Small and Medium Sized Enterprises and Their Effect on the Economy

Topics: Saudi Arabia, Small business, Economy of Saudi Arabia Pages: 6 (1312 words) Published: January 29, 2013

This report talks about a subject that affects the whole economy in all countries. Small and medium -sized enterprises (SME’s) play an effective role in solving many economic problems such as unemployment. Therefore, SME’s are at the heart of economic growth.

The purpose of my report is to show how SME’s help the economy in overcoming some problems. Also, this report discusses some SME difficulties and their solutions.

This report has three chapters. The first chapter consists of background. The second chapter is about SME problems. The last chapter discusses a real life example of a small business in Saudi Arabia.


This chapter defines SME’s and explains their importance.

A. Definition of SME’s

The SME definition is different from one country to another. In Saudi Arabia for example, small firms are identified by the Saudi Chambers of Commerce as firms which have 10-25 staff and whose assets are SR one million. On the other hand, the firms that employ 25-100 staff and their assets are SR 5 million are called medium- sized firms. (5:197) The definition of SME’s in the UK is as follows: the enterprises that have less than 50 workers are small enterprises whereas the enterprises that employ more than 249 workers are medium- sized. (1:1)

B. SME’s Importance

The effect of SME’s on the economy appears in many dimensions. Governments face several problems related to unemployment; SME’s can solve these problems (6:1). In Saudi Arabia for example, SME’s comprise greater than 90 percent of private firms (2:1).


A. Common Problems

SME difficulties are various among the economic environment; there are common problems in all countries. The main difficulty is the financing issue i.e. funds are insufficient. As the Saudi Arabian General Investment Authority (SAGIA) comments: “A shortage of paid- up capital and credit makes SMEs vulnerable to fluctuation in supply and demand.” Another challenge is the weakness of human resources that leads to the lack of important data needed to make decisions. Also, SME’s face more and more problems such as the lack of new technology. (3:1, 2)

B. Problems in Saudi Arabia

The problems of SME’s in Saudi Arabia are more than in the other countries. This section focuses on two main issues.

a. Women

Some people thought that Islamic regulations, that prevent the association between males and females, are the main obstacle that face businesswomen in Saudi Arabia and that is absolutely wrong. The misunderstanding of these regulations causes this problem. However, there are many real obstacles stopping Saudi Businesswomen from taking their economic position. One of the barriers is the lack of immediate communication between businesswomen and government agencies. Another obstacle is the financing issue. It is more aggravated in the situation of businesswomen than businessmen. The absence of business training programs for women is also one of these barriers. (5:206)

b. World Trade Organization (WTO)

The Saudi economy is affected by the accession of the kingdom to a WTO. As a result, SME’s face more and more challenges because of WTO regulations which need a suitable environment to be applied. (2:1)

C. Solutions to Saudi Problems

Some problems related to businesswomen have been mentioned in the previous section. The government tries seriously to find solutions. As an example, women’s sections have been instituted in some ministries. Also, training programs have been established by the Chamber of Commerce. (5:206) Government supports are needed to overcome other problems. Also, the intervention of the private sector, which includes large firms and commercial banks, is very important. One of the suggestions to improve to SME’s in Saudi Arabia is to create an official authority that concerns all SME aspects, for instance, developing the relationships between SME’s and a private sector or government...

Cited: 1. Bruce, Cathie. "SME BUSINESS: In the Net, or Out? Now 's the Time to Choose." RedOrbit NEWS. 11 Mar. 2006: 1-3.

2. Bundagji, F.Y. "Small Business and Market Growth in Saudi Arabia." Arab News. 24 Oct. 2005: 1-3.
3. Estimo, Rodolfo C. "SMEs Face Problems in Kingdom." Arab News. 8 Mar. 2004: 1-2.
4. Al-Mehdar, Mohsen. Personal interview. 14 Apr. 2007.
5. Ramady, M.A. The Saudi Arabian Economy: Policies, Achievements and Challenges. New York: Springer, 2005.
6. Schlogl, Herwig. "Small and medium enterprises: Seizing the potential." OECD Observer. Jun. 2004: 1-4.
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