A report by Department of Economic Development agency Dubai SME has called for reform of the UAE’s insolvency and bankruptcy laws for onshore companies and the creation of a new SME stock market.
Changes to the country’s insolvency law are expected to decriminalise bounced cheques and facilitate corporate bankruptcies but there has been little information since the UAE cabinet passed them in July 2015.
The new report features the first-ever authentic estimate on the market size, scope and potential impact of equity investment in SMEs and called for several new measures to support businesses in the country.
These include a “robust insolvency and bankruptcy regime for onshore companies in the UAE and exploring the option of a secondary market,” according to state news agency WAM.
Dubai SME proposed that his new market would allow small-and-medium-sized firms to list without complex regulatory pre-conditions relating to corporate governance and accounting. Recommendations include a sponsor-supervised capital market model, allowing an SME to be brought to list by a sponsor with expertise in corporate finance and regulatory compliance. A second proposal would allow SMEs to raise capital up to a certain limit without significant regulatory burden.
The government organisation also recommended the introduction of international standards to help investors assess the feasibility of business ideas.
“Absence of authoritative trading benchmarks makes investors apprehensive of investing in business ideas and evaluating risks,” according to WAM.
The total value of capital investments in SMEs across Dubai totalled nearly Dhs 110m in 2014 and is expected to grow 15 per cent in the near term, the report forecast.
Activity from existing incubators, accelerators and early stage investment firms is also expected to boost the number of deals by 30 per cent.
“The estimated total investment in small businesses in the region is about three billion dirhams, and with clear strategies these funds can be channeled into sectors of vast growth potential,” said DED director general Sami Al Qamzi.
However, he warned that a lack of funding to start businesses was still a major gap in the UAE ecosystem, with 80 per cent of start-ups that took part in the report found to have relied on self-financing as a source of capital.
Dubai SME said it expected the number of industry-specific incubators and accelerators to increase triggered by strategic government investments, in turn boosting the growth of startups within the economy.
It also encouraged the conversion of foreign interest from business angels in the US and Europe into active investment focused on UAE-based businesses.