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29 March 2024

Supporting SMEs 'essential' for UAE growth

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The small and medium-sized enterprise (SME) segment, excluding oil, accounts for more than 70 per cent of the UAE's GDP and, therefore, plays a pivotal role in economic growth. In short they are essential for a competitive and efficient market.

While the definition of SMEs is trying to be made unanimous, it will be some time before that happens. With different organisations and different governments each having their own definition, the article refers to the global definition used by Standard Chartered: 'entities with turnover ranging from $1 million (Dh3.67m) to $25m. SMEs play a particularly important role in developing and emerging markets where they tend to be owned by poorer individuals which tend to employ poor, low-income workers. These sized companies are sometimes the only source of employment and income in poorer regions and the outskirts of towns and cities. SMEs with a higher turnover and adaptability will also play a major role in removing regional and sector imbalances in the economy and the ease of entry and exit of new comers in to the field makes economies more elastic and more competitive.

With regards to the financial crisis, there has clearly been an impact on a number of SME industries, although this has mainly been seen in real estate and construction. Unfortunately, SMEs have suffered more than most larger sized companies on two fronts: a restriction on credit lines has been experienced as most banks limited lending while there was a shortage of liquidity in the market, at the same time, a number of customers who owed money to SMEs could not afford to pay which contributed to a worsened cash flow for the SMEs, causing a number of profitable businesses, to close down.

The other downsides for SMEs is that because of their small size, SMEs usually lack management capacity, cannot afford costly support services (eg, financial, human resources, legal, training), lack the ability to access and analyse information and are not always sure which way they wish to take their business forward. All of this Impacts negatively on SME's productivity and hampers their ability to achieve their business objective.

Excluding oil, the GDP contribution of SMEs increases to as much as 90 per cent in many countries across the world including in the Middle East region and the UAE – it is for this reason that the sector is highly valued and has seen a great number of banks and financial institutions and advisors enter the UAE arena in the last five years.

There are almost 175,000 SMEs in the UAE – 95,000 of which are in Dubai, and so the sector is important for keeping people in work and is the largest provider of employment not only in the UAE but in most countries. SMEs are also a strong resource for employing new to work people who are just about to start in their working career. The key industries which make up the SME sector are: trading, services with 60,500 SMEs followed by the manufacturing sector.

In order for the UAE economy to experience a sustainable level of future growth, a number of positive steps have been taken across the emirates which have actively contributed to the development and growth of this sector.

Similarly government loan guarantee programmes will help boost lenders' confidence to the sector which are now being provided in the UAE. A number of programmes are already in place, including the Khalifa Fund based in Abu Dhabi and The Mohammed Bin Rashid Establishment for young business leaders based in Dubai. The purpose of both is to provide additional support for SMEs and young entrepreneurs by offering education, support and guarantee initiatives to banks to help open up lending lines again. Fostering SME development is vital across the Middle East and is among the steps that are taken to help SMEs not only remain open but also expand.

The announcement by the UAE Ministry of Finance to set up a Federal credit bureau is also a very positive step and brings a great piece of news to the sector as it will boost credit lines as lenders will have better access to financial information. It is a significant step forward for transparency. The Dubai-based credit bureau which is now compulsory for banks to be part of will provide the same benefits. Each SME will have different objectives with varying requirements, and it is absolutely essential for banks not to adopt a one-size-fits all approach as this will encourage more efficient competition in the market and simultaneously foster growth in the segment.

Key Facts

- Around 175,000 SMEs in UAE

- 95,000 in Dubai

- Revenue pool – $2.1bn

- Asset pool – $12.4bn

- Deposits pool – $13.2bn

The author is Head of Consumer Bank, Standard Chartered UAE. The views expressed are his own