Saudi Gazette report JEDDAH — The huge disparity between the volume of loans and the cost of running ventures pose a potential threat to several business enterprises launched by young Saudi men and women. The government has earmarked about SR2 billion for extending loans to these projects but this amount is insufficient to meet the actual cost of small and medium ventures, according to officials working in the business financing sector. They noted that more than 50 percent of small and medium ventures that began with the government's financial support have ended in failure over the past few years. Even though these ventures were launched by qualified young Saudis after carrying out extensive feasibility studies, they failed to take off because of several factors, a local newspaper reported. They claim that even though there were diverse means of financing new projects, only a few of them became successful. Most of these projects are traditional ones that are unable to cope with the stiff competition in the market mainly because of the lack of experience and inefficient financial management by these young entrepreneurs. Ziyad Al-Bassam, the official in charge of small and medium projects at Jeddah Chamber of Commerce and Industry (JCCI), attributed a number of factors to the failure of such projects. They included insufficient financing, bureaucratic procedures, inability of young entrepreneurs to manage accounts, and huge gap between spending and revenues. “Even though there are various means of financing, it is unfortunate that most of these young entrepreneurs are ambitious and not prudent in spending. This results in huge disparity in their budgetary spending and revenues and subsequently they rely on taking more loans,” he said. Citing the factors that would lead to the success of these projects, he said that ambition, optimism and competitive mood would be supplemented with clear visualization, feasibility studies, hard work and patience. Even though the concerned financial bodies extend higher amount of loans to these investors, the amount would not be sufficient to set up the venture. In order to avert this crisis, the JCCI established separate divisions to develop projects and explore prospects of making the venture successful. It extends not only financial support but also consultancy services, moral and administrative support, in addition to extending government facilities besides undertaking follow up of projects to avert their failure. Al-Bassam said that there are several financial agencies and bodies extending loans to young entrepreneurs. They included Saudi Credit and Savings Bank, Centenary Fund, charity foundations, and special agencies that are working to support projects and commercial firms through the Guarantee Program. He said that young investors who require loans should not aim for large projects that need huge investments because there is great risk for their failure. “They should acquire experience and expertise through setting up of small projects so that they can have a clear idea about the market conditions, such as the actual demand for the product and tastes of consumers,” he said. “The JCCI started organizing an annual exhibition for young entrepreneurs. It started with 45 participants and now their number has jumped to more than 300,” Al-Bassam said, adding that this year's exhibition will be held next month. He noted that the chamber is extending facilities for nearly 75 percent of companies that are competing to become among the 100 leading companies in Jeddah. Rania Salama, chairperson of the committee of young businessmen in Jeddah, said that both financiers and young entrepreneurs are equally responsible for the gap between the financing and project costs. “The financiers should review the current system for extending loans by taking into account the entrepreneurs' ability to sell the product in the competitive market. There are several young men and women entrepreneurs who launch projects in accordance with their vision and novel ideas without considering their power to compete with major companies in the market and eventually ending the project in failure,” she said. As a way to overcome these hurdles, Salama said that there should be a union or merger of smaller ventures to withstand the potential competition and market their products in the best possible way. Echoing the same view, Hisham Koshk, CEO of Financial Structure Co., said that there should be an alliance of traditional smaller entrepreneurs so as to avoid failure of their ventures. The financing bodies should appoint a strategic partner to run the project, he suggested. He stressed the need for launching projects in a smaller way and then expanding them after taking into account various aspects. “If we examine the history of most of the successful mega ventures, we can see that almost all of them have a humble beginning,” he added. Meanwhile, Aziz Al-Hakami, a specialist in small development projects, stressed the need for activating social responsibility toward smaller projects by supporting them not through financing but through making available of other facilities, especially during first three years after launching the venture as these are considered as “risky years.” He cited 50 percent discount in rent for shopping space for these ventures as an example for these facilities. Al-Hakami noted that rent makes up more than 70 percent of the operation cost of such projects.
