over 250 employees.


In the second quarter of 2018 combined revenues of micro-enterprises decreased by 3.8% compared to the same period of 2017 to SR175.3m ($46.7m), while small companies had combined revenue of SR166.8m ($44.5m), up 5.8% on the same period the year before. Medium-sized businesses saw the most significant growth, recording a 9.7% increase from the second quarter of 2017 and revenue of SR115m ($30.7m). Meanwhile, large businesses posted SR419.7m ($111.9m), up 18.6% on the second quarter of the previous year. The data showed that large firms accounted for 46% of revenue, medium-sized businesses for 13%, while small and micro-enterprises contributed 20% and 21%, respectively.

A GaStat survey of Saudi Arabia’s industrial sector conducted in 2017 and published in 2018 analysed the role of businesses based on the number of employees, without giving details on revenue. The survey included manufacturing firms as well as oil, gas and petrochemicals businesses, and companies operating in the water and sewerage sector. In the industrial sector, the survey found that SMEs accounted for 99.5% of the 113,000 businesses, with only 640 firms employing 250 staff or more. SMEs employed 803,000 people in the sector, 66% of the total, while larger firms employed 409,000 people in 2017. Across the broader jobs market in the Kingdom, 72% were employed by private sector companies, 18.6% were foreign domestic servants and 9.4% worked for the civil service. Among the 3.1m Saudis working in the second quarter of 2017, 37.3% worked for the civil service and 62.3% in the private sector, according to GaStat’s labour market survey, which did not include citizens in the military or security services.

GaStat’s 2017 survey also showed that 69% of those employed in the industrial sector were expatriates. Saudi citizens were more concentrated in the oil and energy downstream area than in the manufacturing industries, which typically employ more people. In total, around 391,000 people worked in factories that manufacture metals or non-metallic mineral products and food, accounting for 32% of the industrial workforce, but of these only around 75,000 were Saudis.

Meanwhile, the energy subsector – which includes crude oil extraction, petrochemicals, plastics and rubber, coke and refining – employed 17% of the workforce. This figure is equivalent to a total of 209,000 people, including around 124,000 Saudi citizens.

Saudi Industrial Development Fund

A key source of project finance and credit in the industrial sector is the Saudi Industrial Development Fund (SIDF). In its 2017 annual report published in 2018, SIDF noted that over a 10-year period it had approved SR148bn ($39.5bn) in loans, disbursed SR102bn ($27.2bn) and had received repayments totalling SR64bn ($17.1bn). In 2017 it approved 137 loans with a combined value of SR10.6bn ($2.8bn), 56% of which were for smaller projects of under SR15m ($4m), enabling greater access to credit for SMEs. Of the 47 projects supported by SIDF in 2017, 16 were for factories making consumer products, another 16 were for chemicals plants, six for engineering factories and six for companies making building materials, with the remaining three projects in other industries. SIDF also provides backing for SMEs through the Kafalah loan guarantee scheme. In 2016 the scheme helped 1711 SMEs access SR1.8bn ($479.9m) in loans. Of this total, the manufacturing sector received 284 guarantees worth SR192m ($51.2m). In 2018 SIDF raised the percentage of any project cost it was prepared to back from 50% to 75%, and extended the repayment period from 15 to 20 years.

Changing Landscape

In an overview of the economy in its annual report for 2018, SIDF notes that economic reform in Saudi Arabia is resulting in a changing business landscape that, in turn, may change the type of finance fledgling industrial firms need to access. The report points out that in all countries industrialisation is influenced labour quality, natural resources, energy cost, transportation and availability of capital. It adds that with new economic reforms such as the introduction of levies on expatriate workers and fees for their dependents, low-cost expatriate labour is no longer readily available in Saudi Arabia.

“Consequently, the industrial base within the Kingdom needs to shift from a low-cost, expatriate-labour-based model to a more capital- and technology-dependent one – following an example like research and development (R&D) industries – that will provide superior job opportunities for Saudi nationals,” the report stated. Local companies are already becoming aware of this changing landscape. “The historical supply chain and logistics solutions in the region has run through intermediaries – often family-operated companies. This, however, is set to change, as ICT revolutionises all facets of the industry,” Kurt Droeshout, advisor at distribution company Abudawood, told OBG.

Supply Chain

For businesses that rely on technological knowledge or R&D rather than functioning on a low-cost labour model, efforts by major corporations to help promote local businesses and the involvement of SMEs in their supply chains could offer hope. The largest of these corporations, the petroleum and natural gas producer Saudi Aramco, set itself a target through the In-Kingdom Total Value Added (IKTVA) programme established in 2015 to source 70% of its supplies from the domestic market by 2021.

“SMEs are currently being given the opportunity to achieve tremendous growth. Saudi Aramco’s IKTVA programme is an example of a localisation initiative Saudi SMEs can benefit from,” Mohammed Alharthy, CEO of Middle Eastern Fiber Cable, told OBG. In December 2018 Saudi Aramco’s CEO and president, Amin Nasser, announced that it had achieved a local supply level of 51% and was communicating this intent to its international suppliers operating in the Kingdom, who were following suit. “International suppliers now see IKTVA as the win-win it is,” he said in a speech at the launch of IKTVA’s 2018 forum and exhibition, adding, “I want to see the same excitement from Saudi private sector suppliers, particularly SMEs, which are the cornerstone of our success.”


In order to create the foundations for new SMEs, the Kingdom is also investing in its youth population. In November 2018 Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud launched seven strategic projects in renewable energy, atomic energy, water desalination, genetic medicine and the aircraft industry during a visit to King Abdulaziz City for Science and Technology (KACST). He also launched four new incubators under KACST’s Badir Technology Incubators and Accelerators Programme in Dammam, Qassim, Madinah and Abah, bringing the total number to eight. Since its inception in 2008 the Badir programme has served more than 300 start-ups, and encouraged a culture of innovation and entrepreneurship among young Saudis. At the end of 2017 the companies involved had amassed total revenue of SR620m ($165.3m).

KACST’s strategic decision to focus on promising sectors such as renewable energy is an approach that is shared by other entrepreneurs who are looking to create new business opportunities in the country. “If we are able to move down the supply chain by manufacturing solar generation components, including photovoltaic panels and inverters, domestically rather than simply building power plants using equipment from China or India, we will create more jobs for young Saudis,” Anwar Al Itani, vice-chairman of the Renewable Energy Committee of the Riyadh Chamber, told OBG.