Legislation on bankruptcy is just the start
News that the long-awaited bankruptcy law will be finalised in the next few months is very welcome. Any law that will remove the danger of debtors going to prison will be good for business. As The National has argued before, locking up debtors does nothing to recover their debt, not least because it means they cannot earn anything. Keeping a person in jail simply because they owe money doesn’t make a lot of sense because their upkeep becomes an extra, unnecessary financial burden to the country.
The current situation has also resulted in people with large debts fleeing the country for fear of going to jail. One estimate last year was that people who had skipped town had left behind Dh5 billion in unsettled loans. Most of all, the status quo acts as a disincentive for people to start up a business in the first place.
As we transition the economy away from its reliance on oil and gas, we need to encourage innovative thinking and entrepreneurship. All new ventures involve an element of risk, however. If we want to encourage blue-sky thinking and disruptive industries, then we have to accept that some of these new businesses will fail. A well-written and properly enacted bankruptcy law will cushion the blow for failed entrepreneurs and ensure that their creditors have the best chance of retrieving at least some of their money. The current situation – where banks lend large amounts of money, sometimes without due diligence, and then expect the legal system to do the dirty work of penalising defaulters – is clearly unsustainable.
There is more that the authorities can do to instil confidence in those who want to start up business. A lot of red tape could be eliminated and, following models in place elsewhere, there could be a “one-stop shop” for start-ups, where they can get all the approvals they need, plus some advice for conducting business. As many business operate in the cloud and use resources from around the world, it might also be a good time to reconsider the condition that businesses have physical office space in the UAE.
Encouraging highly qualified people who have been made redundant from our largest industrial sector, oil and gas, to start their own businesses would also pay dividends. This could help fill the increasing demand for outsourcing and the flexible provision of manpower, and keep their skills in the country and their money circulating in this economy.
Published: September 1, 2016 04:00 AM