The Government of Oman has taken many exemplary steps to strengthen the SME sector in

Oman in the recent years. Though the sector is showing growth trends it still remains at the
beginning of the growth curve.

Small and Medium Enterprises (SMEs) are critical to all economies and the Sultanate is no
exception. They constitute 90 per cent of the corporate sector and have become a priority sector
for the government of the Sultanate, which is giving the much needed push to create self-
employment opportunities for the youth.

Much has changed since an exclusive SME development symposium was held at Seeh Al
Shamikhat, Bahl as a response to the Royal Directives of His Majesty Sultan Qaboos Bin Said.
Another symposium to assess the implementation of the decisions of Seeh Al Shamikhat was
held at Sultan Qaboos Universitys Cultural Centre in January 2015 as per the Royal directives.
The outcomes of the symposium were raised to His Majesty.

These steps stand testimony to the fact that Government has taken many laudable initiatives to
strengthen the SME sector and is trying its best to create an enabling environment for them as
part of its commitment to provide employment opportunities for the youth.

But despite the Government of Oman extending liberal help, the SME sector in Oman is still at
the beginning of the growth curve. The contribution of SMEs to Omans GDP is significantly
low compared to their role in developed economies. Employment provided by SMEs to Omani
youth could go up.

Says, Sami Al Hassan, General Manager of GroFin Oman, SME sector is a growing sector,
receiving unlimited support from the government, with a clear goal to make it one of the leading
sectors. It is also a key contributor to the economic growth of the country, not to mention a
source for job creation for Omanis.

As per the norms in Oman, SMEs are enterprises which employ workforce up to 99 and turnover
not exceeding RO1.50mn. The latest data indicate that 40 per cent of the workforce is employed
in SME firms while their contribution to the GDP ranges between 15 and 20 per cent. The key
point to note here is that in developed markets, SME workforce ranges between 50-60 per cent
and on an average GDP contribution from this segment is 50-55 per cent. Hence it is important to
expedite growth of the SME sector in Oman considering the limited employment opportunities
for citizens in Government sector and also to scale down the countrys reliance on hydrocarbon
sector.

Youth constitute more than 50 per cent of the Sultanates population. At the current level of
population growth, the Sultanate needs to create at least 50,000 jobs annually to reduce
unemployment, which is estimated at 15 per cent. Thus, it has become imperative that
employment opportunities are created to enable young Omanis to establish their own businesses.
The governments focus on developing SMEs has a potential for improving economic
diversification and creating employment. The government has initiated a number of measures to
give this segment a boost, including tying up soft loans and extending financial guarantees
through the Oman Development Bank (ODB), allocating a share of public tenders and sourcing a
share of procurement by large contractors of government projects to SMEs, providing
mentorship and assistance to entrepreneurs and setting up a development fund to target college
and university students entering the job market.

Pioneering initiatives

Initiatives such as the Al Raffd Fund, funding through Oman Development Bank (ODB) as well
as other financial institutions, five per cent minimum lending target imposed on Banks by the
Central Bank of Oman (CBO), the creation of the Public Authority for SMEs and the planned
launch of the SME Exchange among others augur well for the growth of SME sector, which
contributes around 15 per cent to the GDP. The Fund for Development of Youth Projects, known
as Sharakah, established by a Royal Decree in 1998 shows the on-going commitment and
support of the government to entrepreneurs.

According to Tariq Bin Sulaiman Al Farsi, CEO of Al Raffd Fund, The Al Raffd Fund, which
was set up in 2013 with a capital of RO70 million for project financing of start-ups and overall
development of the Small and Medium Enterprises (SME) sector, is keen to develop a vibrant
SME sector benefiting the countrys youth and also promoting jobs for locals.

The Al Raffd Fund, which is a pioneering initiative to unify the resources of financing the small
enterprises and development of individual initiatives, will add seven million rials annually to its
capital to support and assist young Omani entrepreneurs to establish SMEs.

The Fund is currently engaged in financing four programmes and more are scheduled to begin in
areas such as tourism, industries and seasonal agriculture soon.

The SME Development Fund will be supporting SMEs with accounting software, BPO style
accounting, monitoring and mentoring, providing finance at a subsidised rate for eligible SMEs
and working with major stakeholders to create business opportunities for SMEs. Riyada The
Public Authority for Small and Medium Enterprise Development, which was constituted
following the symposium, has set an objective of raising SME representation to 20 per cent of
the economy in three years and has succeeded in its effort to a great extent.

Private Sector Support

Complementing the initiatives of the government, the private sector too is contributing in no
small measure to the growth of the SME sector Zubair Small Enterprises Centre (Zubair SEC),
Bank Muscat, National Bank of Oman (NBO), Intilaaqah Oman to name a few, have come out
with funding initiatives to support the SMEs.
Says Lina Hussain Communications head at Zubair SEC We take pride in offering our members
an ecosystem of support that extends beyond the Centres direct advisory, coaching, training, and
acceleration services, to also offer a network of solid partners inside and outside the Sultanate,
and a line-up of top-notch mentors from across diverse business sectors who are offering their
time and expertise to our members.

