The UAE has long been a hub for multinational firms that are looking to expand their businesses into the MENA region, but the country also offers an attractive location for entrepreneurs looking to start their own business, according to the UAE Minister of State for Entrepreneurship and SMEs.
Authorities in the country have been focusing on providing a strong regulatory framework for businesses to operate in, a tactic which will help businesses that want to expand elsewhere and remain compliant with regulatory hurdles down the line, Dr Ahmad Belhoul Al Falasi, the UAE Minister of State for Entrepreneurship and SMEs, told Arabian Business.
This argument is further supported by the announcement earlier this week that the UAE is the best place to start a business in the world. On Monday, the Global Entrepreneurship Monitor’s (GEM) 2022 report said that the UAE outperformed the Netherlands and Finland to top the list of best countries for entrepreneurs.
SMEs are crucial to economic growth, and tend to provide the majority of a country’s employment. As the UAE continues to embrace further diversification and looks to build on its recent successes, supporting the country’s small businesses will be crucial in enabling the long-term growth of the economy.
The interview with Al Falasi is available to view in full here.
An edited transcript of some of the minister’s answers regarding the UAE’s startup ecosystem follows below:
Can you talk to me a little bit about the importance of the startup sector here in the UAE to the long-term growth of the country’s economy?
Yes. So the SME sector is critical in any kind of economy, let alone the UAE. The World Trade Organization estimates that SMEs globally are 90 percent of all registered companies, they account for two-thirds of global employment, and over 50 percent of global GDP, and the UAE is no different.
In the UAE, 98 percent of all companies are SMEs. They account for about 60 percent of non-oil GDP. They are at the core of the economy. I think if you look historically, the UAE has always been a trade hub, and on the back of that we have big companies like Emirates, DP World, Masdar, and others. Today, we hope that the SMEs will go through that too, they go through globalisation, start as a small company in the UAE, and then use that platform to become a hub and expand globally.
What kind of challenges are specific to SMEs here in comparison to other countries in the world and how is the ministry trying to address them and help the startup sector overcome those challenges?
So look, the ecosystem in the UAE is relatively more mature compared to the region. It’s one of the most mature systems in the MENA region. However, it still has its teething issues and teething problems. Initially, if you look at the first companies that were set up, there was an issue of access to funding.
A lot of these companies are able to get the seed funding, the Series A and Series B, but then as you grow larger you need that big ticket of $100 million, $200 million, and so forth. If you look, five or 10 years ago, people were much more sceptical to put that money on the table. But today, I think that ecosystem has evolved.
We’ve seen companies like Kitopi last year close a huge round of funding where they were valued at over $1 billion, it is one of the biggest fundings that we’ve had in the region, and, not only that, but even at different stages, the amount of funding that goes into companies has almost tripled. Seed investment went from $500,000 to $1.5 million, Series A also tripled from $3 million to about $8 million, and now Series B is over $30 million.
So we’ve seen maturity in terms of availability of funding at late stage. But even within each stage, investors are much more comfortable investing in bigger ticket items. And that goes to show the confidence of these companies.
Again, funding continues to be an evolving topic for everyone, whether it’s equity or debt, but I think I’m very positive from what I’ve seen. Over the past four years, the average total VC investment was hovering around $500 million. Last year alone, we closed over $1.2 billion, that’s over double. So again, it is an issue with any ecosystem. But for us, I think we are years ahead from the region around us.
Given the very international nature of the UAE startup ecosystem, how much of that has to do with the geographical position that the UAE has but also how much is it to do with the regulatory framework that is in place?
I think, yes, it has to do with the location of the UAE, but it also has to do with the demographics and the people here. So the UAE is naturally very international. And I think the complexity of the regulation in the UAE will make it easier to expand. I had a friend of mine who had a company in law and insurance, and he told me he picked to start in New York because New York had the highest regulation. He said, “If I can get funding there, I can grow there, I can easily scale up in the US.” So I can say, the UAE is the same. We’re quite adamant about regulation. As you know, we have federal and state level regulation, so you have to abide by so many regulations that once you overcome that, it becomes far easier to expand.
Entrepreneurs tell us all the time, we like that we have a strong base in the UAE, access to capital, access to talent is extremely important. We have 200 nationalities, and the UAE has, for the 12th year, been ranked number one in terms of place to work within the MENA region. And again, being able to jump through the hurdles and then being able to expand is always something that entrepreneurs here might not like at the beginning, but they appreciate later on once they expand.
The full interview with Al Falasi is available to view here.
