Saudi Arabia De-Risks Investments: A Promising Opportunity for European SMEs

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Saudi Arabia De-Risks Investments: A Promising Opportunity for European SMEs

In January 2025, Saudi Arabia launched an initiative aimed at reducing investment risks for foreign small and medium-sized enterprises (SMEs). This programme, announced by H.E. Khalid Al-Falih, the Saudi Minister of Investment, falls under the Standard Incentives for the Industrial Sector, part of the broader Vision 2030 plan to diversify the Saudi economy and enhance its industrial competitiveness. For European SMEs, which play a pivotal role in the EU economy, this announcement represents a valuable opportunity to expand into one of the fastest-growing markets.

The Pivotal Role of SMEs in the European Economy

Small and medium-sized enterprises are the backbone of Europe’s economy, accounting, in 2023-2024, for:

99.8% of all enterprises in the non-financial sector in the EU, with nearly 26 million SMEs;
88.7 million people working in SMEs in the EU;
More than 50% of Europe’s GDP.

Despite their domestic significance, European SMEs face challenges in accessing international markets due to limited resources, high entry costs, and regulatory complexities. Nevertheless, there is growing recognition of the benefits of internationalisation. Increasing the internationalisation of SMEs and helping them access third markets is crucial for Europe’s competitiveness, economic growth and innovation. Today, Saudi Arabia’s recent initiative could support this momentum, offering a new frontier for European SMEs in one of the most dynamic markets.

Why is Saudi Arabia a Strategic Market for European SMEs?

Saudi Arabia’s initiative focuses on reducing barriers for foreign small and medium-sized enterprises and integrating them into its local industrial ecosystem. Saudi Arabia uses incentives to attract quality investments and enhance its position as a business hub. Over the past two years, it has formalised these efforts through the establishment of Special Economic Zones, a National Incentives Committee, and a new investment law. This creates significant opportunities for European SMEs in several ways.

1. Lowering Investment Risks

European SMEs often struggle with financial and operational risks when entering unfamiliar markets. The Saudi government’s commitment to allocating 10 billion SAR (2.57 billion EUR) for standardised industrial incentives helps small and medium-sized enterprises overcome initial challenges such as funding, local compliance, and market adaptation.

2. Strengthening Supply Chains

In an interview with Arab News, the Saudi Minister of Investment H.E. Khalil Al-Falih said that the initiative aims to attract foreign SMEs that have for decades been integral to supply chains in their home countries. European SMEs, renowned for their technological expertise and innovative manufacturing processes, are well-positioned to have a role to play in Saudi supply chains. This integration supports the Kingdom’s industrial development goals while offering European companies a stable and growing market for their products and services. Both the EU and Saudi Arabia recognize the importance of integrating SMEs into global value chains. The Saudi initiative’s focus on helping foreign SMEs integrate into local value chains aligns with this shared goal. In the EU, SMEs are highly prevalent across nearly all the value chains, for example reaching 95% of all firms in the robotics and drone industries.

3. Facilitating Collaboration with Local Companies

The initiative supports partnerships between foreign SMEs and Saudi businesses, fostering knowledge exchange and joint ventures. This collaboration can support European SMEs navigate the Saudi market, gain local insights, and establish long-term relationships with local stakeholders. A previous European study showed that complicated administrative procedures and identifying business partners were among the main barriers for SME exports. The Saudi initiative aims to create a business-friendly environment and facilitate collaboration between international SMEs and local Saudi companies, directly addressing these concerns.

Broader Implications for Europeon SMEs

1. A New Market Beyond Traditional Destinations

Historically, European SMEs seeking internationalisation have prioritised nearby regions, such as other EU countries. However, the EU estimates that 90% of global growth will originate outside the EU in the coming years, and developing and emerging markets are expected to account for 60% of the world GDP by 2030. Saudi Arabia, as part of the developing markets, represents a significant opportunity for European SMEs.

The Kingdom of Saudi Arabia is undergoing a profound transformation driven by its Vision 2030 initiative. The country is heavily investing in sectors such as renewable energy, digital technologies, manufacturing, and tourism, aligning with the strengths of European SMEs and enabling them to leverage their expertise in a high-demand environment. Its strategic location as a hub connecting Europe, Asia, and Africa further enhances its appeal.

2. Policy Synergy with EU Priorities

The Saudi initiative aligns with European Union priorities on SME internationalisation and global trade partnerships. EU institutions actively encourage SMEs to explore new markets as a way to bolster growth and innovation. The EU Commission’s priority is to ensure that enterprises can rely on a business-friendly environment and make the most out of growth markets outside the EU. However, the European Commission highlighted that only about 600,000 SMEs, employing roughly 6 million people, export goods outside the EU, revealing a significant untapped potential. By mitigating investment risks and fostering a more business-friendly environment, Saudi Arabia’s initiative addresses this gap, offering European SMEs a viable pathway to expand into a high-growth market.

Conclusion: A Win-Win Opportunity

Saudi Arabia’s initiative to de-risk foreign SME investments marks a pivotal shift in KSA trade dynamics, offering foreign, especially European businesses a strategic gateway into one of the world’s fastest-growing economies. By addressing key barriers such as financial risk, regulatory complexity, and market access, this programme creates a business-friendly environment that aligns with both Saudi Vision 2030 and the EU’s objectives for SME internationalisation.

However, for European SMEs to fully capitalise on this opportunity, they need a “home away from home” platform, a networking platform, and a unified voice representing their interests in the Saudi market. This is where the European Chamber of Commerce in the Kingdom of Saudi Arabia (ECCKSA) plays a crucial role. As a bridge between European businesses and the Saudi ecosystem, ECCKSA provides European companies with the necessary support to navigate local market and connect with industry peers.

With the right support structures in place, including organisations like ECCKSA, European SMEs can seize this moment to expand beyond traditional markets, strengthen global competitiveness, and contribute to Saudi Arabia’s ambitious economic transformation.