More than Fast Cash: The real potential of SME digitization in MENA
From revenue generation and market entry to accelerating the growth of AI and hyper-scale cloud computing. How is the journey of SME digitization driving the next major technological leap in MENA?
To lay the foundation of SME growth and generate the required policy reforms, Dubai SME introduced its clear-cut framework for identifying and defining an MSME. This definition, while in congruence with global trajectories, identifies MSMEs based on the size of the team and the value of its turnover, with thresholds differing across the three main business segments: Trading, Manufacturing, and Servicing. For example, while a company of 10-100 employees with a turnover equal to or less than AED 50M is considered a small manufacturing company, these thresholds go down to 6-50 employees and a turnover less than or equal to AED 20Mn for servicing companies.
We highlight this today not only to regroup under one definition of SMEs, which is critical but more importantly, to highlight the exciting arm of SMEs growing in MENA over the past 10 years. The valuations and funding cycles recorded over the most recent years, especially in more developed VC markets in MENA like the UAE, KSA, Egypt, and Jordan, have been supporting the plunge of more and more startups into MSME categories. This has been injecting a new generation of tech-savvy, future-forward entrepreneurs into one of the region’s most vital business segments.
Anchors and economic benefits of SME digitization in MENA
In a most recent publication by Visa surveying a sample of MEA-based SMEs, the digital payments aggregator has found that some of the most prominent setbacks for the digitization of SMEs have been a starking preference for cash on hand, a lack of tech and digital awareness, and an impending funding gap that has been valued around $5.1 TR in emerging markets.
Nonetheless, the report showed an uptick in SMEs undergoing digital transformation post-pandemic. Up to 70% of SMEs in MEA have boosted their use of digital technologies after the pandemic, and almost 73% of survey respondents were optimistic about the opportunity for digital transformation in the future.
On one end, this could be directly attributed to the newly boosted online consumption habits, where 70% of consumers in MEA are shopping more online. On the other, the digital path has been generating unprecedented scaling opportunities for this segment.
According to the survey, the largest expressed benefit of adopting digital technologies, cashless payment to be precise, was the simplicity of accessing revenue and the ease of moving budgets- say to suppliers, for example. Other research, like Arthur D. Little’s survey of 240 UAE-based SMEs in 2021, proved that digitization has opened up SMEs, mainly in attracting new customers, saving costs, and entering new markets (especially relevant with the newfound ease of cross-border transacting).
SMEs to spur the macro advancement of AI and Cloud Technology
The Saudi national AI and data strategy has put a core focus on SMEs. Based on Monsha’at, the Saudi vision has set bold AI-focused goals, including the emergence of 300 local AI/AI-related startups, the injection of $20Bn in infrastructure and AI investment, and the upskilling of 20,000 local talent to AI specialty by 2030. Upon the fruition of this vision, AI is expected to add $135Bn to the Saudi economy, while the SME-focal approach is estimated to create 40,000 direct and indirect jobs.
Earlier this year, the Dubai Chamber of Commerce revealed that hyperscale cloud computing could boost SME value up to $17Bn in a co-published report with Amazon Web Services (AWS). This was mainly broken down to $10Bn in revenue generation and cost-saving benefits to SMEs, and most interestingly, almost $7Bn in economic benefits for local technology sectors that organically sprout with the transition to hyperscale cloud computing.
The hyperscale cloud computing proposition requires a full-fledged national innovation model. This traverses various broad aspects, including tech-savvy SME digitization operations, a unified central cloud data servicing, and a plethora of computing support sectors, including AI, ML, and big data aggregators. A similar futuristic vision is also shared in Saudi Arabia, where Saudi has set the path for SMEs to unlock the Kingdom’s true Artificial Intelligence potential.
Dubai SME’s most recent findings have proven that investment in SMEs has successfully diversified its economic structure. Between 2008 and 2019, the SME sector has been able to increase its contribution to non-oil GDP, and more importantly, the growth trajectory most remarkable has observed a successful shift from trading-based SMEs, where the majority of SMEs now constituted service-based SMEs growing by almost 15% since 2008 to make up 48% of all registered SMEs in 2019. Yet the $17Bn proposition, and the many national initiatives rolling out in the GCC, put SMEs at the heart of the next digital leap for the region.