RIYADH: Saudi Arabia’s small and medium-sized enterprises recorded their fastest growth in new orders in seven months in September, helping business conditions improve for a second consecutive quarter, an economic tracker showed.
The overall Riyad Bank Saudi Arabia SME Purchasing Managers’ Index, compiled by S&P Global, edged down slightly to 53.8 in September from 53.9 in August but remained above the 50 mark that separates expansion from contraction.
The improvement came amid regional conflict that has disrupted shipping and weighed on business sentiment. Saudi Arabia aims to increase the contribution of SMEs to gross domestic product to 35 percent under Vision 2030, up from around 20 percent.
Naif Al-Ghaith, chief economist at Riyad Bank, said: “The September SME PMI results provide an encouraging signal on the underlying strength and resilience of Saudi Arabia’s SME sector.
He added: “The quarterly average improved to 52.7 in the third quarter from 51.4 in the second quarter.”
New order growth accelerates
According to the survey, improving business conditions reflected a robust and accelerated rise in new work received by SMEs.
New business grew at its fastest pace in seven months, supported by a sustained rebound in sales enquiries and resilient domestic economic conditions.
Although firms generally reported improving demand, some cited geopolitical tensions and elevated cost pressures as headwinds to growth.
Commenting on the report, Ryan Alnesayan, a partner at Arthur D. Little responsible for the Middle East and Saudi Arabia, said: “This momentum creates an opportunity for Saudi SMEs to take a bigger role in the Kingdom’s supply chains. Major projects can open doors, but businesses need to be ready to deliver.”
He added: “Investing in capacity, skills and productivity will help them fulfil contracts reliably and compete for larger ones. The real measure is how much of today’s demand becomes lasting growth.”
Job creation strongest in 6 months
Business activity growth remained robust in September, although it eased from the eight-month high recorded in August.
This encouraged another marginal increase in SME employment, with the pace of job creation reaching its highest level since March.
Stronger demand and plans to expand business activity led to the sharpest increase in input buying in seven months. Suppliers’ delivery times continued to shorten during September, reflecting successful efforts to diversify supply chains. However, higher raw-material and transportation costs drove another robust increase in input prices.
Future outlook
The survey showed that SMEs remained optimistic about the year-ahead business outlook, driven by positive sales pipelines and hopes for greater regional stability.
However, confidence eased from August’s level and remained below June’s recent peak.
“The September results reinforce the important role of SMEs in supporting Saudi Arabia’s economic diversification. The simultaneous improvement in new business, employment and purchasing activity provides a constructive indication of private-sector momentum,” said Al-Ghaith.
He concluded: “As the Kingdom continues to advance Vision 2030, a dynamic and expanding SME sector will remain an important contributor to job creation, private-sector development and the broadening of the Kingdom’s non-oil economic base.”