Call for bankruptcy law, secondary market to boost SME investor confidence
Sami Al Qamzi at the launch of 'State of SME Equity Investment in Dubai' report.
Dubai - 'State of SME Equity Investment' report launched in Dubai
A strong institutional and legal framework to regulate investment activity in Dubai's small and medium enterprises is essential to improve investor confidence, unlock capital and attract investors, according to Dubai SME.
The agency, which has been mandated by the Department of Economic Development (DED) in Dubai to develop the small and medium enterprise (SME) sector, also called for a robust insolvency and bankruptcy regime and the setting up of a secondary market to create a positive environment for SMEs to flourish in the UAE.
In a report on the "State of SME Equity Investment in Dubai," Dubai SME pointed out that creation of a secondary market would allow small and mid-sized companies to list without complex regulatory pre-conditions related to corporate governance and accounting.
"A sponsor-supervised capital market model, which will allow an SME to be brought to list by a sponsor with expertise in corporate finance and regulatory compliance has also been suggested, in addition to allowing SMEs to raise capital up to a certain limit without significant regulatory burden," said the report, which is the first initiative of its kind in the Gulf region.
The report seeks to find the challenges and solutions to encourage investment in the SME sector and attract direct capital into areas with vast potential for entrepreneurial and start-up growth, from private equity (PE) investors, venture capitalists (VCs) and angel investors.
Launched as part of the Dubai SME 2021 Strategic Plan, the report was released during the first 'SME Equity Financing Forum,' organised by Dubai SME on Tuesday.
The report, released in the presence of Sami Al Qamzi, director general of DED, recommended that there should be international standards to help investors assess the feasibility of business ideas as well as investment options in infrastructure, eco-innovation, including technical centers and centres of excellence in research and development. Absence of authoritative trading benchmarks makes investors apprehensive of investing in business ideas and evaluating risks, said the report.
In his key note speech, Al Qamzi said the report represented an ideal opportunity in the medium to long term, not only for SMEs in Dubai, but also for those across the region. The estimated total investment in small businesses in the region is about Dh3 billion, and with clear strategies these funds can be channelled into sectors of vast growth potential," he said.
"However, limited source of funding to start businesses is a major gap in our SME ecosystem, which is underlined by the finding in the report that 80 per cent of the start-ups relied on self-financing as a source of capital. Addressing market gaps and channelling investments into SMEs is critical to Dubai's knowledge economy initiative. Based on the findings in the report, Dubai SME has formulated strategies and initiatives to improve SME performance in the years ahead, facilitate SME access to financing, and enhance SME competitive as well as their value-add to the UAE economy," he said.
Abdul Baset Al Janahi, chief executive officer of Dubai SME, said tremendous efforts were taken to prepare the report. These included a complete study of SME investment patterns across the project life cycle, from the establishment phase to expansion, as well as views and challenges related to the prevailing investment landscape. "We will work on the recommendations in the report to fill the gaps identified, and promote equity financing, thus creating an environment conducive to SME growth and sustainable development in Dubai," he said.
The report has called for raising awareness about the risks and benefits of investing in start-ups, highlighting SME success stories, facilitating communication between investors and start-ups, and promoting networking among various stakeholders such as business incubators, universities etc, among many others. Other recommendations include enabling investors to evaluate opportunities and SME potential, as well as building entrepreneurial capabilities in sourcing and negotiating investment, said Al Janahi.
The report noted that the total value of capital investments in SMEs across Dubai amounted to nearly Dh110 million in 2014 and it is expected to grow by 15 per cent in the near term on the back of a 30 per cent growth in the number of deals, driven largely by activity from existing incubators/accelerators and early-stage investment firms.