Small firms help UAE defy world downturn

A global study finds an innovation-driven economy with new businesses up 38 per cent in two years.

Amid a worldwide economic downturn, the UAE is bucking the trend, with small business activity in 2009 especially robust. A study produced by the Global Entrepreneurship Monitor classified the country among "innovation-driven economies", characterised by "their production of new and unique goods and services that are created via sophisticated, and often pioneering, methods".

The results highlight what some experts say is an alternative to Emiratising the private sector, with many nationals seizing the opportunity to be self-employed. The report, released last week by a research consortium that was launched a decade ago by the London Business School and Babson College in Massachusetts, studied the amount of small-business activity and the atmosphere for entrepreneurs in 54 countries by conducting 180,000 interviews.

"We are actually seeing a divergence, where most of the increase in business start-up activity is coming from Emiratis as opposed to the expatriate population," said Declan McCrohan, assistant professor at the College of Business Sciences in Zayed University, and the head of the report's UAE team. Over the last two years, the Emirates saw a 38 per cent increase in start-ups, despite study findings that, due to the economy, the number of people around the world who thought there were good business and entrepreneurial opportunities declined in most countries.

The country also had the highest proportion of individuals who owned new businesses, and the second-highest proportion of people involved in setting up a new business. In addition to the UAE, the study group names the US, Britain, France, Germany, Hong Kong, Spain, Italy, Israel, the Netherlands and Switzerland as innovation-driven economies. Among innovation-based economies, the UAE saw the highest start-up activity, the highest proportion of people involved in setting up new businesses and the highest percentage of respondents who think entrepreneurship is a good career choice.

UAE respondents had little fear of failure according to the study, with the second-lowest number at 26 per cent; the highest percentage of respondents with entrepreneurial intentions at 36 per cent; and the second-highest among those who thought entrepreneurship was a good career choice, at 70 per cent. The country also had the highest percentage of new business owners with high growth aspirations, which the report said is an important group for policy makers as they contribute significantly to new employment opportunities.

The benefits of the proliferation of small businesses were clear, said Suresh Kumar, the group director of Emirates NBD and the chief executive of Emirates Financial Services. "At the macro level, the small-to-medium enterprise sector is known to create the highest level of employment. It has been in many parts of the world the fastest-growing sector of the economy," said Mr Kumar. "It's very positive [and] brings in new dynamism and creativity if it is well-regulated and well-supported."

The report identified commercial and physical infrastructure and a dynamic internal market as the country's biggest advantages, citing weak points as the relative lack of funding programmes, educational programmes that incorporate small business creation and management, and national research programmes that can be converted to commercial opportunities. "We are definitely finding that the UAE is very good in terms of business creation compared to other countries in the survey," said Dr McCrohan.

One reason was the inverse relationship between unemployment, which increased during the downturn, and entrepreneurship. "When unemployment starts to increase, people are almost forced into entrepreneurship. They've never been game enough to quit their job and start their business," he said. Small businesses were more likely to be created by Emiratis since expatriates usually had to leave the country after being unemployed for a month, he added.

Organisations that provide funds for entrepreneurs such as the Khalifa Fund and the Mohammed bin Rashid Foundation had particularly contributed to Emirati entrepreneurship, Dr McCrohan said. The Abu Dhabi Council for Economic Development launched an entrepreneurial awareness campaign - Akoum - in November. The main objective of the campaign was to contribute to the development of an entrepreneurial culture in Abu Dhabi by enhancing awareness about entrepreneurship and inspiring the youth of Abu Dhabi.

"The public sector will not be able to create the jobs for Emiratis to keep unemployment down," Dr McCrohan said. "If we can get Emiratis out of the public sector and start their own businesses it can have a bigger effect than the whole Emiratisation process." "For many UAE nationals this is the best way to employ themselves," Mr Kumar said. "You create self-employment on a scale which is then much better than increasing bureaucracy. Then the discipline of the market will come into place. People will no longer be relying on cronyism and contacts."