The government, NGOs and start-ups all agree that the UAE needs new regulations to help foster the growth of small and medium-sized businesses. But beyond implementing a new law to address bankruptcies, each has a different idea about what the sector needs.
All agree that having a way for companies to declare bankruptcy is a vital first step. The absence of legal insolvency procedures holds back the country’s Ease of Doing Business rating, the World Bank makes clear.
“The bankruptcy law should hopefully happen next year, and that would be welcome,” said Abdullah Saeed Al Darmaki, chief executive of the Khalifa Fund, a government agency that provides funding to Emirati start-ups. “That insolvency law needs a clear chapter on how to protect SMEs and start-ups,”
If a company founder dies, “financial institutions should not be able to come after [his or her] family,” he said. At present, that’s legally possible – “and that’s why we need a bankruptcy law,” Mr Al Darmaki said. A bankruptcy law should prevent “aggressive collection” by financial institutions, he said.
SMEs should be encouraged to hire more Emiratis – and the labour law should be changed to enforce that, Mr Al Darmaki said.
Small businesses that benefit from access to government procurement, that are given waivers to facilitate hiring staff, should be encouraged to hire Emiratis – and the labour law should be changed to reflect that, Mr Al Darmaki said.
“You need to encourage SMEs to create the right level of jobs for Emiratis,” he said. “It’s about being able to protect the Emirati identity and Emirati role in SME creation and development. It becomes rewarding – because [the company] is contributing back to the society [it is] benefiting from.
“There is no policy that encourages SMEs to hire Emiratis … of course, you can’t hire Emiratis in every sector, because we don’t have enough. But if there’s a way for these SMEs to engage with the labour force that’s available to them in the UAE … it becomes rewarding – because [the company] is contributing back to the society [it is] benefiting from.”
For Abraham Carter, the managing director of Premier Travel and Tourism, a Khalifa Fund-backed travel agency, his company’s cash flow is top of mind.
“Every sunrise is a challenge for us,” Mr Carter said. Government agencies that take three months to process payments – a very long time for an SME, when large numbers of start-ups do not survive beyond their first year – and banks who require extra guarantees and sizeable security deposits to process transactions with suppliers, are the company’s biggest nuisances.
“Whenever we sign with suppliers or big companies we need a bank guarantee which freezes our money against the transaction – in addition to letters of credit from the bank,” Mr Carter said.
“The companies just want to check that you’re legitimate – so they ask you for two forms of security,” he said. But this hurts the company’s cash flow, when generating enough cash to remain solvent is a major problem for SMEs anyway.
“We’re doing good business, but we need the banks to cooperate with us,” Mr Carter said.
And Deepak Khanna, who manages the International Finance Corporation’s operations in the UAE, said that local regulators need to do more to accommodate tech sector start-ups.
Despite the importance of a stable legal and regulatory environment, it “does not exist [in the UAE] for some of the emerging business models in the tech sector”.
That is because the regulators need to catch up with developments in the digital realm, where online payments and transactions are frequent, but the legal system is designed to cope with bank credit, not broadband.
Companies that use online payments operate in a regulatory grey area, Mr Khanna said – and are penalised by investors who want absolute certainty that companies are operating on the right side of the law. As well as posing a practical risk to companies, the absence of regulation raises their cost of capital, he said.
Mr Khanna also said that there needs to be a culture shift among SMEs towards transparency – which should help their creditworthiness.
“I think many of them don’t make the connection between transparency and access to credit,” he said.
Company founders need to ask themselves a few questions, Mr Khanna said. “Are [we] transparent enough? Do [we] provide enough information to banks? Do [we] have audited accounts? What about our internal controls and risk management?
“Sometimes it is too easy to blame banks for not providing finance.”
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