Businesses in Saudi Arabia are showing signs of recovery, with some big winners


Businesses in Saudi Arabia are showing signs of recovery, with some big winners

By Khalid Suleimani and Loulwa Bakr, senior partners at Chrome Advisory 

Some of the most optimistic people did not expect to see the rapid recovery of startups and small and medium enterprises (SME) in Saudi Arabia, following both the lockdown due to the Covid-19 pandemic and the increase of VAT. In addition, few expected to see the dynamic transformation of business models across many of the startups and SMEs, along with the overall growth of some within this sector. The notable and rapid intervention of the Saudi government, and the introduction of various initiatives to support these companies are to be credited for this recovery.

Within the retail sector specifically, micro enterprises in Saudi Arabia faced many challenges, as a result of the imposed curfews and lockdown across all cities in the country on 23 March 2020, followed by the partial closures on 26 April, to contain the spread of the virus. As was the case across the globe, these decisions led to a great many challenges affecting retailers, these included:

  • Paying salaries became a major challenge, tied to the halt in sales. With the abrupt closure of stores and the subsequent halt of sales, significant pressure on the cash flow of micro SMEs was recorded. Due to mall closures across the Kingdom, merchants could no longer access their stores or inventory. Accordingly, retailers were unable to pay their employees’ salaries, due to the abrupt halt in sales. Salaries represent 25 per cent of expenses – which became a primary concern of these enterprises. 

  • Rent makes up around 35 to 40 per cent of an enterprise’s annual expenses. During the lockdown, rent payments were still due, which increased pressure on micro enterprises, due to the slowdown or abrupt halt in sales, which led to a decrease in cash flow.

  • On the other hand, the outbreak of Covid-19 resulted in a decrease in the purchasing power among customers, due to the dampened economic situation and the state of public emergency, which the pandemic stirred. A large number of retailers, both in Saudi Arabia and around the globe, suffered from this shift. Customers were less likely to want to shop or buy non-essential goods, and were more likely to save their money or spend on purchasing essential items. This was especially the case during the holy month of Ramadan.

  • Some retailers then found an opportunity to start selling online, despite the lack of access to their goods and inventory in-store and in their warehouses, during the lockdown. The digital transformation which many retailers embarked on, continued well after the curfew was lifted, linked to the social distancing measures imposed by the government across all sectors. This shift provided an opportunity for digital solution providers to take flight, such as “Salla” and “Zed”.

  • On the other hand, retailers who produce their goods locally, were unable to source raw materials from international suppliers, due to the disruptions of supply chains around the world.

Government initiatives and tailored financing solutions

These numerous challenges were faced by small business owners globally, especially those working in the non-essential goods sector. However, there were multiple opportunities and various governmental programmes that were successfully rolled out in Saudi Arabia, to support the survival of such businesses during the Covid-19 pandemic, and enabling them to flourish post crisis.

Since the beginning of the crisis, Saudi Arabia’s government and regulatory bodies, along with the banking sector, have been very quick to respond and support local businesses. The Saudi government has accounted for over SAR 51 billion in the form of stimulus packages and funds to support the private sector during this unprecedented difficult period. These steps have been taken with the aim of limiting the impact of the pandemic on the Saudi economy, in the short and long-term. 

The following table lists the various initiatives that apply to startups and SMEs in Saudi Arabia: 

Governmental initiatives to stimulate the private sector during COVID-19

The official body offering the initiative 

Type of support

Details of the initiative

Saudi Central Bank 

Financing support for SMEs

  1. 1. Funding Lending Programme 

  2. 2. Loan guarantee programme (Kafala)

General Authority of Zakat and Tax

  1. 1. Deferred submittal for declarations and payments, for companies registered in VAT

  2. 2. Extending the period to submit zakat returns and income tax declarations (fiscal year ending 2019), for a period of three months

  3. 3. Suspending any fines for later payments of installments, as well as any fines for amending declarations

  4. 4. Granting zakat certificates without any restrictions, for the 2019 declarations 

Saned Programme 

Insurance to compensate for the suspension of work for Saudi employers in the private sector 

  1. Paying 60% of salaries of Saudi employees working in the private sector for a period of three months


The steps that were taken by the Saudi authorities included:

  1. Following the lockdown in the Kingdom, the government eased measures on retailers, and excluded some economic and commercial activities from the ban, allowing them to open during select days of the week, and subsequently, lifting the curfew completely, to cater to the needs of local consumers. 

