The high costs of utilities and other fees, red tape and a lack of cash keep SMEs from expanding.
Utility costs prove to be a headache for business
From recycling water to using natural lighting, Kimoha Entrepreneurs has taken bold steps to cut its utility costs at its warehouse in Jebel Ali Free Zone.
The maker of drinks labels, baggage tags and other paper goods has even installed meters throughout the 18,000 square metre building to try to control energy use. Kimoha needs to keep the temperature at a constant 25°C to ensure its products do not spoil.
Despite its energy-saving efforts, however, the Dubai firm's utility bills have risen 50 per cent over the past two years. Rajan Menon, the general manager, puts that down to Kimoha's rapid expansion, but also an increase in the unit rates Dubai Electricity and Water Authority (Dewa) applies to its bills.
"The utility rates have increased this year again and that's a big pain for us," he said. "We have been doing our best to reduce our energy costs, but it's tough."
Nobody was available to comment from Dewa.
To help manufacturers, the UAE should follow the lead of many developed countries by giving preferential energy rates to big energy-guzzling industries, Mr Menon said.
High utility costs are one of the many challenges facing the emirate's small and medium enterprises as they seek to expand and drive the economy. They account for 85 per cent of employment in the UAE and almost half of GDP.
Cutting government fees was the biggest concern of Dubai traders when it came to easing the cost of doing business, according to a survey conducted by the Dubai Chamber of Commerce and Industry last month. Visa costs were the next most common issue raised by traders followed by cutting ports' costs and simplifying licensing procedures.
Dozens of different business fees are listed on the Dubai Department of Economic Developmentwebsite, ranging from Dh5,000 (US$1,360) for conducting "additional mixed activities" to Dh3,000 for "working round the clock".
Government officials defend the cost of doing business. "The cost is still reasonable and the 14,000 licences we issued for new companies last year is a good indication that the impact of the cost is still minimal," said Sami Al Qamzi, the department's director general.
The UAE jumped two places to 33rd in the World Bank's latest Doing Business report for last year, which compares economies on business regulation and cost.
It costs 5.6 per cent of income per capita to set up a business in the UAE, much less than the 35 per cent average for the Middle East and North Africa region but higher than the 4.7 per cent for Organisation for Economic Cooperation and Development (OECD) countries. Similarly, the 13 days needed to set up a business in the UAE was less than the regional average, but worse than the average for the OECD.
Dubai chamber officials are pushing for more progress in lowering barriers to business.
Growth in exports of Dubai members this year was expected to be similar to last year's 15 per cent increase, said Hamad Buamim, the chamber's director general.
"If we want to improve growth even further beyond whatever the business community is putting in their plans, we need to address a couple of important issues," he said. "Liquidity is one and ease of doing business is another."
Getting access to letters of credit and working capital, and lowering interest rates, were concerns highlighted by traders in the chamber's survey.
Private sector credit growth has rebounded slowly since the global financial crisis as banks consider government-related firms as a safer bet to lend to. The latest data for private sector lending showed growth in September of 1.9 per cent from the year-earlier month.
Kimoha, meanwhile, continues to foster its growth by looking for creative ways to cut costs, including not turning on the factory's overhead lamps.
"We have a huge skylight and right through the day, we do not use lights," said Mr Menon.