small and medium-sized enterprises

INTRODUCTION

The Small and Medium-sized Enterprises (SMEs) are firms which have some capabilities, resources or turnover that is under a certain limit. Definitions of SMEs are variable. It is changeable from person to person. Many authorised people use the word of SME for the firms which have less than 500 employees and according to some other the term of SME must be used for the firms which have more than 500 employees. However, some others use the term of large business for the companies which have more than 500 employees. When we look over the Middle East, it can be seen easily that there are many regional differences to be taken into account. For example, The Gulf Cooperative Council (GCC) includes different countries such as Saudi Arabia, Bahrain, Dubai, Qatar, and Oman. And from the wider point of view, MENA is known a regional place consisting of the Middle East and North Africais. The GCC is in a basic change which is sad and strong shift on the new business type is spurring the very long process of new SMEs all around the region. Dubai is an important region for the new companies. Information and Communications Technology (ICT) is the major instance of issue supporting the SME growth, and its good performance has taken economical confidence to new enterprises. Dubai is located in Asia and forms part of the UAE it is the second largest country of the federation but has the largest population with an estimated population of 1,450,000. From the total population of Dubai 18% are native and the remaining 81% are internationals. Dubai has been offering a prosperous future for immigrants who are in search of a better life and job. The blossoming economy of Dubai has lead to the need for manpower in the field of construction and service industry. The pay is not extraordinary high in these fields but is better than in most developing countries or other countries in Asia.

In this research, some subjects will be analysed and evaluated, such as the general structures of SMEs in Dubai, their contribution of the country.

SMES IN DUBAI

When SMEs, which have less than 100 employers, are looked over in Dubai, it can mostly be seen that companies which entered the market with investments between 200,000 and 2 million Dhs. If it is considered that the stimulus in house prices alone, although every single SME employed only one new staff per annum, except the bigger markets such as food, transportation, catering and so on. On the other hand, according to Dun and Bradstreet report, the percentage of acceptation of loans by banks is very low. It is between 30 and 50 percent. One of the biggest reasons of it is that the complexity for the banks to gain the access to accurate financial statements. (estatesdubai.com, 2009)

Some Inherent Problems

According to one administrator from Dubai Commerce Department, many firms are having some problems about secured credit from the banks and also even if they get the credits, it is just for 3 to 6 months and interest rates is really high like 15 percent, as they will be in the high risk group. According to Ruwad Establishment, there are more than 250,000 trading and industrial firms in the Dubai, out of which 200,000 fall under SME group. (estatesdubai.com, 2009) Although this problem exists there is a plus side that many business consider having is that there are no income or capital taxes and no withholding tax in UAE but it does have tax treaties with high tax countries. (lowtax.net, 2010)

SOME DATA on SMEs

Dubai is located in the middle of desert. However, it has all the western developed city features - wide highway, the most luxury hotels on the planet, skyscrapers building. These are benefits from oil reserves and an open diplomatic policy even under Kingdom regime. More than 75% workers in the UAE are Expats from countries such as India, Bangladesh, Pakistan, Malaysia, and Indonesia. More than 96% of the population in the UAE; including expats are Muslims and the majority are Arabic language speakers. But, English is widely used in the UAE. (internationalentrepreneurship.com, 2009)

More than 200 factories operate at the Jebel Ali complex in Dubai, which includes a deep-water port and a free trade zone for manufacturing and distribution in which all goods for re-export or transhipment enjoy a 100% duty exemption. A major power plant with associated water desalination units, an aluminium smelter, and a steel fabrication unit are prominent facilities in the complex. In order to open a Business in Dubai one of the three licenses have to be issued by the Dubai Economic Department, Commercial License; which is for all trading activities, Professional License; which is issued for the business such as services, craftsmen and artisans, and lastly Industrial License; to start an industrial or manufacturing service. Licenses for certain Businesses also require clearances from certain ministries, such the anything to do with Health and Safety would require a certificate from Ministry of Health, Banks or any financial institute would require a certificate from the Central Bank of UAE. Apart from the free trade zones, the UAE Law requires at least 51% local citizen partnership in all businesses operating in the country as part of its attempt to place Emiratis into leadership positions. (internationalentrepreneurship.com, 2009)

There are Seven Types of Business Categories that can be established in UAE. They hold certain requirements such as shareholders, directors, Min. Capital Investment and incorporation measures. The categories of business establishments mentioned by the UAE law are:

  • General partnership company
  • Partnership-en-commandite
  • Joint venture company
  • Public shareholding company
  • Private shareholding company
  • Limited liability company
  • Share partnership company

(lowtax.net, 2010)

UAE has limited the establishment of partnership companies such partnership-en-commandite and share partnership companies to only UAE Nationals. For a public or Private Shareholding company, the law requires companies with activities such has Banking, Insurance or anything to do with Finance should be Public Shareholding Company. Any foreign financial institutes can open a branch or a representative office in UAE. A joint venture company is licensed between a national and an expat party to start a business in a desired activity. Most business in UAE is LLC due to a high number of establishments of companies are by expats who want to create a long term relation in the local market. An LLC can be established between 2 to 50 people whose shares are limited. Any Business can be an LLC except for those which involve financial sector. In order to open an LLC the min. Capital should be AED 300,000 (USD 82,000). As all the companies require to have a 51% share to be a National partner, Sole Proprietorship is the only category which gives the 100% foreign ownership, although a UAE national will be appointed but will have no direct link to the company matters and will work as service agent for local authorities by paying him a sum of an agreed amount and / or percentage of profits or turnover.

