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Saudi Spirit Serious About Startups

Jonathan Ortmans, President, Public Forum Institute

The Saudi Arabian Monetary Agency (SAMA) recently released data indicating that domestic credit to the private sector in Saudi Arabia recorded one of their highest growth rates since the global fiscal crisis. That the Gulf Kingdom’s twelve (12) commercial banks are easing credit curbs is good news for entrepreneurship promoters in the country and leaders in the Kingdom seem ready to provide the fuel to ignite a new wave of startups.

On a visit to Jeddah last week, I witnessed a much deeper commitment to advancing a startup culture than I have seen so far in other Gulf Cooperation Council (GCC) countries I have visited. While I was there, not only was there a Startup Weekend happening in Riyadh, but in the lead up to Global Entrepreneurship Week, I spoke to a gathering of several thousand startups at the Jeddah Young Business Committee (JYBC) Expo held for new and young businesses. Walking around the booths, not only was I impressed at the number of technology and science-based entrepreneurs, but I was especially pleased to see a big section of the expo center dedicated to women entrepreneurs.

Several initiatives have gradually been reshaping the economic landscape in Saudi Arabia, the world’s largest oil exporter. Its General Investment Authority (SAGIA) now produces the Saudi Fast Growth 100, a list of the Kingdom's fastest growing enterprises, and has finalized agreements with seventeen (17) government agencies to remove impediments and introduce incentives for businesses. These efforts are not just driven by a desire to diversify the Saudi economy, but also out of a need to respond to demographic realities. In 2007, a World Bank study reported that despite making up more than half of the country’s GDP, the oil sector employed only 2% of the workforce. Entrepreneurship promotion therefore seems to have become the main strategy to help generate new jobs and satisfy the growing number of young Saudis—estimated at 70% of the population—entering the labor market over the next five (5) years.

To encourage risk-taking, creativity and value-creation among the young, several leaders such as Prince Abdulaziz bin Abdullah bin Abdulaziz, the advisor to the King of Saudi Arabia, have sought out new initiatives. And it is not possible, for example, to talk about entrepreneurship in Saudi Arabia without mentioning its King Abdullah University of Science and Technology (KAUST), a research university which encourages innovation commercialization among its students. It has gained respect around the world as a “startup university” as a result of a serious strategy involving international academic relationships, research collaborations and professor recruitment.

On the policy front, some progress is evident. For example, Saudi Arabia launched its private credit bureau, which started issuing reports on companies’ credit exposure. This system was further reformed in 2010 by making secured lending more flexible and allowing out-of-court enforcement in case of default. In 2009, the one-stop system created at the Ministry of Commerce for business registration and permits combined all registration procedures for local limited liability companies. Starting a business in the Kingdom is also now relatively easy. Saudi Arabia’s “doing business” worldwide rank has improved from 35th in 2004 to 11th in 2011, according the World Bank’s Doing Business data. Further, in the 2010-2011 World Economic Forum (WEF) Global Competitive Index Saudi Arabia moved up by seven places from 28th to 21st, due to improvements in institutional frameworks and market efficiency.

These and other policy achievements are encouraging given the difficulties of changing regulations in a nation where law, religion, culture and business are all intertwined. However, the real work now needs to happen at the local and city level through informal networks and alliances organically building a leading edge startup ecosystem. Organizations such as the Jeddah Chamber of Commerce and the Centennial Fund in Riyadh have plenty of new firm founders who understand this—and the urgency of seeding such a culture now.

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