Social enterprises can drive inclusive growth in Saudi's economy

Building a thriving social enterprise sector could add 2.5% to Saudi Arabia’s GDP each year, according to a new report by Strategy& Middle East commissioned by Monshaat.

The report is set against the backdrop of Saudi Arabia’s Vision 2030 – a comprehensive economic reform programme that aims to turn the country into a global powerhouse over the next decade. Growth is being planned along inclusive and sustainable lines, with hopes to “create a vibrant society in which all citizens can fulfill their dreams, hopes and ambitions to succeed in a thriving economy,” according to the Saudi government.

For Strategy&, the global strategy consulting arm of PwC (formerly Booz & Company), a thriving social enterprise sector is crucial to achieving this objective. Splitting the gap between philanthropy and private enterprise, social enterprises use “commercial methods to address social needs in innovative, financially sustainable ways,” according to Strategy& Middle East partner Hilal Halaoui.

There is plenty of scope for innovative models within these boundaries, and success stories abound globally of how the social enterprise sector has added economic value. By 2018, social impact investments around the world were pegged beyond half a trillion dollars, driven by key markets such as the UK, US, Singapore and South Korea.

Mirroring this progress could directly generate billions for Saudi Arabia, with a range of other economic benefits in the mix. The report highlights the UK as an example. Social enterprises now account for 3% of the UK’s GDP and 5% of its total employment. Giving the sector a similarly central position in the Saudi economy could bring far-reaching benefits.

“Based on the experience of developed economies, we estimate that if Saudi Arabia were to properly promote and support the social enterprise sector, it could contribute an additional 2.5% to GDP per year and create more than 250,000 jobs by 2030,” said Halaoui. And these are just the direct gains.

Inclusive growth

Also promising is the inclusive path to growth that comes with a vibrant social enterprise sector. Nearly 40% of social enterprises in the UK are run by women – a level of equity far beyond anything that the rest of the economy has so far been able to achieve. A similar boost to equity would align with broader objectives in Saudi Arabia – where efforts are underway to bring women into the economic fore.

This glowing, inclusive growth story only gets better when considering the purpose of the social enterprise sector – most often working towards social and economic betterment. “The result would be a wealth of organisations that can deliver services in such sectors as education and healthcare in a more efficient and inclusive manner than the government,” explained Halaoui. 

Then there is the international impact. Saudi Arabia’s position as an economic and religious leader in the Middle East means that social enterprise success in the country will inspire social impact investments across the region as a whole. At a time when the healthcare and education machinery is already under considerable strain, such a scenario could prove a golden ticket to economic recovery.

A roadmap

So the benefits are far-reaching. That being said, such a win-win scenario remains some way in the distance, and there is work to be done to enable social enterprises in Saudi Arabia to grow. The ratio of social enterprises to people in Saudi Arabia – 1 to every 10,000 – remains behind most developed economies and a number of developing economies as well.

In part, this is because the country is just sowing the seeds for social enterprise. At the same time, Strategy& points out that there are a number of barriers that continue to exist for growth in the sector. Last year, the firm surveyed members of 34 Saudi government bodies alongside several social entrepreneurs to gauge the challenges to social enterprises in the country.

“We found that in Saudi Arabia most social enterprises are in the early stages of development and are not financially sustainable. Survey respondents told us that the greatest challenge is the lack of regulations. They also cited other significant challenges to unlocking the sector’s potential: ambiguity of legal structure, lack of funding, and difficulty in talent recruitment and retention,” explained Halaoui.

Going forth, the government as well as private enterprises will have a key role to play in developing the infrastructure, financing models and talent required to extract the full potential of social enterprise in Saudi Arabia. The result could be a sustainable and inclusive economy, with billions in added value.