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18 July 2024

Cost of transportation infrastructure biggest obstacle to business

By Safura Rahimi



The cost of transportation-related infrastructure is the biggest obstacle to the UAE’s business environment, according to a new study.


Infrastructure related to this cost received the lowest score from a list of business supports services in the UAE, an economic report from the National Bank of Dubai (NBD) revealed this week.


Despite positive views on the quality of the country’s transportation structure, most of the respondents said insufficient transportation networks have affected many other factors of opening a new business, including location, workforce residency and transportation costs of goods. “Although current road projects will help, we cannot wait three or four years from now to experience it,” the study quoted respondents as stating.


Residents in Dubai and Sharjah provided the most negative views on how transportation costs have taken the biggest chunk of their income, as costs affect living locations and family stability among other concerns.


Access to competent suppliers ranked as the second most negatively viewed business support service, according to the NBD report.


Respondents in the study called on government authorities to provide more services to evaluate suppliers for new business start-ups, to ensure adequate support that will help businesses grow. “Suppliers and vendors can do much more than merely supply the materials and services [needed] to do business. They can also be important sources of information, helping [businesses] evaluate the potential of new products, tracking competitors’ actions and identifying promising opportunities,” the bank said in the report.


The extent to which advisory services or training courses exist on how to start and run a business also received one of the lowest scores in the survey.


Many entrepreneurs said an essential element for the small business owner is the ability to easily access services, that provide the information and advice necessary to improve the effectiveness of their organisations.


Although government initiatives exist that aim to help young entrepreneurs establish their business plans, many respondents stated that “there is no equal opportunity for accessing these services”. Many also said they were “turned down”, when applying for participation in some of the programmes currently running, the report said.


Another major obstacle for young entrepreneurs is the lack of affordable office space as the UAE’s prime commercial real estate rents continue to rise.


The availability of affordable office space was of major concern for respondents hoping to start new businesses in the Emirates, NBD said.


Dubai is currently the 10th most expensive city in the world for office space, according to a report by Cushman & Wakefield, the world’s largest privately held real estate firm. The annual occupancy cost per square foot of office space in Dubai’s central district is $79.93 (Dh291), just trailing behind the occupancy cost of office space in New York’s mid-town district at $81.93.


“Businesses operate more successfully when they are run from premises that best suit the business needs: large amount of space, constant internet access, practical workstations, etc. And as a business grows, it is likely that the needs of the business will also expand,” the report quoted respondents as saying.


Views on cost of utility-related infrastructure were extremely variable among the respondents, however, the high costs were still perceived as one of the main obstacles to establishing a small business in the UAE.


According to NBD, respondents were not equal in their ratings of utilities as a factor of starting a business and the type of business greatly affected the ratings in this sector. “For [businesses] that had some manufacturing-related outlooks, their concern of high costs of utilities was evident,” the bank stated.


The study involved more than 1,000 young UAE nationals, who provided their views on the business environment, obstacles and support services available in regards to starting a business in the country.


NBD said female respondents were more negative – more concerned – than male respondents about the five main obstacles facing the country’s small business start-up environment.


More educated respondents also provided more negative views about the main obstacles for the short run effect. However, their long-term concern was mixed as they thought some concerns might lessen after completion of capital projects, such as road networks.



Reforming higher education will be a challenge


Countries in the Middle East face a major challenge of reforming higher education so that it gives graduates stronger competence as innovators, according to new research.


Graduates play a key role in linking higher education with a country’s economic development through their innovative activities, and higher education policy must be in step with a wider set of innovation policies.


“Innovation is considered to be the most important driver of growth in the knowledge-based economy through its direct impact on technological progress and higher productivity. In developing countries, it is regarded as a major pillar of economic development,” said the NBD report.


“We expect the contribution to economic growth from investment in higher education to be modest in a stationary economy and high in an economy with a high rate of technical and organisational change,” the report added.


GCC countries in the past few years have increased the share of engineering and science students in the total of higher education students, in an attempt to create innovators in their economies.


According to NBD, in Bahrain 51.3 per cent of the total higher education students are enrolled in science and engineering, while Kuwait and the UAE boast 29 per cent and 21.5 per cent shares of students in the subjects, respectively.


Oman, at 18.6 per cent, has the lowest percentage of engineering and science students as part of the total higher education shares.


The bank added countries must invest significant shares of their income in research and development in order to keep the pace of innovation and technological progress.


In 2005, Finland invested the highest percentage of its GDP – at 3.5 per cent – in research and development, among Singapore, Korea, the United Kingdom, and the United States.


The US invested 2.7 per cent of its income, while Korea trailed behind at 2.6 per cent and Singapore at 2.3 per cent. The UK showed the lowest investment – at 1.9 per cent – in research and development among the five countries.


Studies have shown the marginal productivity of the highly educated will reflect the rate of technical change – in other words, the rate of return on investment in higher education is positively linked to the rate of technical progress.


This is why high rates of unemployment among graduates may be seen as reflecting economies where there is little technical progress, NBD said in its report.


Studies show the first-time hiring of a graduate with an engineering background has a significant positive impact on the tendency to introduce a new product.


However, owners of small family-dominated companies are reluctant to hire what they see as “alien academics”, while graduates are interested in an environment where they can interact with others, the report said.


According to the report, low demand for graduates in the private sector reflects cultural barriers that restrict the hiring of graduates. “The absence of graduates reduces the innovative capability of firms which leaves the industry in stagnant mode where demand for graduates remains modest.” There is a need for government initiative to stimulate demand for the first graduate hired in the firm, NBD added.