Small businesses in the UAE need more support than ever

Fees, red tape, a slowdown in lending and the tough economic conditions are all combining to produce a grim period for the country’s SMEs, says Ed Attwood

If you’re running a small business anywhere in the Gulf, the chances are you’ve never had it tougher. Red tape, licence fees, the cost of visas and the lack of insolvency regulations are all combining with the difficult economic conditions to create an environment where even the hardiest entrepreneurs are thinking of pulling the plug.

Last week’s sentiment survey from Gulf Finance, which surveys small businesses in the UAE on a quarterly basis, made for refreshingly honest reading. Looking through the responses, it wasn’t easy to find any cause for optimism. From orders to payment collection, and from confidence to the ability to raise finance, respondents reported a significantly worse quarter than the one before.

The survey’s results chimed with comments made recently by entrepreneurs and commentators brave enough to speak out about what they see as problems facing the sector.

“It’s important because perception is reality,” Sultan Sooud Al Qassemi told us last month. “You send the message that you are entrepreneurship-friendly but go and start a business in any country in the Middle East and come talk to me.

“How much money will it cost you? How much bureaucracy? How many stamps? How many business departments do you have to visit? Everywhere the same.”

That sentiment was echoed by the co-founder of delivery start-up Fetchr, Joy Ajlouny. “We feel frustrated as entrepreneurs because the ecosystem here is not conducive for helping start-ups,” Ajlouny told our sister magazine, Arabian Business StartUp. “You need to buy a licence — that’s $25,000. You need to register with the government — that’s another $25,000. How do you prosper as start-ups?

“Every time we hire someone there’s a visa restriction and then they’ve got to leave the country, pay for a ticket for them to leave, then another medical examination. Think about all the expenses that rack up trying to run a company like a start-up. You’re dead before you start.”

Now if Ajlouny had been in charge of a failed start-up, you might be forgiven for thinking this was a case of sour grapes. But Fetchr is the first outfit from the Middle East to be funded by New Enterprise Associates, the world’s largest venture capital firm. Last year, the firm raised $11m in Series A funding from Silicon Valley, again a record for the region. 

There are some areas in which the UAE could potentially make some changes. The requirement for office space is a particular bugbear. In an age where many small businesses can be run out of homes or coffee shops, the need to pay upwards of AED60,000 ($16,330) a year on rent seems to be a rule more geared towards established foreign firms setting up shop here, rather than home-grown start-ups. And a limit to the number of visas that these companies can offer — without paying significantly increased fees — also appears to be counter-intuitive. Surely small businesses should be encouraged to hire more staff if they need them? 

The UAE is certainly outshining its neighbours in the Middle East when it comes to attracting, nurturing and developing entrepreneurs, but perhaps the country should be benchmarking itself against its global peers. The World Bank’s Doing Business rankings for 2016 puts the UAE in a very creditable 31st place overall, but when it comes to starting a business, its ranking drops to 60th.

In these straightened times of budget deficits and low oil prices, persuading governments that they need to cut fees rather than increase them seems like a tall order. And no-one is saying that licences should be handed out for free. But without giving start-ups the tools they need to survive, the long-term loss to the economy could be incalculable.

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Posted by: CP23

Just wanted to thank this website for consistently bringing light to these issues. In a journalistic culture where negative sentiment is so transparently avoided, it's nice to see these things stir up debate, and hopefully shine a light so these problems can (slowly) be addressed.

Yes, this is probably the easiest place to set up a business in the region. However, seeing as how this city constantly compares itself to the top 10-15 cities in the world, it's business culture should also be on par with those sentiments - otherwise the tallest-this and the biggest-that might not be enough to keep the ball rolling.

Posted by: nastyrunner

SAM - Exactly my point. I have no issues in the employee leaving the company and going. Worst comes to worst, I can run my company all alone and still not have any issues. But the factor of not being compensated because of the greed of employee, is what i feel is wrong. Also, screening can be done if the employee has worked in the country for sometime. If I get compensated for the visa, I would be more than happy if the employee is growing and going to another company, because at the end of the day, I would rather have someone who is willing to grow with me, rather than someone who is just using my company as a bridge. As a matter of fact, i might even give him the taxi money for his first day for all I care.

Posted by: Paulo

We spent 8 years in Dubai, but found the bureaucracy, the costs, the instability (boom/bust/boom), the poor legal framework tiresome to deal with. While it's true you have no corporation tax, you have to make a profit first for that to have any benefit!

