With the oil price slump making financing even more difficult for small and medium-sized enterprises in the UAE, those looking for money to grow their businesses should tap into the region’s rich individuals, experts advised.
At a “masterclass” round-table discussion yesterday in Abu Dhabi organised by CPI Media, a group of prominent business leaders, advisers and bankers told entrepreneurs that the government’s aim to diversify away from oil, as set out in its Economic Vision 2030, is even more needed now that oil prices have more than halved since last summer’s high above $115 per barrel.
“When the vision was first launched, in the 2006 to 2008 period, it was a very different oil price environment,” said Yogesh Mehta, the managing director of Petrochem Middle East, a petrochemicals distributor.
“With oil prices lower and likely to remain there for the coming five or six years, SMEs ask ‘how will it affect me? What if bankers don’t look upon me kindly?’” said Mr Mehta. “I think that finance will be more difficult to find. Lending institutions will be more strict, possibly even cruel. As a business person, I say: ‘forget banks’. You will find many entrepreneurs in the world, rich individuals, willing to invest and risk their money. So SMEs must come to those entrepreneurs.”
The advice was echoed by financiers on the panel.
“The most common refrain I hear from budding entrepreneurs is: ‘I had an idea and the bank didn’t fund me’,” said Nilanjan Ray, the head of commercial banking at National Bank of Abu Dhabi. “But banks are not in the business of funding ideas. Banks provide debt, and debt is not necessarily the best finance for a business.”
He also recommended that growing young businesses look to rich backers for early-stage funds. “In the pecking order of capital, equity is the highest form of risk capital and has to be available, whether from an entrepreneur’s own sources, from a kick-starter fund, venture or angel investors, whatever you want to call it – it’s private capital,” Mr Ray said. “This region has some of the richest people in the world. You cannot tell me there isn’t private capital available.”
He and others recognise, however, that there is not the same kind of infrastructure in place to bring entrepreneurs and private capital together as there is in other parts of the world, especially the United States.
“I do not believe there is a dearth of funds available but there is a dearth of suitable vehicles to raise funds,” Mr Ray said.
The government in Abu Dhabi has taken initiatives to support entrepreneurs, especially via the Khalifa Fund for Enterprise Development. But more could be done, panellists said.
“Entrepreneurs must operate in an ecosystem of risk, and the ecosystem of risk in the UAE is one that needs to be developed,” said Anil Khurana, a partner at the consultancy PwC in charge of industrial products in the Middle East. “I think this is absolutely a great time to be an entrepreneur here, and not all opportunities are in oil and gas. There are opportunities in education, to provide good quality education for those that are not rich. And in health care, the same thing. SMEs have an advantage in that they don’t have the massive overhead larger companies have to carry. But here there are a lot of gaps in the ecosystem.”
Mr Khurana said that the UAE lacked a strong network of support for entrepreneurs. He observed that while working in Boston, he found entrepreneurs that come out of its world-class higher learning institutions could rely on an array of early stage investors, legal advisers, start-up accelerators and various other mentors.
“There must be an ecosystem that is not only established and seeded but developed that helps investors find good ideas and helps them to invest heavily in the Emiratisation of good ideas,” said Abdullah Abonamah, a professor of management sciences and the chief executive at Abu Dhabi School of Management.
Professor Abonamah said he was encouraged by the initiative launched by Sheikh Mansour bin Zayed, Deputy Prime Minister and Minister of Presidential Affairs, at the government summit this month, which included the appointment of innovation tsars at the various government departments.
But the government could do even more to nurture SMEs and make them attractive to investors, Mr Khurana argued. “One of the things government does, and I expect this government to do more of, is in its role of procurement. This worked well in the US in terms of quotas for SMEs in general and particularly minority-owned businesses,” he said. “It is something the government can, and should, do more.”
Follow The National’s Business section on Twitter