The Shoura Council unanimously approved on Monday a set of draft regulations for a separate authority for small and medium enterprises (SMEs).

Shoura Council Assistant Chairman Fahd Al-Hamad said the draft proposal that contained 20 articles was submitted by the council’s committee on economic affairs and energy.

He explained the council had made a thorough study of the proposal in two separate sessions during the month of May. During the discussion, the house felt that such an authority would not only improve the Saudi economy but also provide a substantial number of job opportunities for the unemployed youths in the Kingdom.

Prior to the approval, the council received representations on the proposed authority from the ministries of Labor, Economy and Planning, and Commerce and Industry, the Saudi Credit Bank, the Saudi Industrial Development Fund, the Council of Saudi Chambers, and the Riyadh Chamber of Commerce and Industry as well as a number of civil societies that work to develop and support small and medium enterprises.

Despite the availability of programs and services to encourage SMEs in the Kingdom, Al-Hamad said those programs were limited to the financial side, but they do not have a regulatory authority to enact policies and legislation that address the constraints faced by this sector. The council further insisted on a national program to fund SMEs in the Kingdom.

According to Al-Hamad, the draft proposal specifies terms of reference of the authority’s board of directors and the powers and functions of their portfolios. The authority will have an independent budget, issued in accordance with the provisions made in the state budget.

The functions of the board will include the preparation of a national strategy for the state to develop SMEs in coordination with the relevant government agencies; to develop, modify and propose rules and regulations, policies and legislations necessary to enable the authority to perform its tasks; and to propose executive plans to improve the investment climate for the SME sector.

Reviewing the annual report of the Real Estate Development Fund (REDF), which functions in coordination with the Ministry of Finance, the council requested the REDF to give a chance for loan defaulters in the low-income group to settle their dues in convenient installments.

The council also approved a draft Memorandum of Understanding between the Kingdom and the government of Malaysia in the field of scientific and technical cooperation submitted by the committee of educational and scientific research.

The Memorandum of Understanding includes 13 articles that encourage the two countries to collaborate with activities that can be implemented through research projects and exchange of scientists, specialists and researchers, as well as to hold seminars and conferences.

According to a recent report from the Saudi Arabian Investment Authority (SAGIA), the SME sector in Saudi Arabia at present is not playing a big role due to the lack of support systems and an authority to support SMEs, although it is estimated to represent the largest sector in the Kingdom.

Local SMEs contribute 14 percent of industrial production — in most industrial countries they contribute over 80 percent. They also utilize about 35 percent of the industrial energy consumption, contributing 8 percent to the total value of industrial exports, according to the Seventh Development Plan.

Growth of SMEs is hampered by various factors, chiefly lack of funds.

A shortage of paid-up capital and credit makes SMEs vulnerable to fluctuation in supply and demand. Financial institutions are often reluctant to provide the necessary funds for the establishment and operation of their enterprises, a source from SAGIA said.

They also lack skilled human resources. As a result, Saudi industries have become dependent on foreign manpower. In the case of small enterprises, which have only between one and nine workers, the percentage of Saudization is only two percent.