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Sat 18 Jul 2009 04:00 AM

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Risky business

Visa's Raghav Lal insists that Mideast is one of the best regions for entrepreneurs with the right attitude and know-how.

Risky business
Risky business
The huge growth in Visa SME cards business reflects the GCC’s entrepreneurial spirit, Lal says.
Risky business
Mohammed Bin Rashid Establishment for Young Business Leaders CEO Abdul Baset Al Janahi.

With little support and no bankruptcy laws in the region, the UAE and the GCC are potential minefields for entrepreneurs. But Visa's Raghav Lal insists that all hurdles can be jumped with the right attitude and know-how.

In another life, raghav lal could have been a spin doctor or empowering life coach. The head of global small business for Visa Inc brims with positivity while waxing lyrical about entrepreneurship in the Middle East.

And he immediately rebuffs any suggestion that launching a venture in this region during tough economic times is tantamount to accepting an arduous challenge. Even statistics revealing a mere twenty percent survival rate for start-ups fails to change his mind.

"It's frankly open season for all types of businesses to be here and thrive," he says confidently. "A lot of businesses are formulated and founded in economic turmoil because this is where opportunity comes about and this is where the entrepreneurial spirit drives through."

Such talk is expected from a man charged with overseeing the small-to-medium (SME) business of credit card company Visa. The division provides debit and credit cards for cash-flow purposes to companies with moderate turnovers and small employee numbers. Depending on the cards, business owners can access capital instantly or over a long-term period.

Lal, looking relaxed in a smart black suit, pale blue tie and white shirt, insists that recent demand in this region for Visa Business products points to a market rich with entrepreneurial talent. "To give you some statistics, I look at the World Bank and see a report telling us we have 80 percent of all employers in the Middle East coming from the SME sector," he says with a slight American twang.

"If you take that down specifically to the UAE, 86 percent of the employers are SMEs. It tells me that the small business and entrepreneurial spirit is alive and thriving. From the same report, it says there are close to 208,000 SMEs in the UAE."

Many small and medium sized businesses in this region there may be, but finding ones that have endured few trials and tribulations during the downturn is tricky.

Like most regions, the Middle East has shed thousands of jobs to cope with the harsh realities of the economic crisis. A recent poll carried out by research organisation YouGov for The National newspaper found that one in ten people had lost their jobs during the past six months. The construction and property sectors were hardest hit, with 44 and 41 percent of respondents respectively saying they knew someone who had been affected.Another survey in February claimed 53 percent of GCC companies had implemented a recruitment freeze. The analysis, collated by HR consulting business ORC after speaking with 150 firms across the region, also found that a further seventeen percent of respondents were planning to stop hiring.

"Obviously staff costs are one of the first things to be targeted in a downturn and, in particular, the 2009 budgets for salary reviews," pointed out John Macdonald, managing director of ORC Worldwide's Middle East operation.

"We found that around 50 percent of respondents reported that their salary review budgets had been adjusted as a direct result of the downturn, [with] many reporting quite significant reductions, typically down from an average of twelve percent to around 5-6 percent, or lower in Oman and Kuwait."

More recently, consultant Watson Wyatt said that 43 percent of Middle Eastern companies have either cut staff or frozen pay increases to combat the downturn. Elsewhere, a report carried out by online recruitment specialist revealed that the number of Dubai-based vacancies on its website in this year's opening half represented only 30 percent of all GCC positions. The figure for the corresponding period in 2008 was 43 percent, with Kuwait and Bahrain also offering fewer online roles than last year.

While layoff figures for the region are unknown, it is understood thousands have lost their jobs during 2009. For the recently unemployed, having no regular income during the worst economic downturn in recent history is a natural concern. Some industry figures, however, believe people harbouring entrepreneurial aspirations are well positioned to launch ventures.

"With the macro economic conditions the way they are, is this the right time to establish a small business?" Lal ponders. Answering his own question, he adds: "All I can share with you is the spirit, resiliency and optimism from being a small business owner who sees the glass as half full. Lots of household brands and names like Proctor and Gamble were established in downturn times, so while not every small business wants to grow to the size of P&G, they all seek forward momentum. This is the time to do it."

Abdul Baset Al Janahi, CEO of the Mohammed Bin Rashid Establishment for Young Business Leaders, is one such advocate, insisting a fear of failure should not deter budding businesspeople in the Middle East.

"We have it in the region that failure is learning, but from a social perspective if you fail you are put on the side, you are not a good person, and this is the kind of message that we want to take out," he says.

"Failing means you have gotten through the real learning curve and your second venture will have more probability statistically of succeeding than the other one. This is the kind of optimism that we want to put in the market. That it's okay to fail. You know what? Fail one thousand times. It's okay. But, you know one day you will get there."

Lal agrees, insisting failure is a state of mind and the only thing holding budding entrepreneurs back are themselves. "To a true entrepreneur that [fear of failure] is just a challenge," he says with a smile. "It's not a holdback. I can only point you to the facts that I have which is Visa SME cards has seen tremendous growth, and that tells me failure is not something that's keeping back the UAE and GCC entrepreneurs."

If a one in five success rate fails to dampen enthusiasm, then the lack of support for foreigners in the UAE might. Janahi's support body for small and medium sized businesses is only available to nationals managing UAE companies that turnover up to $8.1m and employ a maximum 3,200 people. Businesses that meet the criteria are afforded expert advice from the establishment and given help to secure finance from affiliated banks. The body also helps bosses meet contacts and potentially sign up new customers for their business.

With seemingly little support, expatriates in the region face more hurdles when launching ventures. Even so, Lal reckons those with enough determination can overcome any obstacle. "It is all about having the vision and drive, which are common attributes in SMEs here and globally," he says.

Aside from having little support, expatriates also risk serving jail time if their business dream turns into a financial nightmare. Indeed, having no bankruptcy laws in the UAE, for example, could see company owners with mounting debts feeling the heavy hand of the law.

Last month, local lawyers called for a shake-up of UAE bankruptcy laws after Simon Ford, owner of events and alternative gifts company, fled the country with massive debts. In an emotional letter to suppliers and customers, Ford said the UAE's "lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments" had forced him to leave.

Such horror stories may be enough to deter some budding entrepreneurs, but Lal claims anyone with a solid business plan, relentless drive and unwavering ambition will forge ahead regardless. "In terms of laws, regulation and compliance, Visa aren't the best people to comment on that," he asserts before pausing briefly. He continues: "Having global remit gives me the opportunity to look across markets and geographic boundaries. I have rarely found any market where the local law suppresses commerce or entrepreneurship and for good reason.

"Entrepreneurs, as I stated with the World Bank statistics, tend to be the backbone of all local economies whether they are as large and developed as the UK or US or emerging ones. You tend to find that SMEs are the greatest number of employers and the economy relies very heavily on that sector."

His public relations colleague interjects, arguing that most potential business owners will scrutinise a country's laws before deciding whether or not to set up camp. It is a point that non-national entrepreneurs eyeing the UAE for a start up may heed, given the lack of bankruptcy laws and general support.

But Lal maintains his stance, insisting this region is an ideal place to launch a business. "Looking at the economy here and how the UAE and Middle East is changing and evolving, the economies are diversifying from the traditional strengths of oil and gas. That gives great avenues and opportunities for entrepreneurs to be highly innovative, creative and resilient."