Quicktake: What are SMEs and why they matter?

We take a look at SMEs and what's being done to support the sector

People working in offices located in Dubai International Financial Centre (DIFC), Dubai, UAE.

Getty Images/arabianEye *** Local Caption ***  na12se-office_workers.jpg
Powered by automated translation

Small and medium-sized enterprises, or SMEs as they are more commonly known, are the backbone of any economy. A country may get the bulk of revenues, for instance, from the sale of hydrocarbons or exporting gold and precious metals, however SMEs will invariably account for the bulk of economic activity and in most cases for employment as well.

The National takes a look at why SMEs are important and what governments are doing to help them

SMEs’ definition

It depends on the scale being used to define an SME. The definition varies from country to country and in different jurisdictions, the size of an enterprise can be determined as small or medium based on the number of employees, annual revenues generated, total assets, or any combination of these. Their definition also varies from industry to industry.

How SMEs are categorised in the UAE?

In the UAE, the second biggest GCC economy, SMEs are defined by number of staff and the annual turnover of the enterprise in trading, manufacturing and services sectors.

A company with six to 50 employees and a turnover of Dh50m in the trading sector will be considered a small company. In manufacturing the requirement is 10 to 100 employees and revenue of Dh50m. In the services sector its between six and 10 employees and annual revenue of Dh20m, according to Dubai SME, the government body which facilitates development of SMEs in the emirate.

In the trading sector a company with six 51 to 250 employees and revenues of Dh250m is considered a medium-sized company. For manufacturing the requirement is 101 to 250 employees and a turnover of Dh250m. In services it's 51 to 200 employees with a turnover of Dh200m. Any enterprise above that is a large company and below the threshold is a micro business in the country.

Why are they important?

Increasing the contribution of SMEs to the economy is a key objective of the UAE’s national growth strategy. In Dubai, only 0.8 per cent are registered as large businesses, which means the bulk of businesses are made up of micro, small and medium-sized enterprises. SMEs account for 52.4 per cent of the all workforce employed and contribute 47 per cent to the gross domestic product of Dubai, according to latest data on Dubai SME website.

What is being done to help the SME sector?

Ensuring growth of the SME sector is at the top of the agenda for decision makers across the Arab world. Lenders in the aftermath of three-year oil price slump that began 2014 (but is now rebounding) tightened lending to SMEs impeding their growth or survival. But policy makers, including the International Monetary Fund’s Christine Lagarde are pushing for improved access to finance for SME businesses in the Arab world, that could boost regional economic growth by up to 1 per cent a year and generate 15 million new jobs by 2025.

Ms Lagarde this week called on regional governments and financial institutions to help close the funding gap for SMEs, noting their access to finance is the lowest in the world: lending to SMEs in the region is only 7 per cent of bank lending.

Within the UAE, there are several initiatives being implemented both at federal and emirate level. One example is Emirates Development Bank Dh100 million ‘Credit Guarantee Scheme’ for SMEs across the country.