Abstract
Entrepreneurship is an important business principle that is fuelling growth in economies, whether they are big or small. Economic growth is clearly manifested when a country’s entrepreneurial sector is emancipated. Such is the case of Saudi Arabia, a country that is already rich in terms of mineral resources and developed socially and economically. Saudi Arabia is pushing for the transition of its economy from a resource-based one to a knowledge-based one. To do so, it is pump-priming its small and medium businesses through a combination of government led and private sector led initiatives, all envisioned to create an entrepreneurial sector that would help drive the country forward. This paper examines these initiatives by the Saudi Arabian government and the other inputs from its business sector. The results of the overall effort of Saudi Arabia indicated a growth in available jobs and a more positive direction towards economic transition. While the results are too early to conclude with certainty, the actions of Saudi Arabia prove the invaluable contribution of entrepreneurship to the growth of local economies.
Introduction
The Bainbridge Graduate Institute defines “entrepreneurship” as the will to develop, organize and manage a business venture and assume all the risks of doing so despite the competitive and continuously evolving marketplace (Bainbridge Graduate Institute, 2013). (Eisenmann, 2013). Harvard Business School’s Professor Howard Stevenson defined the word entrepreneurship as “the pursuit of opportunity beyond resources controlled” (Eisenmann, 2013). This definition highlights three critical elements of entrepreneurship, those being pursuit, opportunity and beyond resource controlled. Pursuit is expounded by Eisenmann (2013) as a focus that is characterized as singular and relentless. This focus comes from a keen sense of urgency due to the perception of the “smallness” of the window for accessing an identified opportunity. Focus also comes from the need to attract resources, which to an entrepreneur, diminishes as time passes. Opportunity is explained as the invention and commercialization of a new product, the use of a new business model, the creation of cheaper or better product alternatives, or the creation of a new set of customers for an existing product. Finally, the term “beyond resources controlled” is explained by Eisenmann (2013) as those factors that are beyond what the entrepreneur can bring to the venture, such as his personal funds, time, know-how, etc. Eventually, an entrepreneur would have to gain access to resource outside his personal resources to fulfil his entrepreneurial vision (Eisenmann, 2013).
Entrepreneurship is important to any economy in the world. The global economic landscape acknowledges the importance of entrepreneurship as a driving force for economic growth. According to the Global Entrepreneurship Monitor (GEM) Report of 2012, entrepreneurship accounts for about one third of global economic growth (The GEM Report, 2013). The United Nations University reports that entrepreneurship’s importance in global economic development is gaining greater importance (Naude, 2011). According to Naude (2011), the rise in importance of entrepreneurship in the global arena is due to a more entrepreneurial-type knowledge- driven economy in Western countries that have relied from 1970 to 2000 on big business and mass production; the rise of Brazil, Russia, India and China and the requirements of these countries for sustainable growth; and a shift in the philosophy of aid sources for least developed countries to private sector development rather than infrastructure development (Naude, 2011). These developments lead to a natural expectation which is the contribution of entrepreneurial undertakings to growth and employment generation. This also leads to the requirement for a state or a country’s government to support its entrepreneurial class to further its development.
Thus, the role of the government is very important for entrepreneurial development to ensure that the desired social outcomes are produced. In addition, the role of government emphasises the importance of non-material welfare development because material gains are not the only requirement by which state management is measured. This means that there is a need for an understanding of effective government strategies towards the creation and sustenance of a country’s entrepreneurial class.
This paper shall attempt to examine the relationship between the developments of the entrepreneurial sector of a particular country with respect to the policies that are instituted by the country’s government. Specifically, we shall look into the successful development of the entrepreneurial sector of Saudi Arabia as part of a widely successful strategy of the country to build on its competencies and resources.
