How SMEs in the UAE are staying afloat during Covid-19

Several business founders are sacrificing personal earnings to fund their ventures in a tough market

Bernard Lee, CEO and co-founder, GlassQube Coworking, a workspace operator in the UAE, has waived his salary since March 2020. Victor Besa /The National

The Covid-19 pandemic and the resulting economic slowdown have had a major impact on small and medium enterprises (SMEs) globally. SMEs are the backbone of the UAE economy, contributing about 52 per cent of the country’s non-oil gross domestic product, according to an estimate by the Ministry of Economy in December 2019.

The pandemic-induced economic slowdown has hurt demand in several sectors, causing small businesses to downsize operations. However, the government launched several measures to help SMEs deal with the financial fallout of the pandemic. The Dubai government, for instance, has announced an economic stimulus package worth Dh6.3 billion for businesses, while the Central Bank of the UAE also launched the Targeted Economic Support Scheme to support companies and individuals affected by the crisis.

The National spoke to three business owners in the UAE to learn about how their operations have been affected by the pandemic and the impact it has had on their finances.

A business that expanded during Covid-19

Bernard Lee, chief executive and co-founder of GlassQube Coworking, a workspace operator in Abu Dhabi, has waived his salary since March 2020 and does not intend to draw it again anytime soon.

“Not taking a salary puts tremendous pressure on my family, particularly since we have not received any relief on my children’s school fees or residential rents, which together account for my largest living expenses. It would be very helpful if I could get some assistance on these items,” says Mr Lee.

GlassQube Coworking currently operates in five locations in Abu Dhabi across 300,000 square feet. Mr Lee believes the pandemic-induced slowdown represents an opportunity to grow his business in the region. The workspace operator added two new locations to its portfolio in July and August, and is set to open a new location on Yas Island in October.

“Covid-19 has been a challenging experience for us but fortunately, we have financial and operating structures in place that provide some downside protection from market volatility,” says Mr Lee, who does not have a mortgage or other loan commitments.

Although the entrepreneur has not downsized his team during the pandemic, all employees are on a temporary salary reduction, which Mr Lee believes will “allow the business to conserve cash to help position it for success in the coming months and through 2022 when I expect a strong recovery”.

“The market just needs time to get past the current state of paralysis, and then more time to adjust to this new normal and then we will start to see an incremental recovery,” says Mr Lee.

He has asked some of his landlords to review lease terms and rent payments to help soften the blow of the pandemic. “Conversations are ongoing and while challenging, we are optimistic that we will get their support and grow through the recovery together,” Mr Lee adds.

However, the entrepreneur says medium to larger-sized businesses have benefited more from the Central Bank’s Covid-19 stimulus package.

Many businesses could have survived with some reprieve on fixed expenses

The business owner says SMEs can benefit if fixed operating costs such as VAT payments, municipality tax and telecom bills are deferred or subsidised, and if commercial landlords grant them a rent holiday.

“These are the general fixed operating expenses that SMEs care about and that can make a huge difference in a business retaining its staff, and surviving or failing. Many businesses have laid off staff or closed when perhaps some of them could have survived with some reprieve on these fixed expenses,” says Mr Lee.

Ruling out imminent plans to raise capital for his start-up, Mr Lee says this is not a panacea for start-ups or SMEs to survive and grow out in this market. “You have to be grounded in reality yet forward-thinking and intelligent about your business strategy, along with an aggressive approach to the balance sheet,” he says.

Lisa Knight, co-founder of Café Isan, says dine-in business at the Thai restaurant reduced by 60 per cent in April when people were advised to stay at home to curb the pandemic outbreak. Photo: Antonie Robertson /The National

How a restaurant owner fared

Café Isan, a Thai restaurant in Jumeirah Lakes Towers in Dubai, was doing brisk trade from January to March this year, but the four-year-old restaurant saw dine-in business drop drastically after people were directed to stay at home in April to contain the spread of the pandemic.

“We had record sales, especially in March. But dine-in business was down 60 per cent in April. We had a higher percentage of dine-in business than deliveries compared to other restaurants in JLT,” says Lisa Knight, co-founder of Café Isan.

The restaurant owners responded by increasing their delivery sales and reducing commissions paid to third-party aggregators. They quickly set up an online delivery platform, and good brand awareness and loyal customers came to their rescue.

"If you were directly leasing from the free zone and not through a private landlord, we would have got more concessions

A combination of factors helped Ms Knight keep a lid on costs during the pandemic. A few suppliers offered her a two-week window to make payments, rather than paying cash on delivery. The restaurant's landlord allowed Ms Knight and her co-founder to pay the rent in monthly instalments, rather than quarterly, which also helped to maintain cash flow.

