Unleashing the power of the social enterprise sector in Saudi Arabia

As part of its Vision 2030, Saudi Arabia aims to boost entrepreneurship, promote the founding of more small and medium-sized enterprises (SMEs), and support the development of not-for-profits. A promising way to reach these goals is to encourage the social enterprise sector. This sector sits between philanthropy and private enterprise, using commercial methods to address social needs in innovative, financially sustainable ways.

In developed economies, the social enterprise sector can contribute significantly to the economy. In the U.K., the social enterprise sector accounts for around 3% of GDP¹. Globally, social impact investing was worth $502 billion by the end of 2018, according to the Global Impact Investing Network². Although the social enterprise sector is in its infancy in Saudi Arabia, it presents a significant opportunity. Currentlly there is just one not-for-profit social organization per 10,000 people in Saudi Arabia compared with around 50 in Canada and the U.S., and 200 in France³. However, we estimate that these organizations could contribute an additional 2.5% to Saudi Arabia’s GDP per year and create more than 250,000 jobs by 2030.

The needs that social enterprises can meet fall into seven main categories: social services, heathcare, education and research, environment, development and housing, religion, and culture (including sports and entertainment).⁴ To learn more about how to foster the sector’s development, Strategy& and Monsha’at (the SME-focused authority under the Ministry of Commerce), conducted a survey in March of 2019 of 34 government bodies and people who identify themselves as social entrepreneurs.

Our analysis leads us to conclude that the government should focus support in five areas:

Awareness and promotion
Infrastructure
Funding
Access and networks
Education and training

Awareness and promotion

The government and the private sector should collaborate to raise awareness of the sector throught promotional activities such as running marketing campaigns and training to teach software skills. They also need to explain the sector’s unique business model, which can range from what looks like a traditional not-for-profit to a publicly traded company with shareholders. An organization is a social enterprise if it meets the following criteria:

Aims for financial surpluses after accounting for all revenues and costs, irrespective of whether it is a for-profit or a not-for-profit enterprise
Prioritizes a social need as its core business aim over maximizing profits
Adopts socially innovative business models that improve efficiency, effectiveness, and inclusiveness

Infrastructure

Social enterprises need supporting infrastructure in terms of technology, physical spaces, and laws. This includes robust connectivity and the right working environment such as flexible co-working spaces,⁵ incubators and accelerators.⁶ The government also needs to draft appropriate and flexible regulations to provide the framework for social enterprises and enable them to grow. This includes the right legal framework in terms of accreditations, intellectual property protection, and copyright laws.

Funding

Social enterprises need funding from such sources as private-sector grants, donations, sponsorships, public-sector subsidies, and tax exemptions. In this area, Monsha’at can cooperate with private incubators and investors, along with government funding programs, to allocate specialized resources and finance to social enterprises. In countries such as the U.K. and the U.S., specialized social impact investors have used a range of investment instruments including social impact bonds.

Access and networks

Social enterprises need access to data and research, market intelligence, and customers. They also require a network of support organizations and partners for education, funding, and promotion. Most countries with a robust social enterprise sector have a government or private organization that acts as the social enterprise developer and takes the lead in facilitating this access and networking. Examples include the Singapore Centre for Social Enterprise (raiSE), Social Enterprise UK, and the Social Enterprise Alliance in the U.S.

Education and training

Education and training are vital to help social enterprises improve skills and build commercial, financial, managerial, and technical capabilities. Among the organizations that can help social enterprises are universities. They can institute specialized curricula and centers that can equip students with social entrepreneurship and social impact skills. For example in the U.S., the Center for the Advancement of Social Entrepreneurship at Duke University offers specialized courses on social entrepreneurship.

Social enterprises can play a key role in achieving Saudi Vision 2030 objectives because they promote economic activity and employment in areas such as education, the environment, healthcare, and social services. Although the number of social enterprises in Saudi Arabia is small, with the right attention and support this core group can expand quickly and set an example for the entire GCC region and beyond.

¹ Social Enterprise UK, “The Hidden Revolution”

² Abhilash Mudaliar and Hannah Dithrich, “Sizing the Impact Investing Market” Global Impact Investing Network, 2019

³ “Saudi Nonprofit Trends Report 2018,” King Khalid Foundation, 2018, page 23

⁴ Monsha’at’s social categories are seven out of ten social categories adopted by the Ministry of Human Resources and Social Development

⁵ Hilal Halaoui, Rabih El Chaar, Fady Halim, and Mohammed A. Alariefy, “Co-working space in Saudi Arabia: The promise and the potential,” Strategy&, 2019

⁶ Simone Bhan Ahuja, “Why Innovation Labs Fail, and How to Ensure Yours Doesn’t,” Harvard Business Review, July 22, 2019

About the authors

Hilal Halaoui is a partner with Strategy&, part of the PwC network, and the leader of the firm’s Public Sector practice in the Middle East and Esam S. Althukair is Vice Governor of Entrepreneurship at Monsha’at.