Mustafa Shaker, Sales Director at Ras Al Khaimah Economic Zone highlights the vital role SMEs play in the GCC economy, driving growth, innovation, and job creation, supported by initiatives like free zones and government programs.
Small and medium-sized enterprises (SMEs) are the lifeblood of economies. In the GCC region alone, they account for 94% of companies, and in the UAE, they contribute to over 60% of GDP.
For many entrepreneurs, SMEs offer the best route to market access due to their flexibility, lower entry barriers, and innovation potential. However, despite their obvious importance, SMEs face challenges that can hinder their growth. Access to finance, regulatory hurdles, high operating costs, and difficulties in talent acquisition place a significant strain that impacts their chances of long-term success.
According to a report by MAGNiTT, a Middle East startup data platform, approximately 50% of startups in the MENA region fail within the first three years of operation. This highlights the significant challenge of sustaining businesses beyond the initial setup phase.
The difference between success and failure for SMEs often hinges on the level of outside support and resources they can access. SMEs that succeed typically have better access to financing options, streamlined regulatory processes, affordable operational costs, and support in talent acquisition. These resources are critical in helping SMEs overcome their inherent challenges and thrive in a competitive market.
The UAE: A model for the region
Fortunately, the UAE recognises these challenges more than most, and over the years, the country has formulated support systems and policies designed to enhance the sustainability and growth of SMEs in the region.
In fact, the World Bank’s Doing Business report consistently ranks the UAE among the top countries for ease of doing business, and the Global Entrepreneurship Index has also ranked it as the leading nation in the MENA region for entrepreneurship.
But how exactly has the UAE achieved this position, and what are the tangible benefits SMEs bring to the economic landscape?
Government initiatives and support
It all starts with investment. This is perhaps the most critical element to success. Covering initial setup costs, managing cash flow, and investing in future growth are crucial for startups to get ideas off the ground, particularly for ventures in the tech space that often require substantial capital for research and development. A vision alone is not enough unless the support is there to make it a reality. Thankfully, the UAE offers a wealth of options.
The Seaside Startup Summit is a good example. It’s a microacceleration platform created by entrepreneurs for entrepreneurs which attracts leading angels and venture capitalists to create avenues for potential deal making and investment. The event is hosted in different unique locations around the world, most recently in Ras Al Khaimah.
Hub71 is another prominent example. Established by the Abu Dhabi government to support tech startups, it attracts top venture capital funds and investors to increase the pool of capital available for startups and venture capitals in the Emirate. It offers incentive monetary programmes with 100 per cent and 50 per cent subsidies for early and emergent stages of startups, giving valuable assistance at a crucial stage of development.
These initiatives and similar enterprises around the country provide the critical exposure startups need to scale quickly and easily.
Entrepreneurial ecosystem
The UAE leads the way when it comes to building business connections. Few other countries can boast the same volume and breadth of events and groups.
Numerous industry events throughout the year, such as the STEP conference provide a platform for aspiring entrepreneurs to showcase their innovations, connect with potential investors, and learn about the latest industry trends.
Other networking events organised by authorities such as RAK Chamber of Commerce or Ras Al Khaimah Economic Zone (RAKEZ) are equally versatile. They cover a wide range of topics, from business development and marketing to regulatory updates and investment opportunities, as well as networking breakfasts, panel discussions, and business mixers.
Free zones
Free zones have been fundamental to the UAE’s economic growth. Thanks to the benefits they offer, including 100% foreign ownership, tax exemptions, and simplified business setup processes, they’re a great launching pad for entrepreneurs and often a more cost-effective and simpler option than onshore incorporation.
Free zones also often use an industry clustering approach, concentrating complimentary business together to encourage networking and knowledge sharing.
They also provide access to world-class infrastructure and services, as well as streamlined administrative support, which allows SMEs a more direct focus on growth and innovation rather than regulatory complexities.
The tangible benefits SMEs bring to the economic landscape
Sectoral growth
SMEs operate across a broad range of sectors, including technology, healthcare, education, retail, and tourism, often filling gaps in niche markets that larger corporations may overlook. This diversification has enabled the UAE to create a more balanced and resilient economy, as evidenced by the $953 billion generated in non-oil trade in 2023.
As more entrepreneurs enter the market, they contribute to a more dynamic and varied economic structure. It’s a compound effect that influences every area of the economy, from balancing urban-rural economic disparities to supporting local suppliers and service providers.
Innovation and entrepreneurship
SMEs are also often at the forefront of innovation, introducing new products, services, and technologies that enhance productivity across the economy. This is made possible by the UAE’s sustained efforts to create the right environment for early-stage businesses to thrive. For example, the UAE has been ranked number one globally by the Global Entrepreneurship Monitor (GEM) report for 2023-2024, making it the third year in a row it has achieved this accolade – quite an achievement and one that has seen it outperform many other advanced economies.
We’ve seen many prominent examples of companies and startups that have gone from very small beginnings to become major industry players.
Success stories like Careem, which began as a small ride-hailing service and grew into a regional powerhouse, underscore the robust support ecosystem the UAE provides. Its huge success would arguably not have been possible without it. Souq.com is another great example. Originally launched as a small e-commerce platform, it grew rapidly within the UAE’s supportive ecosystem to eventually became the largest online retailer in the Arab world and was eventually acquired by Amazon in 2017 for $580 million.
Other household names like Dubizzle, Property Finder and Fetch started from very small beginnings to achieve huge success thanks to the UAE’s supportive regulations and thriving digital economy.
Job creation
Small businesses are major job creators. In the UAE, SMEs employ around 86% of the private sector workforce, making them a cornerstone of the labour market.
The diversity of employment opportunities offered by SMEs spans from tech startups requiring software developers and engineers to healthcare SMEs needing medical professionals and administrative staff. This breadth of job opportunities fuels economic growth and creates a more skilled and adaptable workforce.
From small beginnings to big impacts
In essence, SMEs are not just a part of the economy – they are the engine that drives it forward. The secret is realising their untapped potential. After all, the next groundbreaking innovation or industry leader could very well come from the smallest beginnings. So, whether you’re an aspiring entrepreneur or an investor, now is the time to act.
