Investors at Jeddah trade finance summit call for more liberalization

An overview of how small and medium-sized enterprises (SMEs) have become pivotal to supporting many national priorities, especially in the context of Vision 2030 and the National Transformation Program (NTP 2020) was given by some speakers on the second day of the Saudi Trade Finance Summit in Jeddah on Wednesday.
Speakers emphasized that the private sector has a major role in the implementation of Vision 2030, with the SMEs becoming prominent in their contribution to the Kingdom realizing the goals of the vision and NTP 2020.
“There is no crisis in Saudi Arabia. Money is circulating in the economy and the Kingdom is operating in a realistic point of view but it is time for great opportunities to be created by Saudi Vision 2030 and the National Transformation Program,” Al-Ghassan Motors’ Group CFO Peter Cowley told Arab News.
He pointed out that the Kingdom went offshore to raise $11 billion. It received orders for $64 billion and accepted $17 billion. “So, where is the crisis?” Cowley asked.
About foreign investment, Cowley said: “Give investors zero taxation for five years to attract the right kind of people to come here and maintain them here.”
Government wants growth to come from the private sector and productivity, Cowley said. “Companies need to adjust their business models.”
The role of the SMEs, meanwhile, was highlighted by Iyad B. Tardi, chief  financial officer at Bahra Cables, who gave a presentation on "Trade finance for SMEs: A must for regional trade growth."
At the outset, Tardi said SMEs, including microenterprises, play an important role as a cornerstone in fostering growth, employment and income generation in most economies. 
“In Saudi Arabia, the role of SMEs has become pivotal to supporting many national priorities,” he said.
Tardi said that SMEs account for about 90 percent of business enterprises in Saudi Arabia. Eighty-five percent of SMEs are sole proprietor entities. Seventy-four percent of SMEs are in trade and construction followed by the industrial sector. SMEs account for round 62 percent of total employment in Saudi Arabia (global average 60-75 percent). Around 33 percent of SMEs contribute to GDP — less than the global average but higher than other GCC countries.
SMEs cover a wide range of sectors, including trade, construction, industry, ICT and agriculture, Tardi said. 
Tardi, while highlighting that Saudi Arabia promotes and encourages SMEs, said that there is an increased attention to finding and applying effective solutions to the issues and challenges facing SMEs so that they grow and continue to expand.
About the financing challenge faced by SMEs, Tardi said providing relevant and flexible financing solutions and funds remains key to enable them to test new ideas and business opportunities. 
“SMEs are usually classified as high risks by bank,” he added.
Referring to the question of attracting more foreign investment, Tardi said there are foreign investment laws specified by Saudi Arabian General Investment Authority (SAGIA) related to corporate tax rate cuts, one-stop shop and access to investor information. 
They also allow 100 percent foreign ownership of businesses and real estate.
To attract talented manpower to SMEs, the level of salaries should be improved compared to large corporations. 
Also there should be long-term career plans for SMEs’ employees. Improved labor regulations and monitoring programs should attract candidates who tend to prefer governmental jobs, he said.
Other measures to develop and promote SMEs should be related to innovation, bureaucracy, internationalization and separation of SMEs’ assets from those of their owners or proprietors. 
Access to financing is among the main obstacles facing the Saudi SMEs’ sector, Tardi said. 
In Saudi Arabia, lending to SMEs as a percentage of total loans stands only at 3 percent of total bank credit versus 20 percent in other emerging countries and 25 percent in advanced economies. 
Access to information and advice on market opportunities, sharing of information and exchange of experience are among the other difficulties faced by them.
Alaa A. Al-Mashhadi, head of business development at Saudi Credit Bureau (SIMAH), said small and medium-sized enterprises are among the most important drivers of economic growth; they create jobs, support innovation and boost exports. 
“SMEs currently contribute only 20 percent of Saudi Arabia’s GDP whereas in advanced economies, this contribution can reach up to 70 percent,” Al-Mashhadi said and pointed out that Vision 2030 aims to increase SMEs’ contribution to GDP from 20 percent to 35 percent by facilitating their access to funding and encouraging financial institutions to allocate up to 20 percent of overall funding to SMEs.
SIMAH’s mission is to provide comprehensive credit information services and added value products by utilizing best business practices in order to sustain and afford the highest level of stakeholder satisfaction, he added.
Markus D. Van Der Walt, chief finance officer at Al-Rabie Saudi Foods Co., termed Saudi Vision 2030 as a good initiative. 
“It will take the country forward for centuries to come if they successfully implement the vision goals,” he said, while speaking at the trade summit about liquidity concerns during an economic downturn. “Our business also experienced some downturn and put pressure on liquidity.”
But he acknowledged that there are challenges. “They should focus more on providing education to Saudi citizens and put less reliance on exports. The government should focus more on renewable energy as resources such as sunshine are available throughout the year. They have to utilize that.”
He added: “They have to provide a proper transport system. The major factor is to make Saudi Arabia more accessible to foreign investors. You can see the stock market has opened for foreign investors. Monetary, fiscal policies of the country should be much more in line with international standards. I believe Vision 2030 will address these issues.”
Tharwat Amer, chief financial officer at SEDCO Holding, endorsed the views on Vision 2030 expressed by earlier speakers. “Great opportunities are forthcoming from Vision 2030 and the NTP 2020 requiring finance executives to have focus differently as the market matures.”
Giving a presentation on the ‘Digitally engaged CFO: Myth and reality” at the trade summit, he dealt with the Kingdom’s challenges and opportunities at length.
For example, he said, VAT (value added tax) would be introduced on Jan. 1, 2018. There is a need to encourage the private sector so that it remains in readiness to meet the challenges.
In the US, a big percentage of jobs are created by SMEs. In Saudi Arabia, companies have become “lazy and keep depending on government spending,” he added.
“In Vision 2030, the burden will be shifted to the private sector. The NTP 2020 is a road map to realize the goals of Vision 2030. So, opportunities are enormous in the Kingdom, which has a healthy balance sheet,” he added. 
“They have to open the market further. Opening will allow billions of dollars in investment to be deployed locally, which will create more jobs for the locals.” 
Saudi Vision 2030 will address such issues, Amer said, adding that he is looking forward to see the implementation of the program. 
“Vision 2030 will be a game changer once fully implemented,” he said.
Saudi companies should have a better understanding of the ICC (International Chambers of Commerce) rules, Zubair Husain Shaikh, vice president, head of trade finance sales section, said in his presentation on “Letters of credit (LCs) — a banker’s perspective.” 
This will help the corporates deal in a better way under letter of credit transactions, he said and highlighted that LCs still have a prominent position in the Saudi market.
For example, he said, roughly 10 to 12 percent global trade is taking place under LCs. However, in Saudi Arabia around 30 percent of total imports are still continuing under LCs.

Detailing the benefits of using e-channels for trade finance transactions, Shaikh said LCs can also be used as an effective tool for meeting the working capital requirements of corporates for their trade transactions.
“LC builds discounting, availing pre-shipment finance under confirmed letter of credit transactions,” Shaikh said giving an example.
Sri Lankan Ambassador to Saudi Arabia Azmi Thassin said his participation in the trade finance summit was timely and important as he learned a lot from the discussion about the goals of Saudi Vision 2030 and the NTP 2020. 
“I know the value of these types of forums. It was a good opportunity for me. We now know how to go about to benefit from the various programs.”
The envoy said he was now in a position to inform the government back home about the vast opportunities available here, especially for the private sector. 
He added that he was hopeful that his country would respond positively in an effort to increase its share in the Kingdom’s development projects.

Source: Arab News