With the oil price slump creating a $275 billion export shortfall for countries apart of the Gulf Cooperation Council (GCC) regional government have begun to prioritise economic diversification with increased focus on the (SME) sector with the development of small and medium sized enterprises.

A recent report by Bloovo.com shows that SMEs provide economic movement across two axes. First of all, they add directly to the (GDP) national gross domestic product through business activities. Small and Medium sized enterprises account for 30% of the UAEs GDP, 28% of Bahrain’s and 22% of Saudi Arabia. 20% of Kuwait’s GDP is made up of SMEs activity, with 17% of Oman’s GDP generated by the sector.

Secondly, SMEs are essential engines for job creation in order to keep pace with the growing – and increasingly young – national population. With the public sector operating at capacity, new jobs will need to become the preserve of the private sector. Currently GCC SMEs currently employ around 17 million people, however this figure could increase to 22 million under the best case scenario modelled by Bloovo.com.

Bloovo.com CEO and co-founder, Ahmad Khamis said:

“Supporting the creation and growth of SMEs is very much in the spotlight as GCC countries evolve economies less reliant on energy prices. And while regional governments have been active in creating an SME ecosystem, our report identifies key areas that still need support. Moving to an SME-oriented knowledge economy is the best way for GCC countries to maintain progress towards social and economic goals.”

In order to create an effective SME ecosystem requires time, investment and regulatory optimisation. Fortunately, GCC countries have been cognisant of the importance of SMEs for a while and are accelerating programmes already in place. For example, the United Arab Emirates established Federal Law No 2 of 2014 in order to categorise SMEs, establish a dedicated council and determine incentives to be offered to small business owners.

Dubai SME, the agency set up by the Department of Economic Development, has been very active in supporting SME creation. It has assisted around 11,000 entrepreneurs to date through its development advisory services, incubating 300 start-ups and engaging with 4,000 students through its ‘Young Entrepreneur Competition’ to launch 1,200 projects.

Nevertheless, more remains to be done. The report from Bloovo.com outlines four crucial regulatory arcs to facilitate SME growth. Firstly, there is an argument to create funds dedicated to get SMEs off the ground and makeup for the shortfall of conventional bank financing; apart from subsidised financing, funds and incubators could also deliver mentoring and support to increase chances of business success. Secondly, company formation laws should be tweaked to offer greater flexibility and admit greater foreign ownership to attract Foreign Direct Investments (FDI) and international innovators. Third, greater attention on commercialising intellectual property would help companies turn ideas into revenue streams - with the public sector playing a facilitative role in helping SMEs file for international patents. Lastly, proactive action is needed to make SMEs an essential part of critical supply chains. SMEs can be made first-preference suppliers for government contracts, for instance.