SMEs form the backbone of the UAE. They have proven to be the industrial sector's strategic drivers across the nation and are said to play a more critical role in the years to come. More than 94 per cent of companies operating in the United Arab Emirates are SMEs, according to the UAE Ministry of Economy. Together, they account for more than 86 per cent of the total workforce and more than 60 per cent of the country’s current GDP, which is expected to rise to 70 per cent by 2021.
The UAE government plays an essential role in its ambition to improve the small and medium-sized sectors’ participation and productivity. It is developing various initiatives and programmes to help them grow further.
Small and Medium Enterprises in the UAE
The 'driver' for economic growth and an essential factor in the economy’s GDP is small and medium-sized enterprises (SMEs). They are a vital source of creativity, entrepreneurship, and the development of jobs.
An SME in the UAE is defined as any enterprise which meets the benchmarks of 'Employee Headcount' and 'Turnover' as applicable to the Category it belongs to (i.e., Trading, Manufacturing, or Services). The grouping of Enterprise Size (Micro, Small, and Medium), is based on specific criteria for each segment.
These SMEs mainly contribute to growth, innovation and the development of jobs. Therefore, it is imperative to ensure that they are encouraged to move forward on their journeys with the right instruments and support. In its ambition to improve its contribution and the efficiency of the SME sector, the UAE government plays a pivotal role. The government has set up numerous projects and programmes to help them develop further.
However, there are a few factors that build barriers to the growth of SMEs.
Challenges faced by SMEs in the UAE
1. Funding Issues
The fund is an integral component of every company's growth and smooth operations. The availability of funding for companies’ needs that the UAE meets ensures and benefits SMEs’ growth. Banks are also hesitant to provide new companies with funds because of the possibility of a high failure rate.
2. Lack of Management Skills
The lack of management skills for entrepreneurs is another aspect that impedes SMEs’ growth. An extensive skill set is needed to handle the operations and the personnel as the companies increase in size. Many executives specialise in a specific area but do not have the full spectrum of abilities.
3. Ineffective Business Links
As the house is built on pillars, small and medium-sized enterprises serve as pillars and foundations of a rising economy; similarly, if the country has a large SME base, it would thrive and flourish. However, in building this base, the problem faced by the UAE is poor connectivity and networking. The enterprises that could support current and future small and medium-sized enterprises are not closely knit and connected. Thus, the overall production phase of SMEs is hampered.
Dubai’s Initiatives for SMEs Sector
The UAE government plays a crucial role in its ambition to improve the SME sector’s engagement and productivity. We have seen the government set up numerous initiatives and programmes to help them grow further.
Institutions such as the Khalifa Fund, StartAD and SME Dubai work together with local and foreign partners to help make the UAE an entrepreneurial hub. These projects provide enterprise programmes, workspace for companies and funding recommendations.
Several local bodies are the Mohammed Bin Rashid SME Development Establishment, the Khalifa Business Development Fund, the Saud Bin Saqr SME Establishment, and the Ruwad-Sharjah Entrepreneurship Base.
The Emirate is one of the leading business hubs for small and medium-sized enterprises with various opportunities (SMEs). It appeals to business owners and investors because of its strategic position and connectivity to other countries.
The Dubai government fosters start-ups and entrepreneurs by making the company set-up process easy and affordable. In compliance with the requirements of SMEs, it has reduced foreign ownership limits and reformed tax policies. Many projects have been designed to make Dubai one of the leading towns for small businesses.
Factors that Make Dubai Ideal for Startups
The primary reasons for the sustainable growth of Dubai are small enterprises. As a result, the governing body is accelerating towards making Dubai an ideal place for SMEs to flourish. The variables that make it suitable for starting up a company are:
Smart City Project
Dubai Smart City 2021 is a successful initiative with a particular focus on shaping the UAE’s future. The main objective is to capitalise on blockchain technologies, artificial intelligence and automated vehicles to understand the future’s need. SMEs are the driving force contributing to the finalisation of this ambitious undertaking. It makes Dubai the most suitable technological growth and innovation business centre.
