SME law in second half of 2011: Mansouri

A long-awaited law governing small and medium enterprises (SMEs) will be issued in the second half of 2011 as the UAE pushed ahead with a drive to attract capital, the Minister of Economy was reported on Friday as saying.

Sultan bin Saeed al Mansouri said the law would include the creation of a federal body to coordinate SME plans and policies among the country’s seven emirates and supervise incentives offered for such projects in the first three years.

“We have completed drafting this law and it is now passing through its final stages…it will be discussed later by the legislation committee at the Ministry of Justice and I expect it to see light in the second half of next year,” Mansouri told local Arabic language newspapers at a SME show in Abu Dhabi Thursday.

“The new law is on part with similar laws in the European Union, Japan, South Korea and other advanced nations…..the incentives for such projects include government purchase of a specific percentage of their products.”

He said the Ministry of Economy is targeting an increase in SMEs to boost them to nearly 95 per cent of total projects in the UAE from 85-90 per cent currently.

“Marketing of their products will be the main challenge that will face such enterprises…but we are also working on the establishment of an integrated data network for markets and investment opportunities for this sector,” he said.

“We expect new law to be a strong motivation for investors to set up such projects and this will support our drive to lure in capital.”

In previous remarks, Mansouri said the new law could be one of the first integrated SME legislations in the Arab region.

He said the Ministry had negotiated deals with some local banks to secure financing for such projects, adding that one local bank had already approved a Dh100 million funding facility for new SMEs.

“Under this law, federal and local government bodies are committed to giving part of their purchase contracts to SMEs,” the Minister said.

“It will enforce internationally-recognised criteria regarding SME activities through a commission to be created for this purpose….these include the definition of SME’s capital, workforce, revenue and other specifications.”

The UAE is already locked in a drive to diversify its economy by attracting investment and encouraging industrial projects, seen as a key factor in diversification given the country’s limited farm potential. The country is also planning to issue laws giving bigger access to projects by expatriates.

According to the government-controlled Emirates Industrial Bank (EIB), the UAE has around 208,000 SMEs, accounting for nearly 80 per cent of the country’s total companies. It said SMEs form the backbone of any economy and this makes them critical for the process of development and growth.

In a study released recently, EIB proposed the creation of banking units which are specialized in providing funding for SMEs as they are facing obstacles in getting financing on the grounds that they are a high-risk sector.

Given their significant role in domestic development because of their large number, the country should facilitate the creation of more SMEs, mainly those which are export-oriented and less-reliant on labour, it said.

"Bank financing is usually their only option, and is the predominant source of external financing for most SMEs. However, banks consider SMEs to be relatively high risk, which on the one hand impedes their ability to obtain funding, and on the other leads to the charging of higher interest rates," it said.

"Commercial banks are keen on business which meets the working capital needs of businesses, but less on business to finance SME start-ups. Thus, there is a need for dedicated banks, working on commercial principles but devoted to financing of the setting up of SMEs. Currently, not only the UAE but the entire GCC region lack institutions which specialise in funding SMEs."
 

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