Global Connections Key to the Sustainability of UAE Based SMEs

Global linkages are very important for small and medium enterprises (SMEs) for their long term sustainability in terms of market access, financing, new business opportunities and attracting talent, experts speaking at the Sharjah Foreign Direct Investment (FDI) Forum said.

“With SMEs accounting for more than 60 per cent of the GDP (gross domestic product) and nearly 95 per cent of the private sector in the UAE, the sector is a major contributor in attracting FDI into the country,” said Robin Butteriss, managing director, Deloitte Corporate Finance.

The cross-border connections of SMEs go beyond its role as a source of FDI, increasingly, this business segment is also becoming a major contributor of exports.

While exports of manufactured goods is becoming tough especially in developed markets because of a number of regulatory barriers and protectionism, experts said there are a number of avenues available to the UAE based SMEs to export or expand services.

“The UAE has excellent physical and telecommunication infrastructure which is a great enabler of a number of services-related business such as shipping, logistics and trading-related business. Of course, financing is becoming a challenge in the context of a number of international banking retrenching their SME portfolios,” said Butteriss.

Although the banking sector in the UAE is active in SME financing, total bank financing to the sector accounts for only about 4 per cent of the aggregate lending book of all banks put together. The tough economic environment resulting from low oil prices, tightening liquidity and rising cost of funds for banks have contributed to a squeeze on SMEs’access to bank finance from early 2015.

The SME sector, which witnessed rapid expansion in the post financial crisis years supported by liberal bank funding, is now finding the going tough as excess leverage and a difficult business environment are resulting in delays and/or defaults in loan repayments.

Many of these firms over-borrowed from multiple banks. After the launch of the credit bureau, banks came to know the actual exposure levels of these firms, resulting in restrictions on access to more loans.

Faced with rising non-performing loans [loans which are in default], many UAE banks have deleveraged and tightened their lending norms. But recent efforts by UAE Banks Federation has seen restructuring of a number of loans amounting to a total of Dh7 billion that has eased the squeeze to a great extent. Bankers expect the new bankruptcy law will enhance SMEs access to finance.

Sharjah, home to more than 45,000 SME, accounting for 15 per cent of small businesses in the country has initiated a number of recent measures to support SMEs and foster entrepreneurship among student and young entrepreneurs.

“With a number of universities and educational institutions located in the emirate we have a fairly large talent pool. We have launched a number of initiatives to encourage new entrepreneurs through support in terms financing, mentoring, legal and market access. We are also advocating policy changes that will help to create a conducive environment for start-ups,” said Najla Al Midfa, General Manager of Sharjah Entrepreneurship Center.

Source: Gulf News