Role of smaller enterprises and start-ups in Abu Dhabi's economy

 

According to Abu Dhabi’s Khalifa Fund for Enterprise Development (KFED), small and medium-sized enterprises (SMEs) account for 94% of all companies in the UAE and provide jobs for 90% of the nation’s workforce. Statistics Centre - Abu Dhabi (SCAD) has established emirate-specific definitions for this important segment of the economy, by which small companies are classed as having five to 19 employees, and medium-sized businesses as employing between 20 and 49 people.

Encouraging the growth of these businesses has long been a strategic ambition of Abu Dhabi. There are, however, some obstacles to development as well, such as a transient foreign population that is disinclined to invest in the emirate over the long term, as well as the difficulty most SMEs face in securing lending.

Credit Support

Ensuring that SMEs have sufficient access to credit is a centrepiece of Abu Dhabi’s shortterm strategy Ghadan 21, or Tomorrow 21. The plan earmarked Dh9bn ($2.4bn) for a scheme by which the government offers domestic banks guarantees against potential default on loans to SMEs. The framework covers up to 70% of the loan value for UAE national-owned companies and up to 60% for expatriate-owned businesses, with the funding to be provided directly to the bank in case a loan falls into delinquency.

“The government is taking important steps to reduce the cost of credit for SMEs, which is often a significant barrier preventing new companies from entering the market,” Rashid Ahmed Al Romaithi, managing director of Ajyal Holding, told OBG. “Schemes like the government guarantee of up to 70% of the value of bank loans to SMEs should boost the availability of credit to these companies and drive growth across the economy.”

Tech Talent

One of the flagship initiatives of Ghadan 21 is Hub71, a platform supporting technology companies, start-ups and investors, which launched in March 2019 through a partnership between SoftBank, Microsoft, the Abu Dhabi Global Market, the Abu Dhabi Investment Office and Mubadala Investment Company, the strategic investment vehicle of the Abu Dhabi government. Hub71 offers a number of incentives, including free office space, health insurance and subsidised housing for employees, and the possibility of co-investment with Abu Dhabi-based fund managers. Successful applicants also enjoy access to Mubadala Investment Company’s network of $229bn in assets under management across 15 sectors. As of March 2020 nearly 40 start-ups were operating from Hub71.

Evolving Landscape

The arrival of Hub71 enriches a start-up landscape that was already developing at a rapid rate. The Ibtikar Creative Lab, established by Abu Dhabi’s twofour54 media zone, began operations just over a decade ago and has invested between $50,000 and $5m in early-stage or growth capital for ventures in the entertainment and media sector, as well as ongoing mentorship for start-ups that relocated to Abu Dhabi. In 2014 the twofour54 zone significantly enhanced its status as an entrepreneurial centre with the inking of an agreement with Flat6Labs and United Markets International Holding. Under the deal, a new incubator, Flat6Labs Abu Dhabi, helped to launch 18 companies in the UAE by early 2020, spanning segments such as e-commerce, social media and mobile applications.

Public Sector

While private sector incubators and accelerators in Abu Dhabi have ushered in a new phase of development for start-ups and SMEs, state-owned institutions still play a crucial role in the ecosystem. The most important of these is KFED, established in 2007 with a mandate to create a culture of investment and entrepreneurship among Abu Dhabi’s youth. In 2011 the fund’s brief extended to cover the whole of the UAE.

Since its inception KFED has reviewed over 4800 applications, conducted 200 training courses, approved 300 projects and disbursed around Dh500m ($136.1m) in loans. Recent years have seen the fund seek greater efficiencies through the adoption of new technology, such as applying artificial intelligence in creating tailor-made business plans that can be accessed online.

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The Report: Abu Dhabi 2020

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