Importance of SMEs in GCC: Challenges amid COVID and way forward

Interview with Mr. M.R.Raghu, CEO, Marmore MENA Intelligence

Are SMEs very important for the GCC region? How have SMEs contributed to the region?

Small-to-Medium Enterprises (SMEs) are vital to the economic development of the country as they foster innovation, entrepreneurship and create large-scale employment opportunities. The subject of SMEs touches upon many aspects of a nation’s economic network. By its very nature, SMEs can sprout up anywhere along the output value chain of a country, ranging from small shops to cutting edge research teams. In the GCC, SMEs constitute close to 90% (i.e. about 1.5 million SMEs) of the total companies’ base. The sector has the potential to generate 22 million employment opportunities by 2022 in the region. The strategic importance of SMEs is apparent in some GCC states, with the UAE relying on SMEs for 53% of the national GDP and 60% of the employment. SMEs account for over 99% of the private sector in Saudi Arabia, contributing to over 28% of the GDP in 2018 and 64% of the total employment. Qatar SMEs contributed to around 10% of the GDP, which is one of the lowest in the GCC. In Oman and Bahrain, SMEs contribute to around 15% and 28% of GDP respectively.

The pandemic impacted major economies across the world, how did GCC SMEs fare?

The ongoing coronavirus pandemic has weighed down the local and regional SME ecosystems. SMEs constituting part of sectors such as wholesale and retail trade, food and beverage, hospitality, tourism and travel have been especially hit hard due to the pandemic. Lockdowns and border closures had also led to a massive exodus of expatriates (both voluntary and due to layoffs) across the GCC economies, which has further caused a dent to SMEs in the region. With expatriates forming a large part of the population in the GCC, SMEs took a double hit from the consumption and employment perspectives. However, policy actions and stimulus measures provided by the respective governments and central banks have helped SMEs in the region to recover.

How can GCC Governments support the SMEs in the region? What steps have already been taken?

SMEs generally have a high cash burn rate due to which they require constant funding. With the current situation impacting revenues, GCC governments should look at supporting them during this crisis. SMEs suffer a lack of credit lines, with banks unwilling to lend to smaller businesses at a time of squeezed liquidity. For instance, in Kuwait, estimated lending in the sector being around KD 1.3billion represents a 3.6% of overall credit outstanding, compared to around 30% for the OECD countries. Various measures such as tax holidays, soft-loans, rent waivers and even paying employee salaries in some cases have already been taken in this regard. The Central Bank of UAE (CBUAE) had recently issued regulations to support SMEs and promote best practices for Licensed Financial Institutions (LFIs) while engaging with SMEs. Emirates Development Bank (EDB) announced a USD8.2bn financing plan to support SMEs in the country. SME Dubai, the agency charged with boosting start-ups, has rolled out new initiatives to help companies seeking to ride out the pandemic, with offers of rent holidays and improved access to financing. Saudi Arabia, with aims to increase SMEs contribution to 35% of GDP by 2030, has facilitated further access to funding by encouraging financial institutions to allocate up to 20% of overall loans to them. Kuwait’s National Fund for SME Development (The SME Fund) and Kuwaiti banks have been advised to provide loans on concessional basis to SMEs. Bahrain announced a USD1.5 billion stimulus package targeting households and companies along with subsidizing electricity bills for SMEs. Oman implemented tax relief measures, a 3-months tax deferral in payments and exemption from fees and taxes for companies part of the most affected sectors.

What are the new trends within the SME segment?

The GCC countries, especially UAE, have been investing in digital infrastructure over the past decade. The UAE government plans to develop smart cities, use blockchain technology for government transactions, undertake ambitious financial technology (fintech) projects and launch a Fourth Industrial Revolution Centre. The pandemic has accelerated the need for disruptions in the traditional forms of business and technology adoption. Fintech is one area where there is significant interest from startups, especially in UAE and Saudi Arabia. The pandemic situation and the subsequent cautiousness of shopping physically caused a dramatic shift in the consumption patterns with demand for online retail spiking. This spurt in online commerce has impacted the logistics sector with startups in third-party logistics space providing home-deliveries and a better last-mile delivery mechanism sprouting across the region. The adoption of technologies such as Internet of Things (IoT), driverless vehicles, drones, artificial intelligence etc. are gaining traction and are expected to be the disruptors that can impact SMEs going forward.

How can Marmore help SMEs?

Marmore’s published research division, having a database of over 800 reports across various business domains and sectors, have been a good source of information to SMEs in the region. These reports help in understanding the current trends impacting sectors along with providing a future outlook for the same. Marmore also helps SMEs by providing customized research which would involve primary research to get deeper insights on the sector. With funding being a major challenge for SMEs, Marmore helps SMEs to prepare detailed financial models along with providing a financial valuation of their businesses, prepare reports and pitchbooks that are used to obtain funding from banks, venture capitalists and private equity firms. Marmore also helps conduct feasibility studies for SMEs that are looking to enter new markets.