GEM report reveals Saudi’s startup status [Opinion]

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Saudi Arabia has embarked on a long-promised strategy to support entrepreneurs and SMEs, and the latest Global Entrepreneurship Monitor (GEM) report provides a snapshot of where the country is at now.

The 2016 report, released today, is both optimistic about Saudi entrepreneurs’ future and is a clear call to action to government and other stakeholders to keep improving the entrepreneurship ecosystem.

What is most promising is the strong entrepreneurial drive among younger generations. They will be the real drivers of the nation’s transformation efforts.

Starting well

The future of Saudi Arabia is strongly tied to the country’s ability to develop the right entrepreneurial mindset and promote and support entrepreneurial activity.

The Saudi government acknowledged some time ago that its oil reserves won’t last forever, but until the launch of the Vision 2030 plan there wasn’t an ambitious and concrete strategy to achieve that transformation.

Vision 2030 and its National Transformation Plan aims to “unlock promising economic sectors, diversify its economy and create job opportunities”, and focuses on job creation and supporting entrepreneurs.

But any sustainable and growth-oriented economy needs large numbers of high potential, high quality entrepreneurial activity as well as the support mechanisms.

The facts

This year the Babson Global Center for Entrepreneurial Leadership produced the 2016/17 GEM Report for Saudi Arabia.

We found that entrepreneurship is flourishing, especially among young Saudis and women.

GEM is the largest study of entrepreneurship in the world, and has been since 1999, covering 82 percent of the world’s GDP and 71 percent of its population.

The typical early-stage entrepreneur is a man. His age has increased moderately from around 31 to 33.5 years in recent years and he has a university degree. His annual income is somewhat lower than it was in 2009 and 2010, and he works for his business full time. He lives in a household that has declined slightly in size, from almost six people in 2009 to five in 2016.

Men are proportionally more involved in entrepreneurial activities in Saudi Arabia, but women are closing the gap. Based on the respective populations of men and women in Saudi Arabia, the male rate of participation in TEA is 12.9 percent, and the female rate 9.7 percent. Taking the TEA rates of involvement as bases for calculation, 61.4 percent of entrepreneurs are men, and 38.6 percent are women.

There’s a strong cultural affinity for entrepreneurship, but not for competitiveness. Compared with 2009 and 2010, perceptions of societal values related to entrepreneurship indicate that Saudi society has become slightly less competitive. Saudis themselves are less convinced that successful business founders enjoy a higher level of status and respect.

The rate of potential entrepreneurship is high, but not as high as it is regionally. In 2016, 25.8 percent of the Saudi population aged 18–64 years was considering the option of starting up a new business in the next three years. The GEM average is 25 percent. However, in Egypt the percentage was close to 65 percent and in Lebanon was 45 percent.  

Saudis show a moderately high level of involvement in entrepreneurial activities. The Total Entrepreneurial Activity or TEA rate, (the percent of working age people about to start an entrepreneurial activity and who have started within 42 months of the survey) involves 11.4 percent of the adult population. The TEA rate has increased by 6.7 percent since 2009. However, rates in previous years along with the total rate of business discontinuation in the last 12 months (6.1 percent), suggest that the pace of business starts versus closes isn’t very well balanced. The Saudi market features a very high proportion of recently created businesses and there is high volatility, reflecting low-potential businesses are unable to compete and survive in the market for long.

There’s room to develop the ‘intrapreneur’ trend in Saudi. In addition to independent entrepreneurial activity, 4.9 percent of the  population is involved as ‘intrapreneurs’, that is, as entrepreneurs within a company or organization. The intrapreneurial activity rate is lower than the average across innovation-driven countries, so there is still considerable room to intensify this trend in Saudi Arabia.

Launching a business is a choice not a necessity for most in Saudi Arabia. Opportunity-motivated startups make up 92.3 percent of businesses launched in 2016. Earning greater independence appears to be the prevailing perceived benefit of starting up businesses in Saudi Arabia, save for in the very early stages of nascent activity.

Considered globally, the Saudi Arabian entrepreneurial ecosystem shows some weaknesses and has become weaker in several critical indicators in the last seven years. We need to discount the impact of the oil crisis, geopolitical turbulence, and macroeconomic deterioration to fully understand the reasons for this.

On the other hand, Saudi Arabia shows considerable room for growth if it can capitalize on its well-trained younger generations, an empowered SME Authority, and strong transformation plans.

Feature image via GEM.

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