The Government has introduced various incentives and special schemes for small and medium enterprises, but they are yet to reach a large section of this vital industry. The big question on whether SMEs are gaining from several incentives launched after a government decision to support these units on the directives from His Majesty still remains to be answered.
For instance, take the case of stipulating a minimum five per cent of bank’s total commercial credit to SMEs. Since banks could not achieve the five per cent stipulation by the end of 2014, the Central Bank of Oman has extended the deadline by one more year.
Financial challenges
Although several specialised financial institutions and agencies have been in existence in the country to provide necessary funds and training for young entrepreneurs who promote SMEs, it did not produce the desired results all these years. Even after taking a multi-pronged approach for SME development, the challenges that these units face are many. The financiers of small units face challenges regarding the vulnerability of the sector. In fact, to a large extent, small units are still unable to handle setbacks. They have difficulty in attracting and retaining good management and entrepreneurs themselves are often not the best managers due to lack of experience.
A sizable majority of SMEs are not as innovative and merely offer a standard product or service to a niche market. Further, being unable to invest in technology that can leverage labour productivity, they can at best offer low-paying low-quality jobs which offer limited opportunity for advancement and training. Oman is home to around 121,000 SMEs constituting more than 90 per cent of the economic activity and around 20 per cent of the country’s gross domestic product (GDP). These enterprises are drivers of both economic growth and employment generation and a vast majority are micro enterprises employing five or less persons.
Oman over the past decade has invested billions of rials in mega industries, mainly gas-based ventures, and large infrastructure projects. However, the employment potential in these industries is limited since these units use capital and technology as the key factor of production. In other words, unlike SMEs, large industries have limitation in creating large scale employment for the masses. In view of this situation, the country now needs to encourage entrepreneurship among its youths and to work with the large corporations to support the SMEs in their downstream, support services and supply chains.
New initiatives
Let us glance through the new schemes introduced by the government in the recent past. A new SME Development Fund with a corpus fund of RO100 million was launched in a bid to develop the small and medium enterprises segment in Oman. The fund started with a small corpus fund and it is aimed at creating 7,500 small units with employment potential for 50,000 youth. The authorities are now visiting colleges and select schools for creating an entrepreneurial ambience in the country and target to cover 50,000 students over a period of ten years. The SME Development Fund has a four-point plan, which will encompass visiting the colleges, nurturing, funding and legitimising small businesses. Also, for making available enough funds for SMEs, the banking regulator has introduced a new stipulation on commercial banks to provide a minimum five per cent of their commercial loan portfolio to SMEs. This is against an average lending of two per cent to SMEs by the commercial banks in Oman. Since banks have to provide five per cent of total lendable resources only to SMEs, these institutions are more aggressive in funding small units, which help eliminate certain barriers for offering loans at competitive rates.
Other major initiatives to ensure fast growth of SMEs include speedy payment of funds for completed projects by government and large companies and a minimum ten per cent of sub-contracts from major contracting firms for SMEs. Oman Development Bank (ODB), the leading bank in the field of sustainable financing in Oman, is playing an important role in financing SMEs through its low-interest schemes by providing them with technical support. Further, ODB provides working capital scheme for small and medium enterprises. Working capital loans are fundamental to companies, especially SMEs that grapple with shortage of funds in their day-to-day operations. A scheme for providing free consultations in order to prepare financial accounts of the SMEs by appointing financial and accounting consulting firms has also been introduced.  Agencies like Intilaaqah also play an important role in developing SMEs in the country. Intilaaqah provides funding, guidance and business development services to existing and potential entrepreneurs.
Private sector participation
Private sector also started taking several initiatives to support the development of small and medium enterprises, which include preferential treatment while awarding contracts and awards for best performing small entrepreneur.  Of late, major blue chip companies and business groups in Oman, including Bank Muscat, Zubair Corporation and Oman Telecommunications Company, have introduced mentoring programmes for select entrepreneurs as well as awards for those outstanding entrepreneurs. In yet another move, the Capital Market Authority is now in an advanced stage of developing an SME capital market and exchange model for Oman. The model is being developed in conjunction with some of the most successful SME markets in the world, and in coordination with the Ministry for Commerce and Industry and the Public Authority for SME Development.
The objective of the exchange is to support the development of SMEs across a wide range of growth enablers, to provide fair and attractive returns to investors and market participants. The country’s industrialisation drive was mostly facilitated by the Public Establishment for Industrial Estate (PEIE), which manages more than six industrial estates spread across the country. PEIE, which acts as a one-stop-shop for new entrepreneurs, manages Rusayl, Raysut, Sohar, Sur, Nizwa and Buraimi. With the growing demand for industrial plots from small and medium enterprises, PEIE is trying to develop new industrial estates, besides expanding existing ones. The authorities have adopted a policy to develop industrial estates in three more regions – Samayil, Ibri and Musandam – in a move to create employment opportunities.
In fact, several opportunities exist in the Sultanate’s downstream projects like the proposed plastic, metal, and food processing clusters, which will be able to generate massive job opportunities. These industries, which will use the products of mega industries like Sohar Aluminium or Oman Polypropylene, will also create huge indirect employment opportunities.
Special focus is attached to developing free zones to attract investment in industrial sector. The whole plan is centred on strengthening the development of export-oriented small and medium industries. After setting up a free zone in Salalah, similar ones are under development in Sohar and Al Mazyuna. Sohar free zone, which has almost completed the first phase in an area of 500 hectares, has already attracted RO300 million worth investment. Opportunities also exist in Duqm for SMEs, which include fabrication of steel structures for offshore/onshore projects, fabrication and installation of package modules for plants and manufacture of spare parts. The economic zone is expected to contribute 5-8 per cent of the GDP of non-oil sector by 2020, besides generating employment opportunities for 15,000-20,000 youth in the next ten years. A ship repair facility and a multi-purpose commercial port – the two major projects that started operations in Duqm – are the engines of growth and are expected to play the role of a catalyst in attracting investment. Mineral deposits in the Al Wusta region also offer ample opportunities for small enterprises.