Establishing an entrepreneurial culture in the Gulf economies can help boost the chances of enabling especially the local youth to tap such opportunities, Chief Economist Jarmo Kotilaine of the National Commercial Bank said. Noting that the Gulf economies have countless under- or unexploited niches in many economic sectors, he said a large and growing number of surveys on Gulf SMEs have fairly consistently identified funding as a key constraint. Historically, SMEs have tended to come into being relying on the financial resources of an individual or his circle of family and friends. The options beyond this remains limited. The World Bank in its recent Financial Access and Stability Review said that only 2 percent of GCC bank loans currently go to SMEs. The World Bank estimates that only some 20 percent of SMEs in the Middle East have a bank loan or a line of credit, a lower proportion than in any other region in the world apart from Africa. Internal finance provides 85 percent of the funding of Middle Eastern SMEs, as opposed to 7 percent from bank finance and 3 percent from trade credit. The corresponding figures for middle-income countries in general are 65 percent, 19 percent, and 5 percent. Even though these figures to a degree reflect the broader state of affairs in the Middle Eastern corporate sector, they clearly highlight the underutilization of the formal financial sector. Enhancing the value-added potential of GCC companies is critically reliant on providing access to advice, cost-effective consultancy, and suitably qualified human capital. Yet the resources of SMEs for training tend to be acutely constrained as most SME entrepreneurs are busy 'multi-taskers' by default and funding is limited. In Bahrain, which produces the most detailed SME statistics in the region, SME share of the total number of companies is 99 percent. They make up 73 percent of private sector employment and only 28 percent of GDP. The figures for the other regional economies are broadly similar, although the share of employment tends to be even lower: around 40 percent in Dubai and some 30 percent in Saudi Arabia. By comparison, SMEs contribute some 50 percent of US GDP, whereas their share in the EU is just under 60 percent. They provide more than half of all jobs in the US and more than two-thirds in Europe. An important opportunity exists for certificate and diploma programs in sectors with a heavy SME presence. Establishing and running such programs in turn represents an opportunity for entrepreneurship as the demand for many essential skills is not only large-scale but also likely to endure for years to come in view of the demographics and growth prospects of the Gulf economies. Entrepreneurship can also often critically benefit from steps to facilitate access to an appropriate physical infrastructure. Especially in the area of innovative industrial entrepreneurship, this has given rise to the idea of clusters and incubators. Such facilities can be particularly important in cases where the cost of land and real estate has become an important hurdle to new entrepreneurs or where some indivisible resources, e.g., administrative support, can be shared by a number of companies. Moreover, Kotilaine said entrepreneurship is critically linked to creative energy. He said the development of SME support infrastructure in the Gulf is still very much at the extensive or developmental stage, though a number of new initiatives are emerging both in the public and in the private sector, but "they tend to be fragmented, their aspirations sometimes far exceed their resources, and their auditing is usually partial at best. As a result, much more can typically be done to create an interlinked network of support organizations and to extract the maximum value of the different initiatives that exist." Besides, the focus of the programs to date has been on subsidized credit rather than advice and consultancy, let alone efforts to encourage and inspire, he added. The main challenges associated with Gulf SMEs are fourfold. Firstly, he representative SME is a small company in terms of its employment and turnover. For instance, 87.8 percent of Bahraini companies have no more than 10 employees. Of the total number of 785,000 commercial establishments registered in Saudi Arabia as of 2008, 764,000 were sole proprietorships. Secondly, the average Gulf SME is primarily engaged in the buying and selling of goods.
