x Abu Dhabi, UAEWednesday 13 December 2017

Nine in 10 GCC SMEs plan to raise capital in the next two years, study reveals

The Pearl Initiative identified corporate governance challenges for the sector as it looks to ramp up financing

Carla Koffel of The Peral Initiative says an effective corporate governance structure can make an SME more attractive to investors. Satish Kumar / The National
Carla Koffel of The Peral Initiative says an effective corporate governance structure can make an SME more attractive to investors. Satish Kumar / The National

Despite slowing economic growth, almost nine in 10 SMEs in the GCC plan to raise capital in the next one to two years, a new study has revealed.

According to the Driving Value from Good Corporate Governance report by the Pearl Initiative (PI), a non-profit organisation promoting a transparent and accountable corporate culture, 89 per cent of micro, small and medium enterprises intend to raise capital finance over a two-year period.

The study, which polled over 1,000 GCC-based SMEs in June and July of this year, offers an insight into the state of corporate governance in the region. It found half of those polled have established formal governance documents while only 30 per cent have implementing them, such as audit reports, risk reports and staff feedback, and even less admitted to proper auditing.

“By lowering risk, an effective corporate governance structure can make an SME more attractive to investors. The right governance measures can also enhance the business reputation of an SME and attract talented and experienced employees, who seek growth opportunities, transparency and a stable organisational structure,” PI executive director Carla Koffel said in a statement from the company.

_____

Read more:

No one-size-fits-all solution for women embarking on a corporate career

Pearl Initiative’s chief is looking to translate ideals into concrete results

Governance in focus: Know your requirements before you set up a board

_____

The Pearl Initiative said its study indicates clear challenges for SMEs in the region, with business reputation, financial performance, ethics and social responsibility emerging crucial factors in attracting investors and long-term funding.

“While there is no one-size-fits-all solution, the findings and observations from this report clearly indicate that implementing an integrated system of corporate governance practices can help SMEs achieve agility and resilience to overcome some of the key challenges they face."

The SME sector accounts for over 80 per cent of the GDP across countries in the GCC and creates close to 70 per cent of all jobs, according to PI.

Looking at the current level of corporate governance, the report found that 59 per cent of businesses have a board that supports the implementation of good governance practices.

However, more than seven in ten respondents said their boards are chaired by the chief executive of the company, rather than an independent individual. Those with a formal board in place fared well in terms of diversity, with only 35 per cent admitting they do not have women on the board.