The Kingdom of Saudi Arabia
The Kingdom of Saudi Arabia (or Saudi Arabia) is one of the richest countries in the world. Saudi Arabia’s economy is primarily based on oil, having 18% of the world’s proven oil reserves (The CIA Factbook, 2014). Saudi Arabia is the largest oil exporter in the world and holds an influential position in the Organization of Petroleum Exporting Countries (OPEC). Saudi Arabia is the 19th largest economy in the world and is currently the largest economy in the Middle East Nations (MENA) region . The country’s Gross Domestic Product has been increasing in the last five years as shown in the representative graphs. Saudi Arabia’s GDP is valued at US$ 576 Billion in 2012 . The country is one of the world’s fastest growing economies, having a GDP growth rate of 6.8% in 2012 . It is also the MENA’s largest economy, contributing 25% of the region’s total GDP . It has achieved this because Saudi Arabia is the largest free market in the region and the most reformed economy in the region in terms of business investments from the foreign sector.
The Saudi Arabian Government
The Kingdom of Saudi Arabia was founded in 1932 by Abdulaziz bin Abd al-Rahman Al Saud (Ibn Saud). The government of the country is a hereditary monarchy. The son of the founder of the Kingdom, King Abdullah bin Abdulaziz Al Saud was proclaimed in 2005. The Kingdom is guided by the Basic Law of Governance, a document that declares what the government’s rights and responsibilities are. The Basic Law of Governance was established in 1992 through a royal decree .
In Saudi Arabia, the King is the head of the state, of the government, the prime minster and the commander in chief of the military. Because of the hereditary nature of the monarchy, no elections are required in Saudi Arabia. The King chooses his Council of Ministers (Cabinet) every four years with most of his family members taking part as a Minister, helping run the government. The King appointed Norah Al-Fayez in February 2009. Al-Fayez is the first female cabinet-level official and was installed as the deputy minister for women's education. This is one of the many bold moves that King Abdallah has taken to help modernize Saudi Arabia.
Since 2005, the Kingdom of Saudi Arabia, headed by King Abdallah has worked to modernize the country. This move towards modernization is driven by the King’s personal ideology and political inclinations and has led to a lot of social and economic opportunities. These opportunities include work and education opportunities for women in a broader sense, the creation of a favourable business environment for foreign investments, the prioritization of locals for work opportunities and the creation of a thriving private sector. Another proof of the King’s progressive stance is a series of benefits provided to Saudi citizens starting in 2011. These benefits cover the availability of funds for housing, unemployment and salary increases for government workers. In addition, the King allowed women to run and vote for municipal position which is a move toward greater gender equity in the country.
Entrepreneurial Policies and Programs
The Saudi Arabian development program is anchored on the transformation of the economy from an oil-based economy to a resource-based one (knowledge base). Because of the availability of funds for implementing these programs, Saudi Arabia is in a unique position of creating an internal catalyst to achieve its economic objectives. The capability of the economy to transform itself is a unique factor that is affecting private sector development in the country. For example, in 2010, the Kingdom of Saudi Arabia launched an aggressive program that was targeted at improving the level of entrepreneurship and innovation in the country. The country’s small and medium enterprises (SMES) account for a majority of the country’s business enterprises (about 92%) and are a large employer of the local workforce (about 80%) (Hamod, 2010). One of the programs that the Saudi Arabian government has launched is the establishment of the Human Resource Development Fund (HRDF) (EFFAT University, 2011). The HRDF’s main function is the provision of funding assistance for entrepreneurs. These funds will be made available through conventional financing channels such as commercial banks and through non-conventional financing channels as well. Another government-led initiate is the launching of education programs for entrepreneurs especially those that are leaning towards businesses in the technological fields. This program is implemented through the King Abdullah University for Science and Technology (KAUST). The KAUST is a state-of the-art university in Saudi Arabia that focuses on graduate-level research. The KAUST is the country’s leading organization that will aid in the transition of the country from a purely oil-based economy to that of a knowledge-based society. This transformation will create the resurgence of the country economy. KAUST has undertaken an Innovative Industrial Collaboration program (KICP) that is designed for integrating local, regional and global business interests in entrepreneurial growth with the University’s academic research. This means that the academic findings of KAUST are applied to or taken from real-world situations.
