Why Employing Many Is No Longer Enough

Oman’s SME sector is routinely described as the backbone of the private economy. By the second quarter of 2025, small and medium enterprises employed roughly 1.37 million people, accounting for 76 percent of the country’s private sector workforce. By employment alone, the model appears successful.

By economic contribution, it is not.

During the same period, SMEs generated only OMR 2.116 billion in value added. Large enterprises, employing just 434,000 workers, produced OMR 6.031 billion. The conclusion is difficult to avoid. Oman has built an economy that excels at absorbing labor, but struggles to convert that labor into productive output.

This imbalance is not cyclical. It is structural. And without a shift in policy focus, it will continue to weigh on national competitiveness.

The Employment–Output Mismatch

At a surface level, SME dominance in employment is often framed as proof of entrepreneurial vitality. A closer look reveals a different function. SMEs have become the primary mechanism through which the economy absorbs labor, particularly low-skilled labor, at minimal productivity.

Large enterprises now generate nearly three times more value while employing less than one third of the workforce. This is not a marginal difference. It defines the structure of the private sector itself.

The issue is not that SMEs exist in large numbers. The issue is what kind of economic activity they are concentrated in.

Quantifying the Productivity Gap

Data from the National Centre for Statistics and Information allows the productivity gap to be measured directly.

When quarterly value added is divided by employment, the difference becomes stark:

  • A worker in a large enterprise generates approximately OMR 13,900 per quarter.
  • A worker in an SME generates approximately OMR 1,540 per quarter.

In economic terms, a large enterprise employee is almost nine times more productive than an SME employee.

This figure is not an abstraction. It is the central constraint on income growth, fiscal resilience, and long-term competitiveness.

Why the Gap Exists

The productivity divide is not the result of weak effort or poor management in isolation. It is the outcome of how the SME sector is structurally composed.

Sector Composition and Skill Intensity

Most SME employment is concentrated in construction, retail, logistics support, and personal services. These activities are labor-intensive and low margin by design. They depend on volume rather than efficiency.

Micro-enterprises alone employ 697,000 workers, more than the entire large enterprise sector combined, while contributing only OMR 817 million to GDP. These firms provide essential daily services, but their contribution to national value creation is limited.

Capital and Technology Asymmetry

Large enterprises in energy, banking, and logistics operate on a capital-intensive model. Output grows through systems, machinery, and digital processes.

Most SMEs operate on the opposite logic. Growth requires additional workers rather than better tools. Limited access to capital and weak incentives for technology adoption keep productivity flat even as headcount rises.

Informality and Margin Compression

A portion of the micro-enterprise sector operates under Tasattur arrangements, where expatriates manage businesses under Omani ownership. These firms often bypass compliance costs and compete primarily on price.

The result is margin compression across the sector. Legitimate SMEs struggle to retain earnings, limiting reinvestment in equipment, training, or systems. Low productivity becomes self-reinforcing.

The Hidden Trade-Off: SMEs as a Safety Valve

In 2025, the SME sector performs a role that GDP figures do not capture. It prevents mass unemployment by absorbing surplus labor.

This function carries a cost. When capital and labor are locked into survival businesses designed for subsistence rather than growth, the economy sacrifices efficiency. Firms do not scale, export, or improve output per worker. Over time, this drags down wage growth and private sector resilience.

Employment stability is achieved, but productivity stagnates.

Rethinking SME Policy: From Quantity to Quality

For years, policy success was measured by the number of registered SMEs and jobs created. The current data shows that this metric is no longer sufficient.

A productivity-focused strategy would require three shifts.

First, consolidation must be encouraged. Ten micro-construction firms operating independently generate less value than one medium-sized contractor with pooled capital and modern equipment.

Second, public financing must be conditional. Support from entities such as Future Fund Oman should be tied to measurable productivity improvements, such as digital systems, automation, or higher value service models.

Third, labor pricing signals must change. Cheap labor makes inefficiency rational. Adjusting levy structures would force firms to improve processes rather than expand headcount.

These are not anti-SME measures. They are pro-productivity measures.

Conclusion: The Strategic Choice Ahead

Oman has succeeded in building a large SME sector. It has not yet succeeded in building a productive one.

The challenge for the remainder of the decade is not to create more small businesses, but to strengthen the ones that already exist. Fewer firms with higher output per worker will do more for incomes, competitiveness, and fiscal stability than continued expansion at the low end.

Employment alone is no longer a sufficient benchmark. Productivity must become the defining measure of success.