The recent announcement that Dubai’s government will expedite payments to small and medium-sized enterprises will help SMEs ensure steady cash flow and help boost the larger economy, according to experts.
The plans, which were unveiled on Sunday, mandate that the government will pay SMEs within 30 days instead of the current 90, as well as reduce insurance costs for SMEs that will not affect their eligibility for government tenders.
Among those who praised the move was Wamda Capital executive chairman Fadi Ghandour, who said it was an “extremely important” step for SMEs.
“They (SMEs) live and die by their cash flow, so that should easy their day-to-day pain of collecting cash and gets them to focus on running their business and taking care of clients,” he told Arabian Business.
“It also gets cash to be recycled much more quickly into the economy.”
Similarly, Andrew Morris, a partner at the Dubai-based Banks Legal consultancy who advises businesses on corporate and business law in the UAE, said that the move will “inevitably” have a positive impact on SMEs.
“Cash flow remains a critical focus for SMEs in the current market, with traditional financing for SMEs remaining difficult to obtain,” he said.
“A substantial reduction in debtor days will assist qualifying SMEs working on government projects to keep on top of their overheads and more easily invest in the development of their businesses.”
Vic Bagaria, the CEO of Xpandretail and the chairman of the UAE-based Entrepreneurs Organisation, said that the improved cash flow will help smaller businesses and entrepreneurs to focus more on their businesses as the banking pressure with the mismatch of working capital requirements will decrease.
“Overall, it will strengthen SMEs balance sheets and allow them to do more business with the same capital base, which in turn will generate better cash flow and profits in the medium term,” he added.
The move is expected to have a positive effect on the wider economy, in which SMEs account for more than 90 percent of the total enterprise population of the UAE.
“SMEs are the backbone of any economy and are key to ensuring economic growth, job creation and innovation,” said Rohit Garg, head of business Banking, mortgage and remittances at Mashreq Bank. “This move is in line with the government’s vision to support the growth of small businesses in the emirate as the sector represents robust opportunities for growth.”
Trevor McFarlane, the founder and CEO of Emerging Markets Intelligence and Research (EMIR) said that SMEs are the “lifeblood” of the UAE’s economy and an important source of employment in the country.
“Any support to the SME sector will have a positive impact on private sector activity,” he added. “But these measures and the potential benefits should be seen as part of a greater recent reform package from the government aimed at stimulating growth, and not in isolation.”For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.