A new law aims to give Emirati entrepreneurs a real boost. What’s on offer?

Has the landscape ever been more welcoming for Emirati SMEs?

A new law, approved in April, creates fresh benefits and incentives for locally-owned SMEs. What’s on offer, and how does it change the game for you if you’re an Emirati business owner?

Federal Law No 2 of 2014 aims to deepen the support offered to you, with an overall purpose of promoting sustainable economic development. The law has been crafted over several years, and parallels global best practice.
The legislation aims to categorise SMEs, establish a dedicated council, and determine the incentives offered. It grants SMEs major exemptions, both from customs tax (on equipment, raw materials and goods for production purposes) and from the bank guarantees that other companies pay for new workers.

Sultan Al Mansouri, the Minister of Economy, hopes the law will boost SMEs’ contribution to (non-oil) GDP from 60% to 70% by 2020. He identified several steps – including credit and funding facilitation, financing, marketing and reduced licensing costs – as significant incentives.

There is also legislation aimed at federal authorities and ministries. These bodies must now contract at least 10% of their procurement budget for purchasing, servicing and consulting to SMEs. Equally, government-related firms in which the federal government holds stakes of more than 25% must also ensure that, from now on, at least 5% of their contracts go to SMEs.

The law’s funding provisions (covered in more depth here (link to next article)) are equally significant. This is key, as funding has been identified by many SMEs as a barrier, both in the start-up phase and at those points when expansion is needed to move up a level. Despite the reputation of the UAE as a hotbed for SMEs and innovation, local banks have to date extended just 3% of their total loan portfolio to this sector. This is a noticeable mismatch with the fact that SMEs make up 92% of the companies in the region, and provide more than 86% of its private-sector jobs.

There are further incentives within the detail of the law. For example, Emirati business owners will also benefit from land grants for industrial or agricultural purposes, and they will receive support for promoting their companies at exhibitions around the world. The law also includes additional benefits to inventors, patent owners and companies that invest in R&D.

These measures give Emirati business-owners a real vote of confidence. Although their numbers are growing, the overall proportion of Emirati-owned SMEs remains small. In 2012, they constituted just under 10% of the market, although that was up from 2.7% in 2009.

Deliberately targeted, these measures aim to make it easier for more firms to get off the ground, and power past each of the step-change moments SMEs typically face. Even if your business isn’t Emirati-owned, there will be numerous opportunities to partner with those that are. Although this law is targeted at one group, it will have a major halo effect for all.

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