Figure 1 Saudi Arabia GDP
Figure 2 Saudi Arabia's Annual GDP Growth Rate
Another government-led initiative is implemented through the Saudi Arabian General Investment Authority (SAGIA) which was established in the Kingdom in 2000. The SAGIA assists entrepreneurs by developing linkages with international companies. The SAGIA is also the lead agency for promoting investments in the Kingdom of Saudi Arabia (EFFAT University, 2011). The SAGIA is also the Kingdom’s official information clearing house and is the agency that provides comprehensive licensing and support services for foreign and local investors (Saudi Fast Growth100, 2011).
Support from the Private Sector
The developed position of the economy makes it easy for the private sector to support government programs and nurture entrepreneurship in Saudi Arabia. As a matter of fact, the private sector in Saudi Arabia has moved towards the improvement of the entrepreneurial sector of the country. Through the initiatives of the SAGIA and through the Bank Al Ahli, the Saudi Fast Growth 100 (SFG100) was launched. The objective of the program is to promote entrepreneurial movement in Saudi Arabia. The SFG100 ranks the 100 growing entrepreneurial ventures in Saudi Arabia and awards these ventures through the annual Saudi Fast Growth Awards (SFG). The SFG measures growth for small corporations, categorized as start-ups or those that are at least five-years in existence, in Saudi Arabia. Upon the introduction of the SFG in 2008, the business community of Saudi Arabia instantly reacted, showing very promising signs of growth. What the SFG had done is that it spurred growth through innovation by creating a framework that focuses on smaller businesses. The SFG was successful for igniting the imagination of the then unrecognized entrepreneurial sector of Saudi Arabia. The SFG awards risk-takers through a ranking of new business revenues and revenue growths. Women entrepreneurs are recognized as well.
Another program that is private-sector led is the Bab Rizk Jameel (BRJ) which is developed and implemented by known philanthropist and entrepreneur Abdul Lateef Jameel in 2007 . The BRJ focuses on assistance for micro-sized businesses by giving them access to much needed financing and marketing services. The Non-Profit Organization INJAZ-Saudi on the other hand provides services to bridge workforce readiness and education, preparing them for employment with the private sector. INJAZ-Saudi provides financial literacy, work readiness and entrepreneurial development educational programs, doing this in collaboration with the country’s Ministry of Education and prominent Saudi companies as well as experienced professionals.
Conclusion: Entrepreneurship and Economic Progress in Saudi Arabia
The result of all these efforts is nothing short of significant. From 2008 to 2010, the SFG has resulted in the creation of about 35,000 new jobs. Those companies that have been awarded by the SFG have grown by an average of 43% a year. Most of these companies are in the High-Technology and Telecommunications industry. There are start-ups in fourteen other industries as well. There is also a high survival rate of new companies. Of the 70% of the CEOs in Saudi Arabia that have founded new companies, 90% of their businesses are still operating. These CEOs have ages from 30 to 33 years old upon the formation of these new companies. Most of these young CEOs are planning on either starting another business or opening up their companies for public ownership through an Initial Public offering (IPO) .
Challenges remain even in a developed and rich country like Saudi Arabia. One of the largest issues for the creation and sustenance of the entrepreneurial sector of Saudi Arabia lies in the fact that the country’s consumer market is driven by already established private sector groups and that breaking-through to these already established markets will be difficult for entrepreneurs despite all the government and private sector support. For example, Saudi Arabia hosts almost all of the major hotel chains in the world and a new company wanting entry into the hotel market will find it very difficult because of the depth of the existing competition. Another good example is the availability of almost all famous food chains in Saudi Arabia. The thriving market is due to a well-developed franchising system that discourages local competition and therefore does not create more employment opportunities.
For Saudi Arabia to transition from an oil-economy to a more knowledge-based economy, it must focus on human development as well as in the development of a more specialized manufacturing sector. This would create more mass employment opportunities, compared to smaller-sized individual businesses that might not create as much impact.
While Saudi Arabia does not have a large unemployment problem similar to other countries in the MENA or in other developed countries, it is still an issue that the Saudi Arabian government must address effectively. There is a large possibility for the country to progress even more, as it has now laid down the groundwork for ensuring that these changes could and would happen in the not so distant future.
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