x Abu Dhabi, UAETuesday 25 July 2017

ZonesCorp chief calls for rise in seed financing cap

The Khalifa Fund financed 60 projects last year with a total value of Dh111 million.

The Khalifa Fund financed the projects of 60 budding entrepreneurs last year, helping to diversify the economy at a grass-roots level.

Last week it had provided loans to 240 projects since inception in mid-2007, with a total value of Dh415 million (US$112.9m).

Of the projects financed last year, two were offered as part of the Tasnea programme, which was launched last year with the aim of providing loans to industrial projects aligned to government investment and development targets.

The industrial programme offers financing to entrepreneurs up to a maximum Dh10m, double the maximum level of financing available from the Khalifa Fund for other sectors of the economy.

But a major industry figure has questioned whether that loan cap is too low for the nature of small-to-medium sized industrial enterprises.

Mohammed al Qamzi, the chief executive for the Higher Corporation for Specialised Economic Zones (ZonesCorp), says some entrepreneurs are able to put up their own capital to complement the Khalifa Fund loans, but that most people could not afford to add enough money to match the Dh10m limit.

"If we look at the history of business that has been built up in the last 30 years in Abu Dhabi, most of it is small to medium-sized enterprise [SMEs]," Mr al Qamzi said, "But when we talk about real industry, there are very few that have been built."

"The aim for industry is to produce products that can be sold in the UAE and the wider region," he added.

Mr al Qamzi said the biggest start-up costs for entrepreneurs were renting land and construction.

These costs, together with raw materials, could be much higher than the Khalifa Fund loan cap, he said.

ZonesCorp hopes to provide a large area of land that can be split into parcels for SMEs, Mr al Qamzi said.

The company is also considering waiving fees for SMEs for the first few years, but wants to see there is strong enough demand first.

"I think the Khalifa Fund probably has to be selective in its criteria," said Mr al Qamzi, "Entrepreneurs need to go to them with ideas that will enable the development of the country."

Professor Philip Anderson, a lecturer in entrepreneurship at Insead said the UAE had a competitive advantage in its ability to amass considerable capital locally.

Usually, however, the kind of entrepreneur who can benefit is one whose personal and family connections provide access to well-funded investors.

"Once someone has earned the trust of wealthy backers, they can assemble a large pool of capital more easily here than in many other countries," Mr Anderson said.

"Where Islamic financing is required, the UAE advantage is especially pronounced," he added.

Dr Steffen Hertog, a lecturer at the London School of Economics who specialises in the Gulf, said certain sectors needed to be large scale to survive, especially in heavy industry such as steel, aluminium, petrochemicals and cement.

"This is often why state-owned companies still lead these sectors." Mr Hertog said.

"Generally, much can be done through joint ventures and importing foreign technology. So if one has local connections and a good foreign partner, it's not that hard to get a mid-tech company off the ground in plastics, packaging, metal parts or food processing," he added.