SMEs are vital for the UAE’s wider economy

A healthy small business sector will ensure major businesses in the UAE continue to thrive

SMEs account for about 60 per cent of the UAE’s non-oil economy, including 90 per cent of businesses overall Silvia Razgova / The National

A thriving small business sector has long been acknowledged as crucial to overall economic success and while that is as true for us as it is elsewhere, the reason is different here compared to many other countries. Usually the importance of small- and medium-sized enterprise (SME) sector is because it provides jobs, but here the positions created overwhelmingly go to expatriate workers, mostly from South and Southeast Asia.

Instead, the importance of a healthy SME sector is through supporting the major companies operating here, providing niche services that large corporations are ill-suited to provide but which otherwise would be done by foreign contractors. Equally important is the goal of diversifying the economy away from extractive industries, making it more multifaceted, and by establishing the UAE as an entrepreneurial hub, acting as a counterbalance to the large public sector.

At present, SMEs account for about 60 per cent of the UAE’s non-oil economy, including 90 per cent of businesses overall. The sector employs more than 42 per cent of workers, with the Ministry of Economy predicting that SMEs will account for 70 per cent of the country’s GDP by 2021.

However those running SMEs face a series of challenges, despite many factors in their favour. The benefits include the absence of tax and the fact that we rate 23rd – the highest of any Arab country – in the World Bank's 2014 survey on the ease of doing business. But as The National has reported, some SMEs find it difficult to access loans at reasonable rates – or often getting a loan at all. The bank rejection rate for loan applications made by SMEs varies between 50 and 70 per cent, while this month thousands of small businesses were advised by Standard Chartered bank that it would no longer offer them banking services.

What should be done to help this sector? Tax relief is a commonly used tool elsewhere but obviously does not apply here. The National recognised the importance of SMEs by launching a campaign yesterday to support them. Giving this sector easier access to credit, albeit with proper risk measures in place, will allow business owners to achieve their full potential. If SMEs thrive, the entire UAE economy will reap the rewards.