We now operate back in the EU, and it is far easier. Costs like labour, property/rent and the cost of living is far less, no visa or licence fees, etc. We can recruit from across the whole EU without any visa issues, for EU citizens. Of course we have to pay tax, but do so happily because (a) we make a profit and (b) we get good services. It made sense when we first went to Dubai, but since then things got progressively worse, and we should really have left sooner.

Posted by: Timbo

Peter Peter is quite right, SMEs are hit up left right and centre with costs, taxes and not forgetting 'today's new rule' which is going to cost you extra, each time a 'new rule' is invented.
I would propose that the Government introduce SME incubator business parks where start-ups pay realistic rents, sponsorship and visa fees. These allow softer entry start-ups for SMEs and give them the chance to grow and succeed. The idea would be that businesses are allowed up to five years from start up within the SME incubator park until they have to stand alone on the outside. I have a 3-year-old SME and we are literally working to survive - if I had known it was going to be such an uphill battle I probably would have stayed working for an MNC.

Posted by: Peter Peter

I own an SME that employs 6 people. For the last 7 years we have barely survived. As per some comments we should close down. But I am helping support 7 families back in the Philippines, India & Sri Lanka. I have enough to retire on but do I abandon these 6 people when jobs are hard to find ? The "No Taxes" status is a myth. Maybe Rich companies benefit, but many SMEs like us are struggling under the burden of very one-sided fees for every government service. Take "Sponsor's fees", 20% land tax on rent contract, 5% tax on home rent, Market Fees (??), Garbage fees (when no garbage is being collected), Commercial register fee (??), Quota fee, Labour card fee, Medical examination fee, Residence visa fee, etc etc. It is just taxation by another name. This hurts the SMEs not the fat cat MNCs.
With the lifting of the 6-month ban SMEs will suffer more as many will take up any job just to get a residence visa & then jump jobs for as little as AED250 pm extra leaving their benefactor high & dry.

Posted by: nastyrunner

Mazher - If other SME's than me were thriving, I am assuming this article wouldn't be published in the first place. Moreover, I guess I would be in one of the top 20% SMEs, where I have no bank loans and moreover, no outstandings with any company whatsoever. Also, I have at least 45% of my sales to be collected from other companies which are big companies and SMEs and are not able to pay me. So unfortunately, I am not in that boat. Anyways, to close the argument, you have your viewpoint, and I have mine. At the end of the day, we have to either continue with it or have an option to leave.

Posted by: Mazher Fakher

Nastyrunner - based on your comments, you run a business that is not willing to or not able to (due to capability or bad business model) offer the right levels of recruitment and retention, and instead has to rely on government bans and scaremongering. Other SMEs in the UAE thrive and are able to do this very effectively, navigating the business environment without resorting to threats and bans. You should reflect on that and change your business model, rather than cry about progressive, humane government policies protecting the 'little guy'.

Posted by: SAM

nastyrunner, I understand your point; there are additional risks to doing business here that are unique to this region. It is quite disruptive and costly to business if employees keep jumping from one company to another. However, I would expect employers to check with previous employers and common sense would dictate not hiring such persons. Maybe there should be a law that would force a person changing jobs to compensate the previous employer for visa fees; I think that would be fair. It is definitely an issue that will gain more prominence and needs to be addressed more seriously by authorities. I also think better job screening is needed by employers and possibly have employees sign legally binding separate contracts upon hiring that would stipulate conditions of employment and consequences of leaving a job prematurely.

Posted by: nastyrunner

Sam - I have no intentions to tie down an employee, and don't mean it that way. What I mean to say is, if as a company I am willing to spend approximately AED10K on a visa for a person, I have met at least 20 people who are willing to join the company just because their visit visa was about to expire. Earlier, at least they would work for 2 years. Now they will come here on visit visa, if they don't find a job, they will join any job to be able to live here, and then start hunting for another job immediately. So in 2-6 months span they find another job, they can actually leave, whereas your left with nothing but the salary given to the employee and the visa cost burden. Who benefits in the whole bargain? The Government and the employee! Is there any protection or reimbursement for the business?

Posted by: SAM

nastyrunner - So it's OK in the rest of the world, but not here? I have my own business, as I had one in North America many years ago and business fundamentals are the same. If you have a viable business model you will survive, with some bad years in between. If your business model is not viable, the business will go under. It happens everywhere. As to tying employees down, try to create incentives as in other countries, not chains. The image of a screaming Terry Thomas in Africa as a British sergeant in shorts with a stick comes to mind.

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