  1. The “Kafala” programme, designed to support SMEs by offering loans, was increased to 95 per cent (compared to 80 per cent in the past), with fees ranging between 1 – 1.5 per cent. The Kafala programme provides loans of around SAR 2.5 million to small and micro enterprises, and SAR 15 million for medium-sized enterprises.

  1. Some banks in the Kingdom worked to facilitate and ease the procedures and paperwork required from companies for borrowing and loans. Some Saudi banks have also provided loans for businesses to purchase raw materials, pay rent expenses and implement business expansion plans, with a grace period of up to six months.

  1. Alternative financing options were also made available for startups. For example, fintech companies operating in Saudi Arabia, such as Al Raida, Lendo and Raqmeya, have facilitated the access to financing for startups and SMEs, providing easier terms and alternative guarantees, reducing paperwork requirements, when compared to traditional means. 

  1. The government’s Saned programme provided unemployment insurance to all employers, facilitating the process for businesses to obtain compensation to ensure continuity and pay salaries. The conditions of Saned were amended in response to the downtime during the Covid-19 pandemic. The Saudi government announced that it will pay 60 per cent of Saudi employees working in the private sector, for a period of three months, with a ceiling of SAR 8.96 billion. The compensation adheres to the conditions stipulated in the unemployment insurance programme (Saned).

  1. By shifting to e-commerce platforms, retailers found opportunities to sell online, opening up to a wider target audience. Many industries, such as those operating in the essential categories, including foodstuffs and delivery services, have seen a significant increase in revenues and business activity, since the start of the Covid-19 outbreak. 

The way forward

During the pandemic, startups and SMEs worked hard to adapt to the new reality of the world, and work to generate sufficient cash flows to ensure their continuity and survival, until the end of the crisis.  In addition, many have modified their business models to embrace a new reality of a highly digitised market. According to a study by Ernst and Young, 92 per cent of consumers in the UAE and Saudi Arabia have switched to online shopping, which has forced the majority of retailers to quickly adopt digital transformation strategies to keep up with the market and continue to do business (more in our article published in Wamda). One such example is the increase of use of digital payments as an alternative to cash, which is expected to continue even after the pandemic. In addition, sectors that have thrived during the pandemic, such as e-commerce, delivery services, edtech and healthtech, have all adopted digital payments, thus stimulating the digital financing sector.

In light of the pandemic, the entire retail sector, from micro enterprises to larger establishments, faced multiple challenges and worked hard to maintain their sales, and to sustain business activity. On a global scale, SMEs and micro enterprises struggled to navigate in light of the forced closures and decline in purchasing power. According to the Saudi Central Bank’s statistics, the volume of spending instore decreased during the months of April and May by 32.95 per cent and 15.7 per cent respectively, compared to the same period last year. However, what is interesting to note is that the percentage of online sales increased by 78.3 per cent, reaching SAR 37.02 billion by June, far surpassing the highest recorded figure of sales, at SAR 27.93 billion recorded in December 2019. 

On another note, the increase in VAT, from 5 per cent to 15 per cent, effective on July 1, 2020, motivated citizens in Saudi Arabia to increase their purchases before the increase was implemented. This resulted in containing the overall impact and the repercussions of Covid-19, with point of sale (POS) transactions not exceeding a 3.3 per cent decrease in the second quarter of 2020, when compared to the POS transactions of the previous quarter (Q1 2020). In addition, the points of sale transactions increased by 52.64 per cent in Q3 2020 (amounting to SAR 96.99 billion), when compared to Q2 2020 (SAR 63.54 billion). These figures reaffirm the effectiveness of the preventive measures and financial initiatives taken by the Saudi government, which have led to normalise consumer spending rates.

The distribution of transactions across various points of sale in different sectors, in Q3, 2020

Source: The Weekly Reports on Point of Sale Transactions, issued by the Saudi Central Bank

It is expected that the businesses that have adapted to the new reality will have valuable opportunities to achieve business continuity and growth in the phase following the crisis. One should note that consumer spending in Saudi Arabia did not decrease by more than 5.57 per cent during the first 9 months of 2020, on an annual basis, with a decrease equivalent to SAR 42.52 billion recorded during the same period last year. This indicates that the retail sector is on the way to recovery, and that the impact of the pandemic was limited.


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