Acorns to oak trees: Using incubators to help establish local SMEs

The recognition of small and medium-sized enterprises (SMEs) as generators of jobs has become a proven fine art in Dubai, with the establishment of a dedicated agency inside the Department of Economic Development (DED). Between 1000 and 1200 would-be entrepreneurs approach the agency annually seeking advice, help and sometimes practical assistance as well. Abdul Baset Al Janahi, CEO of Dubai SME, told OBG that every year around 400 of them succeed in launching a business, of whom about half, mostly women, set up their businesses at home.

SME 100: In Dubai, around 95% of all establishments are SMEs, defined for practical purposes as firms with a maximum of 250 employees. These 75,000 companies cover mostly services, trading and manufacturing. The agency runs a programme called the SME 100 in which it ranks the best-performing businesses in terms of innovation, growth and profitability.

Al Janahi said that the 2013 results showed that even after the economic crisis in Dubai, these 100 are double-digit-growth companies. Some 3000 local enterprises have applied to Dubai SME to be included in the SME 100 list and this has enabled the agency to collect the kind of statistics that would normally be available only in a sophisticated tax regime. “We have an extensive database on these 3000 companies,” said Al Janahi, “and the results are very interesting. They have a combined turnover of Dh54bn ($14.70bn), net profits of Dh16bn ($4.36bn) and employ around 93,000 people.” In the past four years there has been particularly strong growth in tourist-related SMEs.

The agency’s advice service is available to all applicants, although financial assistance in providing seed capital and sometimes offices for start-ups is reserved for nationals. “Of the new businesses launched through Dubai SME and which receive funding, I barely remember any that have failed,” said Al Janahi. “We can tell by analysing the SME 100, which is a significant sample, that the firms that do the best are those that use Dubai as a base for doing business in the wider region.”

BRITAIN: In an effort to complement existing SME programmes, Lord Green, the then-UK minister of state for trade and investment, was in Dubai in 2013 to announce plans to launch two business incubator centres for British SMEs in the UAE, in conjunction with the DEDs in both Dubai and Abu Dhabi. The two centres, which are being set up in collaboration with UK Trade & Investment (UKTI) and the British Business Group (BBG), are intended to help British SMEs establish a foothold in the UAE.

They will offer practical advice to newly arrived entrepreneurs. “There is no substitute for that ability to share practical experience of what it is like to do business in [a foreign country],” said Lord Green. For the first year, the centres will help British companies to locate affordable office space, as well as to make local sponsorship arrangements.

Foreign businesses setting up in the UAE often find it difficult to find a local sponsor (a legal requirement for onshore companies), and may need to pay 12 months’ rent in advance, said Jonathan Davidson, BBG’s chairman for Dubai and the Northern Emirates.

“We’re giving these businesses a 12-month launch pad, so that they can, at a relatively low cost, begin to trade and do all their preparatory and due diligence work,” he said. “At the end of that period, they know they’re moving in the right direction.”

British companies that use the centres will be able to take advantage of the facilities of the two UAE DEDs and pay rent monthly. The departments would also create a local limited liability body that will nominate itself as a local partner to sponsor the new companies for a year, said Davidson.

The Dubai centre is scheduled to open by the second quarter of 2014, while the one in Abu Dhabi will follow suit in the fourth quarter of the year. Each business centre will be able to incubate up to 50 companies at any one time, Davidson added. Lord Green said the UKTI was trying to establish similar business centres in 20 countries, including Qatar and Kuwait.