Abu Dhabi stimulus to spur growth 'a boost for SMEs'
Economists and business leaders say the package will also benefit the overall economic growth of the UAE
Abu Dhabi is giving a helping hand to small and medium-sized enterprises, the key drivers of the UAE economy, by providing them credit guarantees under its three-year Dh50 billion Tomorrow 2021 programme.
Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, on Tuesday evening approved a number of initiatives as part of the Ghadan 21, or Tomorrow 2021, programme.
A critical part of the initiative is a working capital credit guarantee programme that will give SMEs access to Dh10bn in financing over the next three years from local banks at reduced interest rates.
“A key pillar of this stimulus programme will be to provide support to this sector … focus will be on supporting SMEs to bolster economic activity and job creation,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“One of the key areas that SMEs have highlighted [in the past] is the difficulty in accessing financing and with the credit guarantee programme, the government is tackling one of the central challenges.”
SMEs, which contribute more than 60 per cent of the UAE’s gross domestic product, struggled to get financing in the past four years as banks tightened lending following a three-year oil price slump that began in mid-2014 but has now rebounded.
The slowdown in the economy on the back of spending cuts by the Government, which relies heavily on sale of hydrocarbons for revenues, led to some SMEs defaulting on loans they owed to banks.
Some lenders subsequently either stopped financing to SMEs or tightened lending criteria, bringing disbursement of funding to cash-strapped businesses down to a trickle.
Oil prices, which fell below $30 per barrel from 2014 peak of $115 per barrel have since recovered, hovering around $70 per barrel this year and the business environment is rebounding. Stability in oil prices has allowed the Government to switch its monetary consolidation approach to a more expansionary fiscal position. It is now increasing spending to fuel the economy, especially boosting the SME sector, which Ms Malik said is the engine of growth for employment.
The CEOs Advisory Council of the UAE Banks Federation was immediately receptive to the Government’s initiative.
Read more on Tomorrow 2021:
“As an organisation representing the banking industry in UAE, we are keen to support the country’s efforts in enhancing financial and economic growth, by considering new initiatives to promote residential mortgage lending and encourage financing to SMEs,” Abdul Aziz Al Ghurair, chairman of the federation said yesterday.
“Real estate and SMEs hold bright prospects for future growth, and with the support of the banking sector we can contribute to achieve the strategic objectives of promoting foreign direct investments and boosting business in the country.”
Mishal Kanoo, chairman of the Kanoo Group, one of biggest family-owned businesses in the UAE said the initiatives are “a step in the right direction”, adding “there should be incentives for the banks to be part of the whole scheme to make it a success.”
Policymakers, have rightly prioritised the SME sector since it nurtures entrepreneurship, he said. Financial institutions also need to take on a more supportive proactive role.
“We also have to help them” as well so they can do their part in the economic development, Mr Kanoo said.
A new policy from the first quarter of 2019, which gives UAE companies preference in government tenders, is beneficial for both new and existing businesses, he said.
“Where ever you go across the world, you find that if you want to strengthen your economy, it’s always good to give your local companies preference,” Mr Kanoo said. “They are the ones who are going to stay here and be part of the economic growth story.”
Ibrahim Ajami, head of Mubadala Ventures said the investment company is committed to supporting key initiatives which can develop a thriving technology and start-up ecosystem in the UAE.
“The Ghadan 2021 plan sets out the road map to create a knowledge-based economy led by an innovative tech sector,” he said. “Mubadala intends to play a major role in supporting this objective and is committed to launching the tech hub as a key platform for Ghadan 2021 key initiatives. Mubadala will also leverage its global network and portfolio to support its high growth tech companies to establish operations in Abu Dhabi.”
Ghadan 2021, also stipulates payments of all undisputed private sector dues and receivables to be settled before November 15. Structural changes have also been made in the approved payment process to ensure disbursements are made to private contractors on time and new legislation is expected to be issued within 30 days, which aims at regulating the payment times of financial receivables in the public and private sectors.
“A number of the reforms announced will help to reduce the cost pressures on the businesses,” Ms Malik noted. “This will provide a vital respite for exiting companies after fiscal reforms of the last few years have resulted in rising costs, while margins have also been impacted by price discounting to support demand.”
The stimulus package is central to ADCB’s expectation of strengthening non-oil activity next year.
“There are already some signs of stronger investment growth this year, which together with this stimulus plans are going to be supportive of overall government activity in the UAE”, said Ms Malik. “After last few years of fiscal consolidation, supporting short and medium-term growth is going to be significant.”
The spillover impact of the government accelerator programme will also prove to be a catalyst for the growth of the UAE’s economy, said Yusuffali MA, chairman of Lulu group, which owns one of the biggest the supermarket chains in the country.
“The fact that, this initiative has taken into consideration almost all key stakeholders and contributors of UAE’s socio-economic fabric … is sure to further strengthen UAE’s drive towards a non-oil-dependent economy by opening up new sectors and areas of developments,” he said.
Updated: September 19, 2018 08:07 PM