x Abu Dhabi, UAEThursday 18 January 2018

Dubai reforms laws to boost SMEs

The emirate is the first in a UAE-wide plan to reform laws for small businesses, the sector most closely tied to job creation.

The Government is planning an overhaul of codes governing small businesses in an effort to aid entrepreneurs in setting up shop, with Dubai the first emirate to reform laws for the sector most closely tied to job creation and economic growth.

The aim is to streamline the process of setting up a small business in the UAE by cutting back on red tape and reduce start-up costs for entrepreneurs, said Sultan Al Mansouri, Minister of Economy.

"We see the potential of the UAE being a magnet for all of these businesses, because of the infrastructure we have provided," he said, speaking at a forum in Dubai.

"The target is … to encourage citizens to be active within this small and medium enterprise sector, and there'll be incentives to attract people to be active in businesses."

The Ministry hopes to reduce the costs of getting established and speed up the time it takes for businesses to become licensed.

Plans were being discussed to use the "purchasing budgets of certain local governments and private sector companies, to make sure that we sustain these business over a period of time," Mr Al Mansouri added. "The large cap private sector has a big role to play also."

More than 90 per cent of all companies operating in the UAE can be classified as small or medium enterprises, with almost half of the jobs in Dubai provided by this sector alone.

However, the difficulty of attracting new entrepreneurs into the sector has limited the development of home-grown businesses, viewed as crucial to diversifying the UAE economy away from oil and gas.

In an effort to convince more Emiratis to take the risk of starting a business, the Ministry of Economy has partnered with international banks to establish funds focused on small and medium enterprises. However, difficulties in receiving funding for small businesses persist, said Mohammed Ali bin Zayed, vice governor of the Central Bank.

"Although the banking sector is giving some loans to this sector, the contribution in financing is still limited," he said.

Part of the problem is that no unified definition of a small business yet exists for the UAE. In an effort to correct this, Dubai's government announced a law earlier this month establishing what criteria an organisation has to fulfill to be considered a "small and medium enterprise", so that lending can be targeted directly.

Yesterday, the emirate's government also released a set of corporate governance guidelines for small businesses intended to convince would-be investors that their boardrooms are well-governed.

The measures include nine voluntary steps that businesses can adopt in an effort to make themselves more attractive to banks, who are lending less amid an increasingly tight credit environment.

The new corporate governance code is meant to help make these businesses formalise certain processes, such as the creation of a succession plan and board of directors.

Another key area of concern is assisting smaller firms in maintaining a credible book of accounts, which are audited each year by a professional outside of the company.

"When you have corporate governance, the banking system sees proper accounts," said Alexander Williams, director of strategy and policy at Dubai SME, the economic development agency under the Government of Dubai that created the new guidelines. "They see books are done properly. Once you have good books it leads to banks being confident, [lending] you the money and there's a flow of liquidity. Therefore, the economy grows," he said.