Cost of Starting an Emirati SME Falls Significantly

abdulrahman al ansari

Abdulrahman Al Ansari discusses claims that the cost of starting a small to medium sized enterprise (SME) in the United Arab Emirates (UAE) has fallen significantly since 2012.

Changing start-up culture

The 2015 World SME Summit was recently held in the Emirati city of Dubai. Speaking at the conference Hans Henrik Christensen, the director of the Dubai Technology Entrepreneur Centre (DTEC), suggested that the cost of starting a company in the Emirates has dropped considerably in the last four years.

Christensen revealed that UAE entrepreneurs needed to find as much as US$110,000 in start-up capital and anything up to US$19,000 in office space rent, to create a venture in 2012.  He argued that in the last four years, a number of initiatives have made starting a firm in the UAE more cost effective. Christensen cited DTEC’s flex-desk initiative as an example of how these programmes are reducing start-up expenses in the UAE. This programme provides new companies with registration and working space for US$1,350 and US$2,000 respectively.

Advice for entrepreneurs

Consequently, Christensen said at the Summit that the average cost of creating a company in the Emirates has fallen from over US$100,000 in 2012 to just US$3,500 at present. He went on to argue that just because initial start-up costs have fallen, it does not mean that UAE SME heads can afford to resist educating themselves on the costs of running a company.  Commenting further, he was quoted by Gulf Business, saying: “If you spend some of that money to register your business you should not be fooled into thinking that you don’t need cash to run the business because then it’s going to hurt you.” Christensen advised UAE entrepreneurs to refrain from starting a company until they have enough funds to support the company’s operations as it grows.

Looking at productivity

SMEs serve as the primary driver of Emirati economic growth. Official figures suggest these businesses account for 60% of the UAE’s gross domestic product (GDP) and 40% of GDP in Dubai, the country’s most prosperous city.

The government has launched strategies to bolster small business expansion, such as the SME 2021 Initiative. This is designed to increase small business’ share of UAE GDP to 70% in next five years by utilising three strategies. These include raising these companies’ productivity, making the SME market more competitive and integrating high-growth opportunity SMEs more seamlessly into Dubai’s economy.

Commenting on this Dr Abdulaziz Istaitieh, the Dubai Government’s Executive Council Economic Advisor said: “Frankly, SMEs constituting 40%, 60% or 70% of the [UAE’s] GDP does not matter and is not the core focus of the government because the important thing to note is how strong their productivity levels are… Even if the SME’s constitute 60% of the GDP but their productivity level is low then the numbers don’t matter.”

Addressing SME requirements  Statistical evidence suggests that SMEs are the backbone of the UAEs economy. Not only do they make up 60% of the Emirates’ GDP, they account for a staggering 86% of all private sector employment in the Middle Eastern nation. Therefore, it is in the best interests of the Emirati government to implement programmes which allow SMEs to thrive. Only this was can the country’s citizens cultivate the purchasing power required to support economic growth.

The fact that UAE business creation cost have decreased significantly in the last four years is positive. It suggests that the Emirates is creating an environment in which small businesses can flourish. But SMEs in the country face a number of issues. News agency The National reported recently, for instance, that “the last quarter of 2015 witnessed a significant increase in negative sentiment sweeping the SME market.” As Christensen and Istaitieh both argued, there are issues the UAE’s government need to address in order to cultivate a favourable environment for SME expansion.

About Abdulrahman Al Ansari

Abdulrahman Al Ansari has more than 18 years of experience in the global financial services industry. He serves as the chairman of a number of reputable financial firms including AMA Investment Holding and Bid Capital Management Consultancy.

Abdulrahman’s professional portfolio encompasses a diverse range of sectors from commodities and natural resources to education, healthcare, oil & gas and investment banking. He has earned a reputation as an innovator, who consistently develops new ideas and solutions to address the complex and demanding challenges which confront his clients every day. Over the years, Abdulrahman has cultivated a special interest in the continued economic and community development of the UAE.

Find Abdulrahman on TwitterLinkedIn and Google+.

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