The primary task is to get venture capital while setting up a company. Owing to changes in government policies and tax reforms, it has now become more available. With its accelerating economic growth, the city is attracting many investors. As a consequence, investment prospects for investors in Dubai are at an all-time high. It is a relief for new projects and helps SEMs to set up low-cost businesses.
With digitisation, business setup in the UAE has become seemingly effortless. For a hassle-free operation, critical business resources are available on digital channels. SMEs can capitalise on these more comfortable and more cost-effective set-up facilities. Digitisation also offers excellent opportunities for business projects in the digital ecosystem to innovate and flourish their businesses.
Advanced infrastructure services are at the forefront of Dubai. To make it cost-effective and readily available, the government is investing in upgrading the existing facilities. For further progress, there are several projects scheduled. In readily available office spaces, SMEs can work. For sustainable growth, world-class amenities and transport services are also an added benefit.
Critical Benefits for SMEs in Dubai
With rising opportunities for SMEs, company formation in Dubai is beneficial and convenient. The advantages of setting up a business are listed below:
- For portfolios, there are no minimum requirements. Companies may start and progressively grow at lower set-up costs.
- In popular regions with accessible transportation and amenities, office spaces are open.
- The availability of business visas in less time has become much more straightforward.
- Government policies have been updated to address the company set-up needs of SMEs.
- In Dubai's business-friendly climate, it is easier for smaller ventures to prosper.
Looking for Improved SME Funding? Here's How Dubai will Help
SMEs Power the Emirati Economy, but they have trouble Accessing Funds
SMEs dominate the Emirati economy, but they are having trouble accessing funds. The numbers may appear shocking at first glance. More than 94% of all companies currently operating in the UAE are SMEs. More than 86% of the private sector workforce in the UAE accounts for employment in this sector of the Emirati economy. If we take oil out of the equation, these firms’ contribution to the economy is 60%.
Difficulty in Accessing Banking Services
In 2015, the implications of investors and other unsuccessful entrepreneurs leaving unpaid debt forced banks in the UAE to come together to discourage other SME owners from leaving the country without first repaying their debt. Less than four per cent of Emirati bank loans are earmarked for small and medium-sized enterprises, while the number of UAE SME owners who have trouble opening a corporate bank account is as high as 65%. It seems like many banks operate out of fear, and banking is a luxury rather than a fundamental component of running an enterprise for these business owners.
SME Funding Options
The SME funding gap in the Middle East and North Africa region (MENA) is immense. Although the Funding Circle is not currently working in the UAE, other initiatives to reduce this funding gap are emerging and provide more SME funding options. A plethora of SME company support funds and impact funds for SMEs are out there. It includes the $545 million Khalifa Fund, which provides seed capital to new SMEs and loans at low-interest rates. The Emirates Development Bank (EDB) launched a Credit Guarantee Scheme in February 2019 to fund smaller companies worth $27.2 million.
The Dubai Financial Services Authority is also making efforts to help these companies gain access to the capital markets. They did so by releasing a consultation paper outlining proposals for a regulatory regime which allows SMEs to list their shares in the Approved Market Institution (AMI) of the Dubai International Financial Centre (DIFC).
The idea of the DFSA scheme is to alleviate investor concerns. It has created problems for small and medium-sized enterprises in accessing investment funds and to 'access equity capital markets in or from the DIFC through the provision of reasonable and proportionate regulatory standards, while at the same time providing adequate levels of investor protection.' They also agree with the Dubai government authorities' Dubai Plan 2021 initiatives.
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What are the types of SMEs?
There are many types according to the function and majors are technical, hybrid, functional, sentinel, instructional etc.
What are the steps taken by UAE to boost SMEs?
UAE has taken several initiatives to boost SMEs and some are launching a national SME programme, establishing the UAE SME council, starting the Ministry of Possibilities etc.
Which entity supports SMEs in UAE?
The khalifa fund a non-profit entity formed by the Abu Dhabi government has been helping SMEs since 2007.
Why SMEs are important for UAE’s growth?
SMEs facilitate economic diversification and provide more than 86 per cent of the private sector workforce thereby contributing to a huge part of the economy.
What are the funding options available to UAE SMEs?
There are many including venture capital, crowdfunding, bank loans, Islamic loans, private funding etc.