By James Eugene

In a bid to strengthen its venture capital industry, Saudi Arabia is planning to establish a fund worth $1.1 billion – equivalent to 4bn Riyals – to boost investments in small and medium enterprises (SMEs) in The Kingdom.

The decision to invest in small businesses is part of a private and public region-wide effort to diversify industries and reduce the dependency on oil, with prices in the commodity struggling to return to the levels that it previously enjoyed around 18 months ago. The main objective is to encourage entrepreneurship and support various initiatives and projects in order to comply with the “National Transformation Program 2020” target. The new fund will be seen as an extension to the Middle Eastern powerhouse’s push to commit to small businesses, after previously stating that it plans to launch a stock exchange that solely focuses on SMEs.

According to the Saudi Press Agency, The Council of Ministers and Ministry of Trade (Commerce) and Investment, with help from the relevant authorities, will propose “the necessary regulations, procedures and arrangements to facilitate the exercise of venture and private ownership”. Both ministries will coordinate with the Public Investment Fund to establish a holding fund called the “Al-Sanaeeq Fund”. One source highlights that the in order to support and promote investment opportunities in the SME sector, the fund will have to make investments in virtual capital and private commercial ownership of these investments.

Dr. Majid bin Abdullah, Saudi Arabia’s Minister of Trade and Investment, stated that the upward trend and increase in the focus in small businesses “will be catalyst for the investment climate in the small and medium enterprise sector, [which will] stimulate innovation and entrepreneurship”. The scheme will also rely on foreign venture capital firms, reportedly from the UK, to provide input and investments, prompting these firms “to access investment opportunities that enhance their projects, and will create quality opportunities in the small and medium enterprise sector”.

In order for such an plan to be successfully implemented, not only will Saudi Arabia need to find suitable investors (both domestic and foreign), but they will also need to ensure that regulations and procedures are revised and, if necessary, amended in order to remove any stumbling blocks that may arise. With the outlook of the price of oil not being in their favour, The Kingdom will have to act quickly and diligently in order to ensure that their plans come into fruition.