Government-owned enterprises need to increase procurement from SMEs, if small businesses are to thrive, an official at the Abu Dhabi Council for Economic Development (ADCED) said yesterday.
Two main issues limit the growth of the SME sector in the UAE, said Hamed Al Hashemi, the executive director of economic planning at ADCED.
Lack of capital makes it hard for SMEs to grow and forces many cash-strapped businesses to shut.
"We need to put all our effort into solving [the problem of financing]," Mr Al Hashemi said. But another major challenge is "to create downstream industries", where SMEs become regular providers of inputs to the country's state-owned businesses. "State-owned enterprises do not demand inputs from downstream SMEs," Mr Al Hashemi said. Yet huge government company procurement budgets should be used to support the country's small businesses, he said.
The Government’s SME law, introduced in April, requires government companies to ensure that small firms account for 5 per cent of procurement.
This could be a major source of business for SMEs, Mr Al Hashemi said, and could increase the value and complexity of small firms’ output. But these are not the only issues preventing the development of the SME sector, Mr Al Hashemi said.
“We’re not seeing a lot of collaboration between universities and employers,” Mr Al Hashemi added. He added that there was a role for coordination agencies who could link SMEs with investors, and bigger firms that SMEs could sell to.
Mr Al Hashemi also said a draft of the long-awaited bankruptcy law is currently being “discussed and debated”, and that it would “hopefully” be published before the end of the year.
Insolvency poses major issues for SMEs in the UAE, with the threat of criminal penalties in case of bankruptcy looming large over entrepreneurs.
Richard Hawkins, a professor of science, technology and innovation policy at the University of Calgary, underlined the challenge facing policymakers in the UAE.
“There are no casinos in Abu Dhabi – except for [the SME sector],” he said. “The economics of the SME sector in this country are the those of the casino – 95 per cent of them will fail.”
Mr Al Hashemi and Mr Hawkins spoke at a conference on economic diversification run by Insead, the business school.
SMEs account for 86 per cent of the workforce in the private sector, according to the Ministry of Economy. Nearly 300,000 companies can be classified as part of the SME sector.
abouyamourn@thenational.ae
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