Dr. Nasser Saidi has just been appointed deputy chairman of Eureeca.com - the region's first crowd investing portal. Alice Johnson raises various issues affecting SMEs with Dr. Saidi at the official launch of Eureeca in Dubai. Dr. Nasser Saidi is the president of Nasser Saidi & Associates, was the chief economist of the DIFC and CEO of Hawkamah (2006-2012) and served as minister of economy and trade and minister of industry of Lebanon (1998-2000) as well as first vice-governor of the Central Bank of Lebanon (1993-2003). Dr. Saidi has just been appointed deputy chairman of Eureeca.com - the region's first crowd investing portal.
Q: What are the main problems faced by SMEs?
A: There are many, many barriers that they face. If you look at the banking sector and across the Arab world only 20% of loans and bank accounts are for SMEs; even though they represent something like 90% of all the companies across the region. If you look at loans that are given to SMEs they only represent 8% of total loans in the banking sector and in the UAE it's even worse. It's only about 4% of loans. So they face a major problem in getting access to finance; it's a major issue. Part of the reason for the lack of access to finance from a banking point of view is the lack of available credit information about the companies -they don't have a credit history, and there's no centralized credit information about them. In other countries where you do have that, it's easier for them to get a loan. So if there's a centralized database on credit then it's easier for them because it reduces the cost of information - and therefore it reduces the cost of obtaining credit. There are other barriers as well, namely the cost of establishing a business, getting the licenses, being able to put up the minimum capital that is required... But this issue of lack of availability for bank finance plays an important role, and even when they [SMEs] do get a bank loan, it's at very high rates, or under very onerous, difficult conditions. On the other side trying to go and get listed, to get equity, is virtually impossible. The stock exchanges are not geared to addressing the requirements of small companies, and medium companies; they are geared for the big companies, for state-owned enterprises... So they [SMEs] tend to rely on their own resources, such as family and friends. The importance of crowd-funding and crowd-investing to be precise, and what we are doing at Eureeca, is to help fill that gap, to get them access to long-term resources, financial resources, and what I call "patient capital". If you're young and you've started your business and you want to get moving, you don't want someone breathing down your neck all the time. You need "patient capital". You need to say I have got the comfort of having shareholders but not people who are interfering in my business every day. Crowd funding achieves that because it means that you can go out and reach a large number of people - if you manage to convince them they become investors. The advantage is that you set the conditions but they also become interactors, they care about you because they invested in you and then they follow you. So they're more likely not only to be patient, but they'll accompany you on your journey.
Q: Speaking about the lack of credit history for SMEs as a barrier to financing, what do you think of the UAE's changing credit history landscape?
A: It's a very positive step -but we shouldn't expect this to have an impact overnight it will take time to get the information. Usually if you're looking at credit history you're looking at [the need for] two to three years of credit history, so it will take time for this to have an impact. It's definitely something we need, but as in all such measures it will take time to have an impact.
Q: What is your perspective on macroeconomic growth?
A: I think across the Arab World - but particularly in GCC countries - this is a very promising sector, because GCC countries need to diversify their economies, so that means they're going to be providing incentives, they're going to have more resources going to the non-oil and gas sector. And that is a sector where SMEs can do well, because they will help in that economic diversification. If all you're doing is oil and gas, there are very few linkages, right? Whereas once you start diversifying your economy, you go into services, you go into industry, you go into manufacturing, you go into new activities, and then you stand a much better chance of helping the SME sector grow. We tend to forget that if we look at what we consume, something like 30% of the products we consume today were not around 10 years ago. So the scope really for innovating, for going into new activities, for going into new products is very wide. That is true across the Arab world, but particularly in the GCC.
Q: What can governments do to support SMEs?
A: They need to facilitate entry, obviously; lowering the cost of doing business and getting established. They should support financing schemes - such as crowdfunding and crowd investing - and facilitate that, not put barriers to that. They also need to facilitate exit. What I mean by that is we need to reform insolvency laws, we need to make it easier if we need to shut down a business... or to restructure it. ...they need to do things like review their procurement policies -many government procurement policies militate against small companies. You don't buy from a small enterprise because you think "oh you're not going to be around, so I won't buy from you". So if that small company could rely on a government contract, then they know they have a customer base that's going to be around; and therefore they [investors] would be more willing to invest. So there are many micro-things that need to be done.
Q: What is the best way for an SME to close for business?
A: You can think of mergers, you can think of getting rewired, you can think obviously of closing down and getting into a new line of business. I think it's important that we facilitate either one of those to make it easy to sell part of your business, or to shut it down if that's what you want. The ability to do that increases mobility and mobility is good as you can cross sectors and countries, all of these issues are important. They are important also in transitions - you've established a business and you want to move on and you're getting old and you want somebody to take over. Your daughter or your son is not interested - what do you do? All of these issues really revolve around the issue of finding appropriate financing.
Q: What values should SMEs look for from investors?
A: Networking is very important, as are new business opportunities - I think investors should be there to help them find new business opportunities. They play an important role for them, and there's also guidance. New entrepreneurs are not experienced, so they can benefit from having experienced investors to avoid pitfalls and to avoid business mistakes. When people are ambitious it's an excellent thing, but it also means sometimes... you're so obsessed by what you're doing that you forget the safeguards. The investors are there to provide the safeguards because they have a direct interest in safeguarding the business. So use them for that.
