With crude oil prices dropping, increased attention has been paid to pillars of the economy unaffected by the sale of hydrocarbons. While crude sales still fund more than 60 per cent of the federal budget, small and medium-sized enterprises (SMEs) are one sector of the economy that shows promise outside the oil industry.
In order for an SME to reach its potential – in any market – small business owners need reasonable access to lines of credit and other loans. Given the nature of credit markets in the UAE – where defaults can land business owners in jail – there are specific challenges requiring broad solutions that include better protection for banks and more education for young SME owners.
According to the Central Bank's latest figures, local banks hold Dh1.4 trillion in debt. The chairman of the UAE Banking Federation, Abdul Aziz Al Ghurair, recently warned of the possibility of SME owners fleeing the country and leaving behind more than Dh5 billion in unpaid debt. As The National reported yesterday, a much larger share of the bad debts held by local business are concentrated in industries hit particularly hard by low oil prices.
Building a resilient economy requires a vibrant small business sector. Banks must continue to lend to small business owners, but they shouldn’t be exposed to unnecessary risks. Better credit reporting through initiatives like the Etihad credit bureau should be expanded to protect all parties. The regulatory framework should incorporate best practices from the world’s leading economies instead of relying on the criminal justice system to protect creditors.
Regionally, the UAE is considered one of the best places to start a small business. Dubai, in particular, occupies a special space and was ranked in a recent Arab Youth Survey as the top environment to live and work. Translating this attractive brand into a nimble environment where the knowledge-based economy flourishes requires banks that are supportive of start-ups and keep lines of credit open but don’t expose themselves to unnecessary risk.