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UAE SME sector contributing 60pc of GDP

DUBAI, July 18, 2016

The  small and medium-sized enterprise (SME) industry in Middle East and North Africa (Mena) is becoming an increasingly important contributor to gross domestic product (GDP), with the SMEs in Egypt, Lebanon and UAE accounting for 80 per cent, 99 per cent and 60 per cent respectively, a report said.

The contribution is significantly lower in Kuwait, Qatar and Oman, according to the report released by Al Masah Capital Management, a leading alternative asset management and advisory firm.

Al Masah’s report mentioned that the Mena region is currently witnessing a grassroots revolution in building a strong SME structure. Developing the region’s SMEs has so far moved in a positive direction with every GCC country establishing specialized bodies and developing regulations and programs to support and nourish them.

Given that SMEs represent over 90 per cent of the total registered companies in most of the Mena countries, their contribution to overall GDP remains substantially lower, with exception of a few like the UAE, Egypt and Lebanon.

Globally, the weight of SMEs has been increasing, with larger firms downsizing and outsourcing more functions, suggesting robust growth, said the report.

Estimates suggest that 90 per cent of the world’s businesses are SMEs and it contributes to more than 50 per cent of employment worldwide.

For developing economies, SMEs contribute about 50 per cent of gross value add (GVA) and 60 per cent of total private sector employment. According to the World Bank Group study, there are 420-510 million micro small and medium-size enterprises (MSMEs) worldwide of which 365-445 million MSMEs are domiciled in the emerging markets.

Shailesh Dash, entrepreneur and founder of Al Masah Capital said: “Technology adoption is ruling it all. SMEs have become important in promoting competitiveness and introducing new products or techniques to the changing market dynamics around the world.”

“Moreover, they are also responsible for increasing productivity, mostly through expansion and inorganic strategies. The performance and development level of a national economy largely depends on the willingness and ability of the government to create a fertile environment for SMEs, which can improve the quality of services and promote competitiveness that are important for an accommodative market environment. We also cannot ignore e-commerce and mobile technologies that have proven to be an enormous boon to the success of SMEs,” he added.

However, the report also suggested shortfalls of SMEs through funding gaps and lack of commercial expertise. With banks being averse to risky investments, the SME sector did provide scope for expansion of the Private Equity markets and improved access to Venture Capital for SMEs. A noteworthy trend that Al Masah Capital reviewed in its report is the emergence of financial technologies (FinTech) that has revolutionized the financial industry.

More importantly, it has become a game changer for SMEs as it offers innovative tailor-made products, such as marketplace lending, Crowdfunding, tech-enabled payments etc., especially when lending from traditional banks were tiring and futile. FinTech companies attracted significant interest from VCs as the value of investments in FinTech grew multifold since 2010, from $1.8 billion to $22.3 billion at the end of 2015.

Explaining the ‘FinTech’ revolution further, the report mentioned that global banks are catching up with it after a 'wait and watch' period during the initial stages. Banks have started allocating funds towards FinTech, primarily aimed at making acquisitions, set up venture fund, start-up programs to incubate FinTech and partnering with a FinTech companies.

Over 80 per cent of the funds invested by banks have gone towards three categories: start up programs to incubate FinTech (representing 43 per cent), set up venture fund (20 per cent), and partnering with FinTech companies (20 per cent). The Mena FinTech industry however is still in its nascent stage, the report observed.

Explaining the role of Venture Capital as a major growth contributor towards economies, Al Masah’s report mentions that Venture Capital (VC) has emerged as an important source of finance for SMEs, especially for starting business and its expansion across the globe. Given the importance of SMEs in the economy, the role of VC firms become increasingly important in providing the seed funds as well as drive growth.

Venture capitalists provide more than equity capital to their portfolio companies. They also offer management assistance, performance monitoring and the staged infusion of additional risk capital as the enterprise evolves. The report also highlighted that fostering an adequate flow of financing for small firms is a crucial step in enhancing entrepreneurship and creating a vibrant economy.

Venture capital investments more than tripled in 2015, which was driven by evolving technologies, e-commerce and booming entrepreneurship. A young and growing consumer market with high technology adoption rates is supporting the rise in ecommerce penetration among SMEs, which is attracting venture capitalists to the region. Further, the fund raising levels were consistent with 2014 and were significantly above the levels seen since 2010.

Al Masah Capital culminated the report with issues and challenges like lack of innovation, access to finance and legal framework faced by SMEs and VCs in the region and the need to tackle them to ensure ease of doing business. – TradeArabia News Service




Tags: SME | GDP | Venture Capital | Al Masah |

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