Lack of funds hinder Saudi scale-ups

SMEs with proven business models that are on the verge of rapid growth often struggle due to a lack of financing options in the Kingdom

Small-to-medium-sized companies (SMEs) in Saudi Arabia looking to take the next step in the growth of their businesses often struggle due to a lack of funding options in the Kingdom, a report found.

Saudi Arabia has an underdeveloped private equity and venture capital market compared to other countries in the region and the banks remain wary of lending to these so-called “scale-up” businesses, according to research published on Tuesday by consultancy Strategy& and Endeavor — an entrepreneur mentorship provider based in New York.

Scale-ups are defined as SMEs with proven business models on the verge of a phase of rapid growth in revenue or staff numbers. Typically they account for 5 percent of a country’s SMEs, the report said.

Saudi Arabia was ranked “below average” on a “scale-up readiness” index compiled by the two consultancies that aim to assess how supportive the business environment is for smaller companies on the precipice of growth throughout the Middle East and North Africa.

The UAE was judged as the leading country in the region for scaleups, according to the index.

Small scale-up firms in Saudi Arabia face a further challenge of attracting talent to work for them due to the reluctance of Saudi nationals to give up the healthy salaries and security of working for the public sector, the report said. This means these companies have to employ expensive expatriate employees.

The Kingdom is starting to im- prove the environment for scaleup businesses, said Mahmoud Makki, partner with Strategy&, Middle East. “The government of Saudi Arabia is pursuing reforms that aim to benefit scale-ups and catalyze the entire entrepreneurship ecosystem,” he said.

Reforms include the creation of a “one-stop-shop” portal to help entrepreneurs find out about regulations and how to launch new businesses.

The Saudi government is offering entrepreneurs subsidized licenses to set up businesses as well as providing scale-ups with mentorship programs. The Kingdom’s ministry of economy and planning is working on a new strategy called the “National Champions Program” that aims