SME's - Wholesale Trade Sector: UAE
The wholesale trade sector for SMEs in the UAE is a complex area. Two emirates of the UAE (Dubai and Abu Dhabi) have significant numbers of SMEs but different ways of defining them. The other five emirates appear not to have developed accessible plans for SMEs until the last two or three years, and published very little information about them. Presented here are the differences between the Dubai and the Abu Dhabi SMEs, and an explanation of the required information needed to determine a business's proper category. Challenges to UAE SMEs in general are listed, along with opportunities.
- The UAE is a federation of seven emirates (Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Qaiwain, Fujairah, and Ras Al-Khaimah) created in 1971.
- "Wholesale trade is a form of trade in which goods are purchased and stored in large quantities and sold, in batches of a designated quantity, to resellers, professional users or groups, but not to final consumers."
- Information on the wholesale trade sector was available for Abu Dhabi and Dubai, but not for the other five emirates, except for one statistic.
- One publication stated, "Almost half of SMEs in the UAE are in Dubai (45 percent), while 32 percent are in Abu Dhabi and 16 percent in Sharjah. The other Emirates account for seven percent."
- Abu Dhabi and Dubai governments differ in their definitions of Small and Medium Sized Enterprises (SMEs).
- Industry and government publications differ in their definitions of SMEs in Dubai.
- According to Dun & Bradstreet, there are over 4,000 wholesale companies in Dubai.
- A UAE government directory of wholesale companies included 20 pages of about 40 listings per page of categories of wholesale companies. There would be no useful way of characterizing the typical activities of wholesale companies other than to say that they buy and sell large quantities of goods.
- The challenges for SMEs in the UAE include getting loans from banks, making logistics arrangements, and dealing with government regulations in other countries.
Government Laws and Definitions for Wholesale Trade in Dubai
- Dubai conceives of its economy as divided into three sectors: the Manufacturing, Trading, and Services sectors. While it might seem logical to assume that wholesale trade is part of the Trading sector, that is not the case. Wholesale trade is part of the Services sector in Dubai.
- According to Frost.com, "The wholesale and retail trade sector is the largest contributor to Dubai’s GDP, with an estimated share of about 25–30 percent in 2016."
- The terms "trade" and "trading" as used by the government of Dubai are what Americans would mean by the terms "sales" and "selling". This language difference is important when reading the publications by and about the UAE.
- According to the government of Dubai, "Wholesale and retail trade constitutes the most important activity in the services sector in Dubai. The services sector also includes Transport and Storage, Housing, Accommodation and Food, Financial and Insurance and other activities. ... Wholesale and retail trade activities account for about one-third of the total services sector...."
- Defining SMEs is not a simple matter. Research identified three different sets of definitions of SME for Dubai. Presented below is the set of definitions published about 2009 by the government of Dubai. (Other sets of definitions can be found here, and here.)
- Within the services sector in Dubai, definition criteria for SME are: (1) " A micro business is any enterprise with less than or equal to 20 employees AND a turnover of less than or equal to AED 3 million [$750,000]; (2) "A small business is any enterprise with less than or equal to 100 employees AND turnover of less than or equal to AED 25 million [$6 million]; (3) "A medium business is any enterprise with less than or equal to 250 employees AND turnover of less than or equal to AED 150 million [$37.5 million]".
- The cutoff numbers for being a SME are having more than 250 employees "OR turnover greater than AED 150 million...."
- "Turnover is defined as the ‘top line’ component of the business’s Profit & Loss account and takes into consideration the value of income earned by the business by engaging in activities within the course of its normal business operations." "Turnover" is what Americans would call "revenue".
- In addition to the criteria of number of employees and turnover rate, the business must determine whether it is autonomous, partner, or linked. This criterion is referred to as the independence criterion.
- "Based on the independence criteria three classes of enterprise can be defined: (1) Autonomous Enterprise: "An applicant enterprise is considered ‘autonomous’, if it is completely independent or if it has minority partnerships with other enterprises (each less than or equal to 20 percent). In such a case, the business will only use the number of employees and turnover data from its own (unconsolidated financial statements) to check if it meets the applicable thresholds within the SME definition." (2) Partner Enterprise: "An enterprise which has partnerships with other enterprises involving participation greater than 20 percent and less than or equal to 50 percent are classified as ‘partner’ enterprises. If the applicant business is deemed to be a partner enterprise, a proportion of the other enterprise’s employee headcount and financial details must be added to the applicant’s own data to determine its eligibility for SME status. For example, if a business has a 30 percent controlling stake in another enterprise, it must add 30 percent of the other enterprise’s headcount and turnover to its own figures." (3) Linked Enterprise: "An enterprise is considered to be ‘linked’ if it holds more than 50 percent controlling stake in another enterprise or the other enterprise holds greater than 50 percent controlling stake in the applicant enterprise. In this case, the employee head count and turnover of the applicant enterprise would be 100 percent consolidated with the corresponding numbers of the other enterprise."
- AED is the currency of UAE called a "dirham" and is worth about 27 cents US today, May 18, 2020, according to Morningstar online.
- The challenges wholesale SMEs face in Dubai include "dependency on [the] expatriate workforce, [the] high cost of doing business, and [the] threat of counterfeits"....
- The opportunities for wholesale SMEs in Dubai include "its growing young population, spending capacity, shopping tourism, and EXPO 2020. World-class logistics and trade infrastructure facilities make the city an ideal hub for wholesale and retail trade operations."
Government Laws and Definitions for SMEs in Abu Dhabi
- According to the Abu Dhabi Chamber of Commerce, the Emirate of Abu Dhabi "strives to transform itself from an oil-dependent economy to a modern, knowledge-based market economy. The modern market economy, however, critically rests on SMEs. More than 99 percent of all companies in the typical market economy are SME."
- The Chamber goes on to state, "The government of Abu Dhabi has prioritized the development of the SME sector, thanks to the Ghadan 21 program and the related Hub 71 initiative. These will help mitigate lack of SME financing, an issue which frequently comes up in company surveys."
- In Abu Dhabi, "a small enterprise in trading has a turnover of less than AED50 million and employs between 6 to 50 people. A small enterprise in manufacturing has the same turnover threshold but a higher number of jobs—10 to 100—while a small services enterprise again has the lowest headcount—6 to 50 employees—and a lower turnover threshold of AED20 million."
- In Abu Dhabi, "The medium-size sector in manufacturing has up to 250 jobs and has a turnover of up to AED250 million. A medium-sized trading enterprise has the same threshold levels, while in services a medium-sized enterprise employs between 51 to 200 people and generates turnover of up to AED200 million."
- In Abu Dhabi, a micro business is one with fewer than five employees, and a small business has more than five employees but 19 or fewer. A medium-sized business is one with 20 or more employees but 49 or fewer, according to a decree issued by Abu Dhabi Executive Council on 30 June 2013."
Locating information on SMEs in the seven emirates of the UAE proved to be difficult. We were able to provide information for only two of the seven emirates, despite a vigorous search for materials about SMEs in the other five. We searched through materials from UAE and US governments, trade organizations, industry publications, blogs, statistical reports, marketing summaries, and language discussions. The UAE concept of business is different from the US concept, and that complicates the task of writing about the UAE findings. The list of UAE wholesale activities that we found extended to 20 pages, with about 40 entries per page, so there was not a simple way to summarize that extensive range of activities to characterize the "typical nature of their business." See source 14 for a sampling of 20 of the categories of wholesale trade from the UAE directory. Understanding how to do business in the UAE would seem to require an extensive investment of time and concentration for development of mastery.