We also believe in the importance of networking and collaboration amongst the members
themselves and between our members and other stakeholders; as such, we facilitate different
activities and functions to bring our members together and exchange expertise, knowledge, and
potential business cooperation, she notes.

Since June 2013 the Centre has welcomed 240 members, attracted 22 mentors, and built 12
strategic partnerships.

She adds, Our efforts for the past two years since establishment have been rewarded by being
the first and only private sector initiative to receive the Business Entrepreneurship Award for
Best Private Sector Initiative Supporting SMEs in Oman; this prestigious award is managed by
The Public Authority for SMEs Development (Riyadah).

Banks and other financial institutions in Oman have special products now to cater to the needs of
SMEs. Adil Abdul Hussain Al Saleh, head of SME division of NBO says, We have five
different products for SMEs to cater to their different needs. Our Working Capital Loans provide
financial aid by taking security from customers. We also provide working capital loans without
security. In this case, the stock has to be registered jointly in the name of the customer and the
bank and the receivables that come from the business are to be deposited in NBO.

Our professional loans are specially designed products which do not need collateral security for
professionally qualified Omanis. The limit for the loan is fixed based on the cash flow of
practicing professionals for at least six months. Based on the cash flow, if we see business there,
we will fix the loan limit. We will take as security the asset bought using the loan.

Our contracting loan product which doesnt need security is aimed at SMEs that receive
contracts directly from the Government or receive sub-contracts for government work from
category A contractors. This contracting product was specially created in 2014 after the
government, conforming to the Vision of His Majesty to promote SMEs. As per His Majestys
vision the Government had announced a ten per cent quota for SMEs in the contracts approved
by the Tender Board. Our construction loans are available to those firms that undertake
Government, own or third party projects. Our fifth product for SMEs is asset finance. Anybody
who needs asset finance, whether machinery, vehicles, or any other assets, can approach us, he
adds.

Addressing challenges
While these efforts are laudable, there are certain issues that still need to be addressed. Questions
like whether SME initiatives are in sync with the needs of entrepreneurs and are they
promoting job creation, growth and development? still remain unanswered. Considering the
governments keenness to bring down unemployment rates, it has become imperative to
encourage the job-seekers to either join the private sector or start their own enterprises.

Entrepreneurship is not the just the initial idea. Ideas have to be developed continuously.
Entrepreneurship calls for total dedication and continuous learning. Another important thing is,
SMEs need to be very careful when expanding. Those who want to become entrepreneurs should
have the minimum required educational qualification in their field. One should have a master
plan and should know his focus areas. It will be good if budding entrepreneurs selected areas that
do not need huge capital and can turn profitable quickly.

Sustaining the business, minimising risks

A report of IMF on SME sector in Oman is quick to point out that SMEs in Oman face a number
of constraints such as inadequate entrepreneurship, access to finance, lack of market support, and
inadequate incubation support, which are being addressed by the authorities. It goes on to
suggest that active links with export-oriented corporates would provide much needed synergies
in diversifying the economy and creating employment.

In high income countries, SMEs constitute 50 per cent or more of GDP and most of the
employment creation. The Sultanate should aspire for higher SME penetration. The challenges in
this regard are many. As a starting point, we need to survey the SME market, assess the baseline
situation and the needs of the SME sector; regulation needs to facilitate SME formation. A
number of SMEs complain about the processes and delays involved.

Women now have more options to start businesses. Getting finance was a cumbersome affair
earlier, but it is no longer so. Institutions like Sharakah offers funding for Small and Medium
Enterprises (SME) start up projects. Al Raffd too offers funding for start ups. But the larger issue
is how to minimise risks and ensure that business is sustainable.

In the Sultanate, business is often considered to be an established players forte. Very often
whom you know is a key factor as to where the orders will finally go, says a young entrepreneur.
Some SME owners say they face several obstacles from the beginning and as they grow their
business. Some of these include difficulty in obtaining loans easily, not being invited to
participate in the tendering process, inability to compete for orders (because
the bigger players have better credentials) and payment delays.

Experts say that access to business needs to be improved; important initiatives have been already
made by the Tender Board and the Ministry of Oil and Gas. It is hoped these will come to
fruition in the near future. One of the challenges that large corporations face while trying to
subcontract businesses to SMEs is the lack of acceptable service standards and capability
amongst the latter. The SME Fund will be helping large corporations to develop their SME
vendor bases to facilitate the passing on of business to SMEs. This will involve both expanding
the base of SMEs and strengthening their presence in the vendor network, with finance, support,
training, and supervision.

