GCC steps up efforts to improve SME ecosystem

Vendors sell products at the American pavilion in Global Village, Dubai. The SME sector currently contributes around 30 per cent of the UAE's gross domestic product.

With the oil price slump creating a $275 billion export shortfall for GCC countries, regional governments are prioritising economic diversification and increasingly focusing on the development of the small and medium-sized enterprises (SME) sector.

A new report by Bloovo.com shows that SMEs provide economic impetus across two axes. First, they add directly to national gross domestic product (GDP) through business activity. SMEs account for 30 per cent of the UAE's GDP, 28 per cent of Bahrain's and 22 per cent in Saudi Arabia. Kuwait's GDP is 20 per cent composed of SMEs activity, with 17 per cent of Oman's GDP generated by the sector.

Second, SMEs are essential engines for job creation to keep pace with a growing - and increasingly young - national population. With the public sector operating at capacity, new jobs will need to become the preserve of the private sector. SMEs currently employ around 17 million people in the GCC, but this figure could rise to 22 million under a best-case scenario modelled by Bloovo.com.

"Supporting the creation and growth of SMEs is very much in the spotlight as GCC countries evolve economies less reliant on energy prices. And while regional governments have been active in creating an SME ecosystem, our report identifies key areas that still need support. Moving to an SME-oriented knowledge economy is the best way for GCC countries to maintain progress towards social and economic goals," says Bloovo.com CEO and co-founder, Ahmad Khamis.

Creating an effective SME ecosystem requires time, investment and regulatory optimisation. Fortunately, GCC countries have been cognisant of the importance of SMEs for a while and are accelerating programmes already in place. For instance, the UAE established Federal Law No 2 of 2014 to categorise SMEs, establish a dedicated council and determine incentives to be offered to small business owners.

Dubai SME, the agency set up by the Department of Economic Development, has been very active in supporting SME creation. It has to date assisted around 11,000 entrepreneurs through its development advisory services, has incubated 300 start-ups and engaged with 4,000 students through its 'Young Entrepreneur Competition' to launch 1,200 projects.

However, more remains to be done. Bloovo.com report identifies four crucial regulatory arcs to facilitate SME growth. First, there is an argument to create funds dedicated to get SMEs off the ground and make up for the shortfall of conventional bank financing. Apart from subsidised financing, funds and incubators could also deliver mentoring and support to increase chances of business success.

Second, company formation laws should be tweaked to offer greater flexibility and allow greater foreign ownership to attract FDI and international innovators. Third, a focus on commercialising intellectual property would help companies turn ideas into revenue streams - with the public sector playing a facilitative role in helping SMEs file for international patents. Finally, proactive action is required to make SMEs an essential part of critical supply chains. SMEs can be made first-preference suppliers for government contracts, for instance.

- rohma@khaleejtimes.com