The Impact of SMEs on the Economic and Societal Growth of UAE

Small and Medium Enterprises (SMEs) play a major role in economies around the world, particularly in developing countries. These sectors account for the majority of businesses worldwide and are important contributors to employment opportunities and global economic development. In today’s era, SMEs represent about 90% of businesses and more than 50% of employment worldwide. SMEs are today controlling 90% of the UAE’s economy and a major reason for the country’s development.

Small and Medium Enterprises (SMEs) are the key driving factors of the UAE economy, representing over 94% of the total number of companies operating throughout the country. Around 350,000 companies in the UAE come under the SME category and employ nearly 86% of the private sector’s workforce. Of this percentage, 73% of SMEs account for the wholesale and retail trade sector, 16% of the services sector, and the remaining 11% in the manufacturing sector. The UAE annual report shows that SMEs also contribute more than 60% of the country’s GDP and is projected to strengthen its contribution to 70% by 2021 under the UAE Vision 2021. The emergence of SMEs has significantly improved slow job growth and unemployment percentage rates in the country.

The SME culture is highly favorable in the country as the government of Dubai provides free zone opportunity to budding entrepreneurs. The country is giving huge attention to SMEs as the sector continues to dominate the economic engine of the UAE. SMEs are the backbone of the country’s economy and the administration is constantly focusing on the need to promote partnerships that support the industry to penetrate into new markets.

Challenges Faced By the UAE Government

These growing SMEs also face a series of challenges, despite contributing in great to the country’s economy. The problems faced by these SMEs include the informal sector, lack of electricity, and lack of finance along with a lack of labor with adequate training skills. The resources necessary to grow a business such as finance, human resources, and social capital and infrastructure are less accessible in the UAE.

Although the country stood 23rd – the highest of any Arab country – in the survey on the ease of doing business, World Bank 2014. Many entities find it difficult to access loans at reasonable rates or often they end up getting no financing for their business at all. This is also because many banks prefer to not finance the SMEs due to higher risk and defaults.

To overcome, these problems the government of UAE doesn’t impose any tax on these emerging startups. The Ministry and the UAE’s SME council constantly support the entrepreneurs and SMEs. The government facilitates to facilities and provide incentives granted by the laws, which enables citizens’ easy access to financing.

Moreover, the facilitation and acceleration of financing processes, providing free training programs, increasing incentives and external partnerships with other countries enables entrepreneurs to grow considerably.

Conclusion

In the next five years, the market potential for SMEs in the country is expected to reach $920 billion compared to the current $360 billion, at a growing CAGR of approximately 15%, which will significantly enhance investment prospects in this sector to the budding entrepreneurs.

Apart from the astonishing CARG, the employment potential in the SME is expected to reach $22 million compared to the current $17 million. The future of the UAE’s economy will be led by innovation among the top talents and young adults who will drive the SME culture in the country. The constant need for SMEs for trade, growth of the economy and working capital finance will business growth and development in the UAE.