An enterprising approach: Efforts to build a more private sector-oriented culture are continuing

In both Qatar National Vision 2030 (QNV 2030) and the National Development Strategy 2011-16 (NDS 2011-16), high priority is given to the development of small and medium-sized enterprises (SMEs).

Such businesses are likely to be a focal point for policy initiatives as the country tries to diversify economic activity and build a more entrepreneurial, private sector-oriented culture. SMEs are seen as important in creating long-term economic stability and sustainability, requiring an effort to support existing firms and bring more young Qataris into the private sector.

Long-Term Plans

Qatar’s SME sector is smaller than in other GCC countries in terms of contribution to GDP and total employees. “The lack of development of entrepreneurship by governments in markets like Qatar, the UAE and Kuwait is due to the fact that it is not a necessity as it is in countries with lower GDPs per capita and younger populations,” Tarik M. Yousef, the CEO of Silatech, told OBG. While no standard definition of an SME exists across the region, making numbers indicative only, in its January 2013 report on Qatar, the IMF showed 9011 SMEs existed in 2010, contributing 15% of non-oil and gas GDP. According to Enterprise Qatar (EQ), the sector contributed only 10% to total GDP in 2011, against a Middle East and North Africa (MENA) average of 28% and a European average of 60%.

The sector accounted for 15% of all jobs in Qatar that year, yet 40% in Saudi Arabia, 71% of employment in MENA and 75% in Europe. Qatari SMEs also accounted for 75% of all registered businesses in the country, according to the International Finance Corporation (IFC), compared to 90% in both Kuwait and the UAE.

Challenges

Many of the challenges Qatari SMEs face are those all such businesses have to overcome, along with some culturally and economically specific ones. Access to financing is probably the biggest challenge. The majority of SMEs in Qatar and the GCC are proprietor- or family-owned businesses, which traditionally look to extended family networks for financing. Working their accounts accordingly, there is often little or no tradition of transparency. In largely tax-free environments too, there may be little for established financial intermediaries to go on in deciding on an SME’s creditworthiness. A lack of transparency in and mismatch over any collateral may also make a bank wary.

The lack of a central credit ratings agency, or of a specific SME category within existing credit ratings agencies, has also been a concern. As a result, lending to SMEs in the GCC is among the lowest in the world, at 2% of total lending, according to EQ, well below the MENA average of 8.3%. At the same time, there is a general lack of angel investor or venture capital networks in the region that might give a budding SME its first – crucial – helping hand. Other challenges faced by SMEs in the GCC include the relatively small size of the local market, high setup costs in terms of permits and premises, and negative perceptions of the local legal framework and recourse to arbitration.

Another issue is that SMEs may be dominated in their day-to-day operations, if not ownership, by expatriates. This tends to stunt the development of an indigenous entrepreneurial class, with nationals gravitating towards higher-paid, lower-risk and more secure public sector jobs. Qatar’s banks have traditionally been less eager to lend to SMEs than their regional peers. A 2011 IFC report suggested only 0.5% of bank lending in Qatar that year went to SMEs. As a result, in the World Bank’s “Doing Business 2014”, Qatar ranked 130th in the world in ease of getting credit.

Moving Forward

The authorities have long recognised the need to develop an enterprise culture among nationals, with QNV 2030 and the NDS 2011-16 both stressing the importance for the country’s future of expanding the role of the local private sector. This necessarily involves coming up with a winning strategy for SME development. In 2008 the government established EQ to look at this area. The agency came up with a strategy that covered SME development right through from encouraging schoolchildren to think as entrepreneurs to assisting mature businesses to move on to regional and global markets. In February 2014, EQ announced plans to launch a $100m fund, which will be tasked with investing in the country’s SMEs.

Youth

At the youth end, programmes such as Injaz Qatar have since been working at around 20 schools and Qatar University to bring 5000 students together with 25 corporations and 222 corporate volunteers, putting students into businesses and businesses into the classroom. Silatech Qatar is also active, particularly via a partnership with Qatar Development Bank (QDB) at Bedaya Centre for Entrepreneurship and Career Development. This helps young Qataris move into the world of private sector business. There are also numerous training and “education for life” programmes now aimed at existing SME staff. Silatech was founded in 2008 to help develop employment opportunities for young people. The organisation has since funded a range of projects related to entrepreneurship, SME investments and labour market development in the region. Silatech also commissions research on the youth labour force and advocates for new job-creating government policies.

QDB has a role in other areas too. In cooperation with the IFC, it provides SME Toolkit, a one-stop-shop service providing information and advice to the sector. QDB is also behind the Al Dhameen programme, which is available to any business with an annual turnover of less than QR30m ($8.2m), and sees QDB offer a guarantee to underpin financing of an SME by a commercial bank.

Support

Qatar Science & Technology Park (QSTP) is another source of help for SMEs active in the high-tech field. QSTP is a free zone which also offers training, mentoring and assistance in early- to mid-stage financing for start-up technology firms. In a similar area, the Qatar Business Incubator programme will see a technology incubator established via a partnership between EQ and TechWadi to link tech business start-ups in Qatar to Silicon Valley firms. ICT Qatar, meanwhile, also has its Digital Incubation Centre, which promotes Arabic digital content and has a series of initiatives to help SMEs develop in this area. Progress is therefore visible in Qatar’s SME development programme.

The Qatar Foundation’s Social Development Centre also offers support services for entrepreneurs, such as interest-free loans that have easy repayment schedules, as well as training and education programmes. Financing of SMEs remains a small part of banking activity, while instilling entrepreneurship among nationals will take some time, as well as requiring some thought to be given to incentives, especially when public sector employment offers so many other apparent rewards.