UAE entrepreneurship gaining momentum
Abu Dhabi, March 14, 2013
By Stanley Carvalho
Abdulla Al Shammari had a well-paid, secure job as an occupational safety engineer at one of Abu Dhabi's oil companies. But when the government gave him an opportunity to strike out on his own, he took it.
The Khalifa Fund for Enterprise Development, which lends to small and medium-sized enterprises (SMEs), was set up by Abu Dhabi authorities in 2007. Soon afterwards, Shammari approached the fund with a proposal to make underground street-lighting boxes.
Typically, boxes containing electric wiring and other equipment for street lights clutter the hastily built cities of the Gulf. Shammari wanted to put the boxes below ground, accessible via manholes, where in addition to being unobtrusive, they would be safer and not exposed to the elements.
"They were surprised because we were the first with this underground technology, but realising the potential and viability of the business, they approved our plan," said the 45-year-old Shammari.
After he obtained a 1.8 million dirham ($490,000) loan from Khalifa, it took about two years to get the business running and as much time again to market the product. Now his company, Cirta Engineering, has installed 200 lighting boxes across Abu Dhabi and output could grow fourfold this year, with turnover tripling to 40 million dirhams as the firm expands into Qatar; it has 80 employees, including two other UAE citizens.
Shammari's case and hundreds more like his are signs that important economic change may be underway in the UAE: the government is finally succeeding in persuading a significant number of local citizens to start their own firms.
The trend is in its early stages, but if it continues, it could help to resolve an economic problem that plagues the governments of the UAE and other Gulf countries: the failure of most of their citizens to find jobs in the private sector.
"We see a new generation of Emiratis, either out from universities or employees with some business experience, toying with business ideas or venturing out to set up their own businesses," said Abdul Baset Al Janahi, head of Dubai SME, a state-backed body which helps arrange loans for small businesses in Dubai.
The vast majority of UAE citizens, who account for just over a tenth of the UAE's 8.3 million population, work at state firms rather than in the private sector, because of high salaries offered by the oil-rich government. Thanks to a lavish cradle-to-grave welfare system, others prefer unemployment; the jobless rate among locals is officially put at 14 percent.
The government can afford that financial burden at present because of high oil prices, but it knows it will be in trouble if oil eventually falls sharply. So it is stepping up efforts to lure citizens into the private sector, and appealing to their entrepreneurial instincts is one way to do this.
"Our aim is to create an environment for young entrepreneurs and encourage nationals to be self-employed and become less reliant on government jobs," said Hussain al Nowais, chairman of the Khalifa Fund.
Khalifa, Dubai SME and other state-backed bodies promoting entrepreneurship among UAE citizens offer advisory and counselling services. But they are focusing on providing finance, because many local banks feel it is too risky to lend to start-up companies.
"There are serious gaps on both sides - the bank lender and the SME borrower - which are symptomatic of a larger issue of Dubai being a non-tax regime, where there is no incentive or requirement to have proper finance and accounting records," said Janahi at Dubai SME, which offers credit guarantees to locally owned firms.
Gradually, such programmes are building momentum. The Khalifa Fund has financed 375 projects worth a total of 700 million dirhams for UAE citizens since it was founded. It is now committed to financing at least 150-200 million dirhams a year.
Khalifa plans to launch a venture capital fund to provide equity for local entrepreneurs forming joint ventures with foreign partners. Another programme will offer funding of up to 10 million dirhams each for projects in the light industrial sector.
National statistics for entrepreneurship among UAE citizens were not available, but there is indirect evidence that the government's efforts to diversify the economy beyond the state-owned oil sector are bearing fruit in general. Early last decade, non-oil sectors accounted for under 60 percent of the economy; now they account for nearly 70 percent.
The UAE's efforts to foster entrepreneurship among its people face big obstacles. While the country is so rich, earning money from oil and an influx of millions of foreign managers and workers, many local people will probably never feel the need to join the private sector, let alone start their own companies.
There are also social obstacles. Some young people face pressure to join not state firms but long-established family businesses, which can prove just as constraining.
But it would be wrong to underestimate the impact of the large amounts of money and expertise that UAE authorities are throwing at the issue. For a wide range of people, government largesse is creating new opportunities.
One example is Hassan Ahmed al Dhenhani, the 37-year-old son of a farmer in the emirate of Fujairah. He suffered a spinal injury and is confined to a wheelchair; after trying his hand as a distributor for Belgian chocolates, he used money from the Khalifa Fund to start a transport service for women and children in Fujairah.
Dhenhani said demand for the service was growing and that he planned to obtain two more vehicles this year with help from Khalifa.
Many other beneficiaries of the government are women, in a country where a conservative society can make it difficult for them to go into business. Women entrepreneurs have secured a third of the money disbursed by the Khalifa Fund so far. - Reuters