Eliminating hidden trade

SMEs can definitely create vast employment opportunities in diverse sectors in the Sultanate
including cottage industry. There are complaints that some SMEs are reluctant to employ Omanis
and this is a matter of concern. Authorities are now taking action against those SMEs that fail to
recruit the nationals. Employing at least one Omani in an SME is certainly a workable solution.
The Al Raffd Fund, along with Ministry of Manpower are working out the modalities for
introducing a path-breaking initiative for SMEs, which will significantly reduce unemployment
in the country.

A proper understanding of why SMEs create more jobs, will help the government and private
companies to look at what can or needs to be done to increase their role in the economy.
Traditionally, SMEs thrive in businesses where bigger firms do not want to be present, as SMEs
can offer the same product or service at a much lower cost due to lower overheads and profit
expectations. SMEs also tend to be more labour intensive as their capital investment levels are
lower. Jobs with SMEs pay lower (otherwise they cannot compete) and are seen to be more risky
and of lower social status, they however offer the benefits of flexible working hours, part time
employment and so on.

Wage Issues

While project funding has been taken care of by government, banks and other institutions, its the
minimum monthly salary to be offered to local employees, which has become an obstacle for
many entrepreneurs. Employing full time staff with the dictated minimum salary is challenging,
for industries operating in certain segments where the business is seasonal.

There are areas like for example Carpentry where the availability of skilled local personnel is
very low.

Experts point out that if an SME has in place the right budget and accounting system, it can
definitely address the issue. Problems arise when they do not adhere to regulations.

This is indeed a frequent complaint from SMEs and a valid one as SMEs by definition use more
labour per rial of output than do large corporations. There are a number of possible solutions to
this. One possibility is for the Ministry of Manpower to show some flexibility in the application
of quotas to SMEs. However, even better would be for the government to implement the
decisions taken at the SME Symposium, to allocate 10 per cent of all contracts to SMEs.
Thereafter, price preference can be given to SMEs with a higher proportion of Omani employees.
This will make it worthwhile for SMEs to pay the higher price that employing Omanis entails
and will also reward the SMEs that comply with Omanisation requirements.
According to some experts in SME sector, the issue pertaining to the minimum salary needs to be
tackled intelligently. One possible solution is for SME owners to work in partnership with other
Omanis rather than individually run the business. Cooperative societies can provide another
solution.

The way forward

Are SMEs fulfilling their role of employment generation? If SMEs have to succeed and deliver
on their employment potential; they also need to have the right enablers. While the Government
in Oman has already taken many steps, implementing the following in future will also help: i)
encourage back end collaboration between SMEs to cut back end and market access costs. ii)
Deploy an online market place (with performance safeguards for the buyer) that would give
access to other countries in the region including the UAE, Qatar, and Saudi Arabia, thus
widening the market space iii) Set in place practical, affordable systems that will provide
performance data to identify potential defaulters ahead of time If this happens, banks can also
move away from pure asset based lending (which is what practically happens most of the time),
and take a bigger, but more calculated risk, in financing SMEs, resulting in faster growth in the
SME sector, and in turn helping realise its employment potential.

According to some SME owners, there are other issues and concerns which SMEs face.
Initiatives are not well coordinated and as a result the entrepreneurs, in particular the startups, are
left confused as to where to go for support. For example, a new restaurant owner who gets
funding from one of the agencies, such as a bank or a financier, has got a property identified,
furnished and is ready to start. However, he may face difficulties in getting municipal approval
and will face delays getting clearance from Ministry of Manpower for not fulfilling the
Omanisation policies. All this leads to delay and may render SME initiatives unsuccessful.
Awareness and education are needed to overcome these obstacles.

SMEs are literally the best platforms for innovation provided they get the right support. Many
large businesses with global footprint have grown from small beginnings as a result of an idea by
one or group of individuals with little or no money. With good infrastructure, a young and
educated populace, world class ports and the much awaited rail project expected to be on track,
the Sultanate has all the enabling factors to develop a vibrant SME sector by suitably addressing
the shortcomings. Roberto Azevedo, director general of the World Trade Organisation (WTO),
who was on a visit to Muscat in 2014 said, the WTO foresees a lot of potential for SMEs
growth in the Sultanate. The Sultanate, which is a key partner in the WTO, is strategically
positioned to be not only an international player, but also a hub for trade and transit.

Encouraging entrepreneurship and building up an entrepreneurial attitude among the youth is the
key to develop the SME sector. As funding for projects is no longer a concern, its time to build
on the positives and engage the community in building up the sector and secure sustainable
growth in the long term. Policy coordination and collaborative efforts between the government
and the private sector and earmarking a certain percentage of contracts to SMEs will go a long
way in addressing the concerns of the SMEs and this will enable them to operate with greater
confidence. For young entrepreneurs, its an opportune time to invest and contribute to job
creation and thereby create sustainable opportunities to ensure a win-win situation for all.