Dubai: As part of its efforts to attract funding for small and medium enterprises (SMEs), Dubai has launched a report “State of SME Equity Investment in Dubai” outlining measures to attract equity investments in the sector.
Thorough this new report, Dubai SME, the agency of the Department of Economic Development (DED) mandated to develop the SME sector, presents a case for investment in the sector from private equity (PE) investors, venture capitalists (VCs) and angel investors.
Launched as part of the Dubai SME 2021 Strategic Plan, the report is aligned with the strategic economic direction of the UAE, particularly the focus of Dubai on innovation and investment towards building a knowledge economy.
“The ‘State of SME Equity Investment’ report represents an ideal opportunity in the medium to long term, not only for SMEs in Dubai, but also for those across the region. The estimated total investment in small businesses in the region is about Dh3 billion and with clear strategies these funds can be channelled into sectors of vast growth potential,” said Sami Al Qamzi, Director General of DED.
Limited sources of funding to start businesses is a major gap in the SME ecosystem, which is underlined by the finding in the report that 80 per cent of the start-ups relied on self-financing as a source of capital.
“Based on the findings in the report, Dubai SME has formulated strategies and initiatives to improve SME performance in the years ahead, facilitate SME access to financing, and enhance SME competitiveness as well as their value-add to the UAE economy,” he said.
According to the report, the total value of capital investments in SMEs across Dubai amounted to nearly Dh110 million in 2014 and it is expected to grow by 15 per cent in the near term on the back of a 30 per cent growth in the number of deals, driven largely by activity from existing incubators/accelerators and early-stage investment firms.
The report refers to the slow pace of innovation among SMEs in Dubai even when they have the potential to attract investment and remain growing.
“We will work on the recommendations in the report to fill the gaps identified, and promote equity financing, thus creating an environment conducive to SME growth and sustainable development in Dubai,” Abdul Basit Al Janahi, CEO of Dubai SME, said.
The report calls for robust insolvency and bankruptcy regime for onshore companies in the UAE and exploring the option of a secondary market, which would allow small and mid-sized companies to list without complex regulatory preconditions related to corporate governance and accounting.
A sponsor-supervised capital market model, which will allow an SME to be brought to list by a sponsor with expertise in corporate finance and regulatory compliance has also been suggested, in addition to allowing SMEs to raise capital up to a certain limit without significant regulatory burden.
The report recommends that there should be international standards to help investors assess the feasibility of business ideas as well as investment options in infrastructure, eco-innovation, including technical centers and centres of excellence in research and development. Absence of authoritative trading benchmarks makes investors apprehensive of investing in business ideas and evaluating risks, says the report.