“If you were directly leasing from the free zone and not through a private landlord, we would have got more concessions during the pandemic,” says Ms Knight.

Of the restaurant’s six employees, two volunteered to go on unpaid leave during the pandemic, adds Ms Knight. “One was just tired and wanted some time off, while the other was scared to step outside the house amid the pandemic,” she says.

Although Café Isan recorded a 50 per cent drop in month-on-month revenue in April compared with the same period last year, revenue was down by only 25 per cent, she says.

“It’s not all doom and gloom. In May, we clawed back about 22 per cent of our dine-in business. Business has gone up ever since. In July, our business was back up to 47 per cent, without the outdoors being open. Our business in June and July has increased compared with the corresponding period in 2019,” explains Ms Knight.

The restaurant also received a three-month rent holiday for its outdoor space from the free zone, Dubai Multi Commodities Centre. However, this did not save the company much money, with the restaurant only offsetting Dh500 per month during April, May and June.

Ms Knight’s request for a payment holiday on a loan she had taken in 2015 was declined by her bank in the UAE.

Although employees’ salaries were not cut during the pandemic, Ms Knight and her co-founder had to sacrifice their personal earnings in April and for a few weeks in May. “This wasn’t the first time we have done that though. We also lived a bit more frugally during those two months,” she adds.

The entrepreneur wishes struggling restaurants were given some kind of business fund or grant to help them remain open.

"One of the tragedies of this pandemic is the effect on the employees. I wish there was some salary support for basic staff expenses in the UAE's F&B industry. Our staff strength is lean and my co-founder and I are very hands-on with the business. Not all entrepreneurs can afford to be like that," she tells The National.

Café Isan is undergoing a refurbishment in August and is only open for delivery and takeaway, Ms Knight adds. She doesn't expect business to return to pre-pandemic levels until next year. “Our peak business is in winter, starting from November. However, with most people in the UAE not travelling overseas during summer, they are more likely to do so during winter,” she says.

Stephen Haw, partner and executive director at Baringa Middle East, an international management consultancy, decided to personally bear the brunt of the financial impact of the pandemic rather than downsize staff. Photo: Victor Besa /The National

How the local division of a global consultancy performed

Stephen Haw, partner and executive director at Baringa Middle East, an international management consultancy, knows a thing or two about setting up a business from scratch in the UAE. He moved to Abu Dhabi in 2017 to set up the global consultancy’s Middle East headquarters.

“As a Middle East business, we fall in the SME category. I started in a hotel with a suitcase and a blank sheet of paper. We have a few employees locally and leverage our international expertise from North America, the UK, Asia and Australia. We have gone from a one-person office to a five-person office on Reem Island, Abu Dhabi,” says Mr Haw.

Baringa Middle East specialises in the power and utility sectors and it was not as badly hit by the pandemic as other consultancies dealing in industries such as hospitality and travel. “From a sector perspective, client activity continued. There is momentum in the market, although there is greater scrutiny on project spend and on consultants,” he adds.

As business leaders, look at what you can do personally from a cost base before deciding to downsize employees

When Covid-19 struck, as a business owner, Mr Haw’s initial reaction was to review his cost base and discretionary spending such as marketing and business development. As a leader, he decided to bear the brunt of the financial impact of the pandemic rather than downsize staff strength.

“We want to be in a good place when we come through the pandemic. We have been able to do that because our funding position as an overall group is strong. As business leaders, look at what you can do personally from a cost base before deciding to downsize employees. You have to look after your own people,” he adds.

Mr Haw has taken a significant pay cut since March. But that reduction in personal income has been significantly offset because Mr Haw and his family have been at home for the past six months without spending a considerable amount of money. The senior executive's wife also gave birth to their fourth child nine weeks ago.

“I have been able to cover my monthly costs. Throughout my career, I have received promotions, and managed to live to a fixed-cost base. As a result of the pandemic, my discretionary savings and long-term savings have significantly reduced. I have to temporarily reduce or pause my long-term investment plans,” he says.

However, Mr Haw admits that if no liquidity was coming from his parent company and Baringa Middle East was solely reliant on local revenue, he would have considered taking on credit to ensure a smooth cash flow. “The speed at which payments are issued is still very challenging,” he says.

The macroeconomic impact of the pandemic and the drop in oil prices have created uncertainty for a business owner, according to Mr Haw. “The big questions are: ‘What is the economic direction? What does 2021 look like?'” he asks.