Formal small and medium-sized enterprises (SMEs) represent around 99.5% of all firms in Saudi Arabia, contribute about 28-30% to GDP, and employ up to half of the population’s workforce.
The incentive for global SMEs and startups to launch and expand their operations in Saudi Arabia is further reinforced by the Estrdad (Refund) initiative, which rolled out its second edition just a few days ago.
The Estrdad initiative, spearheaded by the Small and Medium Enterprise Authority (Monsha’at), represents a crucial step forward for the entrepreneurship sector in Saudi Arabia, playing an essential part in increasing the SME contribution to GDP to over 35% by 2030.
Estrdad Initiative: Advantages, Components, and Requirements
Through the Estrdad initiative, Saudi is pledging SAR 1.5 billion (around $400 million) to refund government fees for startups and SMEs.
Registration
Registration for SMEs in Saudi Arabia starts from the launch date of the Estrdad initiative and continues until the end of 2026. Payments to eligible SMEs will be disbursed periodically from the date of their qualification until the end of 2028.
Scope
The scheme covers refunds for 10 types of financial costs, starting with 80%of expatriate fees, publishing the articles of association (AoA), commercial registration, municipality licenses, Saudi Post and chambers of commerce subscriptions, trademark and patent registration, and economic activity licenses.
Requirements
The Estrdad initiative is open to SMEs that have been in business for over three years and started activity no earlier than January 1, 2024. The official start date for a business is when its first employee comes on board..
Eligible SMEs must also meet the Saudization percentage set by the Ministry of Human Resources and Social Development, and micro, small, or medium enterprises or individuals must hold at least 60% of company ownership.
To qualify for the Estrdad initiative, a business must be entirely owned by Saudis, unless its specific activity is an exception outlined in the terms. Additionally, the business must operate in a licensed economic activity to have its application considered.
Related read: Saudi Plans New Saudization Rates for 269 Professions in Private Sector
Estrdad builds on the momentum of its first edition, launched in 2018, which supported over 27,000 local businesses, generated more than 89,000 jobs, and recorded a 75% sustainability rate among participating SMEs.
Estrdad Initiative: Impact on the Wider SME Sector in Saudi Arabia
The initiative’s holistic approach helps unlock the potential of the SMEs to retain long-term relevance in an ever-changing environment.
The second edition of Estrdad has included patent registration to encourage innovation and invention among national enterprises, significantly aiding the rapid evolution of the Kingdom into an entrepreneurial society.
Historically, SMEs face resource constraints, which limit their ability to adopt advanced technology.
By removing these financial barriers for entrepreneurs, the Estrdad initiative allows business leaders to shift focus on people, strategy, and innovation, thereby accelerating their organization’s overall performance, productivity, and profitability.
By harnessing the power of transformative technologies, small businesses can gain a competitive edge and drive sustainable growth. This translates into better customer service, improved product quality, and bottom line.
This way, initiatives like these help create the foundation for the digital economy to grow manifold. Last year, Saudi Arabia’s digital economy exceeded $133 million, with much of this growth largely driven by the strong adoption of tech and AI technologies among SMEs.
Global enterprises offering bespoke digital solutions for SMEs can find open space for their operations in the Kingdom’s technology sector, eventually prompting them to set up a business in Saudi Arabia.
How Saudi Arabia is Future-Proofing the SME Sector
Spurred by regulatory reforms and governmental support, the SME sector in Saudi Arabia continues to expand at a rapid clip. The Kingdom recorded nearly 1.6 million registered SMEs by the fourth quarter of 2024, marking a substantial 67% rise from Q3 2024.
SME-focused schemes like Kafala have facilitated improved access to financing for SMEs. Since its inception in 2006, the program’s portfolio has reached SAR 123 billion ($23.8 billion), with guarantees totaling over SAR 80 billion ($21.3 billion).
The collective impact of SMEs remains as a strategic lever for increasing private sector participation in the economy and creating high-quality jobs across sectors, particularly in the tech industry.
In recent years, there has been a noticeable shift among Saudi nationals towards entrepreneurship, with nearly 42% of Saudis planning to start their own business in the next three years, according to the Global Entrepreneurship Monitor (GEM) 2024-2025 report.
These figures are reflective of the thriving IT market in the Kingdom. Taking a more granular look, the Saudi IT market is currently worth $48 billion (SAR 180 billion) in 2024, the largest regionally.
With advanced digital infrastructure and rising government investments, the industry’s GDP contribution is likely to reach SAR 50 billion ($13.3 billion) by 2030, representing a 50% increase.
This growth manifests more evidently in VC funding. Last year, Saudi-based startups led the region in VC funding in the startup and SME sector, securing $750 million (SAR 2.8 billion).
Further reinforcing this momentum is the Kingdom’s position as a destination for global tech events like the Biban Forum, which takes place annually in Riyadh. Worth noting that last year’s edition concluded with a wide range of agreements worth more than $9 billion.
Recognizing the role that SMEs play in spurring sustainable development, the government is ramping up initiatives to ensure that Saudi Arabia remains the first destination of choice for businesses looking to build, innovate, and scale up.
Looking to the future, the Estrdad initiative will be pivotal in not only helping foster a new generation of innovators but also shaping the country’s digital economy.