Funding plea for small firms to help create jobs

Venture capital and private equity firms should help finance small and medium-sized enterprises – key employment generators in the Arab world that needs to create 16 million jobs in the next five years – a senior IMF official said yesterday.

“Financing to SMEs is not exclusive to banking,” Jihad Azour, the director of the IMF’s Middle East and Central Asia department, told the Arab Strategy Forum in Dubai.

“With all the financial developments around the world, venture capital and private equity are a key part of financing to start-ups and new projects.”

SMEs have struggled to get funding from banks in the past few years as they have become more selective about lending after a rise in defaults by smaller businesses. Some banks have stopped lending to SMEs, or extended only secured financing backed by assets, which has restricted access to capital for smaller companies.

But it is a problem that the financial sector needs to resolve because SMEs create 60 per cent of employment in the regional economies, Mr Azour said.

His call to bridge the funding gap is similar to what Rashed Al Mansoori, governor of the Central Bank of the UAE, said last month when he urged private equity firms to fill the void as the exposure of the country’s financial sector to SMEs could be improved.

There is an increasing push from authorities in the region who are keen to ease SMEs’ access to financing. The UAE Central Bank is already working on regulations that would help small businesses to get capital, especially at rates that allow them to be profitable.

Saudi Arabia’s sovereign wealth fund in October set up a US$1 billion investment vehicle that will provide SMEs access to funding. The Fund of Funds, as it is known, is mandated to invest in venture capital and private equity funds targeting the SME sector, according to a Saudi Public Investment Fund statement at the time.

“Today the main issue is to empower SMEs to be able to create jobs,” Mr Azour said. “Access to credit and trading across borders are key elements and whether we are an [oil] importer or [oil] exporter this sector needs to be developed.”

Economic growth in the Middle East, North Africa, Afghanistan and Pakistan as a whole is likely to rebound next year after losing momentum this year.

The economies of oil exporting states are expected to grow at a slower pace than those of oil importing countries.

Saudi Arabia, the Arab world’s biggest economy, is projected to grow 0.1 per cent this year from 1.7 per cent in 2016. It is forecast to expand by 1.1 per cent next year.

The UAE, which has the most diversified economy in the GCC, is expected to grow 3.4 per cent next year, up from 1.7 per cent projected for this year.

Egypt is projected to expand by 4.5 per cent next year from 4.1 per cent in 2017.

“This year put the region at the crossroads, and 2018 is going to be the year of transformation,” Mr Azour said.