Dubai – MENA Herald: SMEs are a crucial component for sustainable economic growth in the GCC post the oil price decline but need to overcome key challenges to succeed. The finding comes from the latest research by BLOOVO.COM on the role SMEs play in catalysing economic success across the region.

With a USD 275 billion export shortfall due to the sustained dip in oil prices, GCC countries need to accelerate the development of an advanced SME ecosystem underpinned by knowledge workers. However, SMEs are still subject to substantial financial, business, regulatory and technological environmental challenges.

SMEs suffer a lack of credit lines, with banks in the GCC unwilling to lend to smaller concerns at a time of squeezed liquidity. BLOOVO.COM shows that finance rejection rates run as high as 75% for most GCC countries. Only 2% of total bank lending across the GCC goes to SMEs. Meanwhile, bankruptcy laws either don’t exist or are harsh.

“Funding challenges are a big constraint for SMEs. They find it very difficult to raise conventional debt-based finance due to risk-aversion on the part of lenders. There is also no way to fail safely because of financial laws. Fortunately, measures like the soon to be implemented UAE bankruptcy law will lead to a more facilitative and mature financial environment for SMEs,” says BLOOVO.COM Co-founder & President Iyad Abu Hweij.

Other challenges include a difficult business environment caused by poor ease of doing business rankings in many GCC countries, slower than expected reforms in regulation and legislation, and a lack of emphasis on modernising the GCC education sector to produce the talent needed to create knowledge workers. A lack of research, data and reports also hampers effective decision-making.

Yet BLOOVO.COM research shows that GCC countries are aware of the importance of creating an effective SME ecosystem, and have been implementing support measures. In 2014, 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. Initiatives such as Dubai SME support Emirati entrepreneurial ideas.
Bahrain was the first GCC country to actively acknowledge the importance of SMEs in 2006 by setting up its ‘Tamkeen’ body to support the sector. Qatar followed in 2011 with its “Enterprise Qatar” support body. Oman established its SME Development Fund in 2012 to deliver subsidised finances, training and mentoring for SMEs. In 2013, Kuwait established a USD 7 billion National Fund for Small and Medium Enterprise Development from government coffers. More recently, Saudi Arabia has formed its Public Authority for Small and Medium Enterprises (PASME) in 2015.

BLOOVO.COM recommendations call for more SME-friendly regulatory mechanisms across four key areas: setting up SME funds for subsidised financing and effective mentoring; changing company laws to allow more flexibility in structuring companies and allowing greater foreign national ownership; making intellectual property protection and commercialisation easier; and integrating SMEs into critical supply chains through inclusive procurement policy. For instance, the UAE Federal Law No. 2 stipulates that government authorities and ministries must procure at least 10% of their goods, services and consultation from SMEs.

“BLOOVO.COM has conducted its far-reaching research to support GCC governments in catalysing growth in their SME sectors. Not only are we pointing out key challenges, but are also laying out recommendations for overcoming hurdles. Our aim is to deliver a roadmap that can assist decision-makers in developing a sophisticated SME ecosystem driven by knowledge, technology and innovation. Our projections show that SMEs could be employing 22 million people across the GCC by 2020 with the right support,” says Ahmad Khamis, BLOOVO.COM’s Co-founder and CEO.