As Oman’s Third
Economic Forum came to a close on Monday, the question of how
to define small and medium enterprises SMEs came to a head.
The event, which brought together over 600 delegates, was organized by the Al-Iktissad Wal-Aamal group and the Ministry of Commerce and Industry in Oman. Former British Prime Minister Tony Blair and former Lebanese Prime Minister Fuad Siniora attended, along with several ministers, public sector officials, and leading executives from Oman, the Gulf, and the Arab region.
This year’s focus was on reform and diversification plans in the Sultanate, SME development, latest trends in the banking sector (including licenses for Islamic banks), and key investment opportunities in energy and water projects, including the Duqm Development Project (you can view all presentations here).
What I found really interesting is the discussion about developing a healthy and robust SME sector and the continuing debate on the key drivers promoting this development. Finance for SMEs is still a topic of high priority at most entrepreneurship conferences, and a crucial aspect of growing a business. Yet in the GCC region, it is sometime not lack of finance that stands in the way of development of SMEs, but rather a lack of business skills, investment know how, and a hostile entrepreneurship ecosystem. Financing under these conditions is only going to lead to a crash and burn scenario that will fuel negative perceptions of entrepreneurship in the GCC.
For entrepreneurs, the challenges include securing finance without collateral, in an environment with an interest rate bound to break the vault of any startup. Distrust in the credit market is not unreasonable, in a market that lacks a privately held credit bureau, where credit information is still very restricted within banks. Yet the lack of venture capital funds and angel investors further adds insult to injury to those who dream of becoming their own boss.
And if you ask me, it’s all the fault of our local dictionary! With an SME sector that is still primitively defined, it’s no wonder that there is confusion in the market. The Ministry of Commerce & Industry holds to defining SMEs by the number of employees alone, while commercial lenders each have their own definition. The Ministry is doing its part to promote serious dialogue between different stakeholders to redefine small businesses, but as of yet there is no central defintion.
The issue of defining SMEs in relation to the Omani market will no doubt lead us down a “chicken or egg” path: does the definition come first? Or does accurate SME data need to come first when determining how to classify companies?
This question was floated to an audience aloud and over social media at a recent youth symposium on “Entrepreneurship & Leadership” in Muscat, where I chaired the micro and small enterprise panel discussion. The majority of youth responded that they believe the following:
- Micro-enterprises such be included as an independent category,
and the definition of MSMEs should be standardized.
- Each category should be defined by three main indicators: number of employees, annual revenue, and industry (type of business).
For regulators in Oman, this is something to really consider, given that youth make up the majority of the population.
Until a uniform definition is reached, however, we can begin by distinguishing a business's development stage. Simply taking into account the life cycles of a business, and giving special attention to the "startup" phase, so that certain conditions are met and financial support is given, will go a long way.
In Oman, we are seeing enterprises stay in the startup phase for an average of 2-3 years, if they make it at all. While the speed of transition from startup to established enterprise is dependent on each country’s entrepreneurial ecosystem, the slow pace in Oman highlights our need for business accelerators and startup hubs. Once these come on board, swift growth will likely speak louder than definitions.