Unravelling the red tape to start a business
Starting a new business in the Emirates is not always a simple process.
The UAE ranks 46th among the easiest countries in the world to set up a business, according to a ranking by the World Bank. That is much better than Qatar, which sits at 111, and far better than China at 151. Yet it's still far behind other leaders such as New Zealand, Australia, Singapore and Saudi Arabia, which sits 13th.
So what remain the biggest hurdles today?
The most challenging aspect is often the start-up cost, which can mount for businesses that expand to multiple locations. "The licence isn't for the company; the licence is per branch," says Noor Sweid, who owns Zen Yoga, a Dubai yoga chain. "You pay between Dh20,000 (US$5,445) and Dh25,000 a year to the Government for the branch licence."
There are also visa expenses. All told, the Government ends up receiving about Dh150,000 a year from Zen Yoga, says Ms Sweid. "That's 5 per cent of our revenues," she says. "That's a lot for a small business."
What's more, businesses such as Zen Yoga, which are classified as a service, need a separate licence to sell products. But in order to have a separate licence, business owners need to have a separate shop with a separate rental agreement, says Ms Sweid, who is also the managing director of strategy at Depa, a global interior contracting company.
"I'm happy to pay another Dh5,000 and have retail, but you have to incur the complete cost again, find somewhere with a separate retail store right next to you and rent that out so you can have a retail component to your service offering," she says.
Fees are standard, which means the costs for each Zen Yoga store are the same as for Depa. "In my head it makes no sense," says Ms Sweid. "One of them is a Dh1 billion company and the other is a Dh1 million company."
Jitendra Gianchandani, the chairman and managing partner of Jitendra Consulting Group, which advises start-ups, agrees that the cost of licences and visas can be too high. The process is also complicated, he says. "Due to red tape prevailing in the various government departments [small and medium enterprises] have to struggle to work out the start-up cost."
Businesses need separate licences for various activities, such as for an IT consultancy and trading in computer parts. And government departments sometimes offer inconsistent advice. "Every time you have a query or problem, you need to visit the government department, which might … surprise you by saying something different as the person has changed or a new procedure has been introduced," says Mr Gianchandani.
Entrepreneurs may also need to visit a number of departments to obtain one licence. "If you want a licence to install a CCTV camera, wireless systems and electrical fittings, you need permission from Dubai Police, Dubai Municipality and Telecommunications Regulatory Authority, so you need to run between these departments and the Department of Economic Development (DED)," says Mr Gianchandani.
He says he has made 10 recommendations to the DED to make it easier for start-ups in the UAE. They include introducing "virtual offices" outside free zones, which would make it easier and more affordable to set up a new business. They could function like the flexi-desk service in the Ras Al Khaimah Free Zone, where a shared desk, computer and telephone can be hired for a limited time.
Another idea: ensuring that changes in existing rules and regulations are made public, and that the advice is consistent. Mr Gianchandani also suggests that the cost of visas should be reduced for companies with clean records at the Ministry of Labour. He also says the process for liquidating a LLC company should be simplified.
Updated: August 25, 2011 04:00 AM