The growth of SMEs is even more remarkable when the free zones are taken into consideration. In Jebel Ali Free Zone, between 1995 and the end of 2001 the number of registered companies increased from 899 to approximately 2,000 and their employment from 19,308 to 36,762 people. In Dubai Media City, over 850 companies and 75 free lancers were registered as of August 2004, with a total of 23,000 employees. Since the average employment per establishment is 18 persons in Jebel Ali Free Zone and 25 at Dubai Media City, the majority of these establishments could be considered SMEs. (a248.e.akamai.net, 2008)

Since 1999, the Dubai Department of Economic Development has operated the Intilaq programme, which is a low-cost licensing system for UAE nationals to operate small businesses from their homes in Dubai. As of first quarter 2004, a total of 628 Intilaq licenses had been issued. (a248.e.akamai.net, 2008)

CONTRIBUTION of SMEs

When the number of the small and medium-sized enterprises rises in Dubai, it may increase the demand for both office place and also need for place for manufacturing. When given access to bank loans to support new attempts, offered working capital and investment for growth and expansion, reveal industry experts. Mohammad Nimer who is the CEO of MAG Group Property Development says that SMEs have an 80 percent of share in the economy in the Dubai. It implies that these companies have a big number of employees on the entire company and these staffs also need to be found a house. According to Malek Al Malek, who is executive director of Dubai Internet City, in difficult and complex times, Dubai Internet City goes on initiating importantly significant panels to help small and medium-sized business in the area. With the help of the state initiatives like the Mohammed Bin Rashid Establishment for SME Development, Dubai wants to stay at the forefront of business innovation through business issues and prepare a forum for expansion of even smaller-sized companies. (eyeofdubai.com, 2008)

According to Prashant K. Gulati who is president of TiE Dubai, nowadays, the importance of entrepreneurs and SMSs have become more and more crucial as the backbone of all economies. TiE Dubai has always been an necessary part of the help ecosystem for entrepreneurs and new entrances' in the area and is going to continue to strongly be related to with all stakeholders, mentors, entrepreneurs, founders and those wishing to take a step in this way. In its activities to support entrepreneurship in the IT market, Dubai Internet City has applied already a number of initiatives consisting of first steps at DIC' business center. A unique facility which allows firms to see if the region of their business environment with minimal upfront investment. The FirstSteps at DIC has recently expanded with 50 new companies that registered in 2009 totaling 120 companies. (eyeofdubai.com, 2008)

RELATIONSHIP BETWEEN SMEs and GDP

Enterprise appears to be a buzz word at the moment and almost all government and local council initiatives seem to have some mention of it. This is because innovation benefits everyone and advances the nation both technologically and, as the case is more often than not, socially. Social enterprises are fantastic for the economy as most look to rejuvenate areas or sections of the population that are detached from the rest for a variety of reasons. If successful, these ventures often help to reduce the costs experienced by local government in terms of dealing with any problems that might arise. A good example of this is the Big Issue magazine, which has reduced the cost experienced by local housing organisations to house any homeless people in the area. The Big Issue has sought to do this by allowing homeless people the opportunity to work their own way out of their situation and is highly beneficial.

Some anticipates say that globally SMEs has a considerable amount of contribution on the GDP of the world. The percentage of this is more than 50 percent to the world's GDP and 85 per cent to employment.

According to Dr, Alexcander von Pick who is principal of AR Keerney Middle East, SMEs and micros are a basic economic contributor to the UAE economy. They are the part of more than 90 percent of GDP. However, if it is compared to the other countries, where SMEs contribute up to 60 per cent to GDP, it can be found that there is still a lot of development potential for SMEs. (dnbsame.com, 2009) Although there is a global financial recession, Dubai had a growth of 0.3% of growth in GDP in 2009 compared to 2008 according to the Dubai Statistical Centre. At the first quarter of 2008 it was AED 68.21 Million were as in 2009 it rose to AED 68.397 Million. Within the wholesale retail trading sector in 2008 the value was AED 23.3 Million; having a four percent increase in 2009 it was AED 24.2 Million. Were as in manufacture sector in 2008 it was AED 13.5 Million in 2008 and in 2009 AED 13.9 Million rising up at 2.91 percent. (uaeinteract.com)

CONCLUSION

All in all these indicators point to the fact that Dubai is one of the most powerful parts of United Arab Emirates with possibilities for expansion in all areas. As the contribution of SMEs to a country's economic development is very important, as a significant part of Middle East, Dubai has always been trying to take into consideration of SMEs` expansion within country, although experiencing its current economic recession, its GDP still grows by just a fraction with hopes to SME's to prosper.

REFERENCES:

  • internationalentrepreneurship.com, (2009), " Entrepreneurship in the United Arab Emirates", available from: www.internationalentrepreneurship.com/middle+east_entrepreneur/United%20Arab entrepreneur.asp
  • a248.e.akamai.net, (2008), "SMEs in the United Arab Emirates", available from: www.a248.e.akamai.net/7/248/3622/5dd67535d64f30/www.middleeast.img.hsbc.com/public/meregional/common/pdf/en/
    economic_bulletin/eco_bull_04_eng_small_uae.pdf
  • Eyeofdubai.com, (2008), "The Importance of SMEs in the Economy", available from: www.eyeofdubai.com/v1/news/newsdetail-39241.htm
  • dnbsame.com, (2009), "Professional Business Advisory Dubai", available from: www.dnbsame.com/news_aug20.html
  • lowtax.net, (2010), "Dubai: Types of Company", available from : http://www.lowtax.net/lowtax/html/dubai/jdbcos.html
  • uaeinteract.com, (2010), "Dubai's GDP rises 0.3% in first quarter despite global downturn", available from : http://www.uaeinteract.com/docs/Dubais_GDP_rises_0.3_in_first_quarter_despite_global_downturn
    /38203.htm

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