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Small and Medium Practitioners Role in Enhancing the Growth of Micro, Small and Medium Enterprises MSMEs

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This paper was presented at the World Bank and IFAC conference in Abu Dhabi in July 2014.

Issues around the role of SMEs and SMPs proposition were addressed. It has also explored the structure of the accounting market and provided some globally and regional benchmarks.

The author has used UAE as a case study and introduced for the first time SME development model.

Published in: Economy & Finance
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Small and Medium Practitioners Role in Enhancing the Growth of Micro, Small and Medium Enterprises MSMEs

  1. 1. Distribution is restricted to … Small and Medium Practitioners Role in Enhancing the Growth of Micro, Small and Medium Enterprises MSMEs UAE as a Case Study Bassel Nadim CEO, AAA June 12, 2014
  2. 2. © 2014 AAA2 Profession - Bassel is a the CEO of the UAE Accounting and Auditing Association, a semi-regulat body that supervises the non-financing financial services in the country - The founder of Tanmia Capital Limited, a newly established consulting house in London - Ex-Deloitte Consulting and a Co-leader of the Islamic banking strategy offerings - more than 15 year of management consulting experience of which 10 year were dedicated to provide strategy advice and leadership assistance to financial institutio in general with a focus on Islamic finance across the Gulf countries, MENA, CIS and Caribbean’s Education - MPhil in monetary policy from the UK, with a focus on financial labialization and monetary regulation in developing countries in 2002 - Certified Islamic Public Accountant, CIPA - Risk in Financial Services, CISI - Insurance Certificate, CII - Strategic Planning, George Washington - Leadership Program, Harvard Business School His recent works address issues around capacity building and financial inclusion. He w actively involved in the ethical finance debate at the Scottish Parliament last winter an had led a world class conference on Islamic banking in Dubai in March 2014 and participate in a workshop with the World Bank and IFAC on small and medium practitioners in June 2014. About the Author Bassel Nadim www.basselnadim.net bassel@basselnadim.net
  3. 3. © 2014 AAA Contents 3 • Overview of the AAA • Doing Business in the UAE • UAE SME Landscape • The SMP Proposition
  4. 4. © 2014 AAA4 The Accountants & Auditors Association is undertaking strategic initiatives to reposition itself in the professional and financial sectors in UAE Overview of the AAA History •Federal Agenda established in Dubai in 1997 •Non for profit organization •Considered Semi-Regulatory Body •Accounting and ethics standards development mandate •Capacity-building mandate Recent Accomplishments •UAE Chartered Accountancy Qualification in partnership with ACCA •Provided capacity building for 100 UAE Nationals to become Chartered Accountants •World class conference on accounting and auditing in Islamic banking •SMP event
  5. 5. © 2014 AAA UAE Ranked 23rd for Ease of Doing Business, 2013 5 Source: EIU UAE Country Report and Forecast. World Bank, Doing Business 2014 175 206 254 249 269 304 330 360 396 411 13% 6% 7% -3% 2% 4% 5% 5% 6% 6% 2006 2007 2008 2009 2010E 2011F 2012F 2013F 2014F 2015F GDP at current prices Nominal growth rate 6 6 4 24 43 69 119 133 143 4 4 1 5 37 86 98 100 101 Trading across borders Registering property Paying taxes Construction permits Starting a business Getting credit Protecting investors Enforcing contracts Closing a business 2010-2011 2012-2013 Doing Business in the UAE The UAE is ranked 23rd for ease of doing business and is the second largest economy in the GCC after Saudi Arabia UAE Nominal GDP, 2006 – 2015f, (USD bn)
  6. 6. © 2014 AAA UAE Ranked 23rd for Ease of Doing Business, 2013 6 Source: EIU UAE Country Report and Forecast. World Bank, Doing Business 2014 175 206 254 249 269 304 330 360 396 411 13% 6% 7% -3% 2% 4% 5% 5% 6% 6% 2006 2007 2008 2009 2010E 2011F 2012F 2013F 2014F 2015F GDP at current prices Nominal growth rate 6 6 4 24 43 69 119 133 143 4 4 1 5 37 86 98 100 101 Trading across borders Registering property Paying taxes Construction permits Starting a business Getting credit Protecting investors Enforcing contracts Closing a business 2010-2011 2012-2013 Doing Business in the UAE The UAE is ranked 23rd for ease of doing business and is the second largest economy in the GCC after Saudi Arabia UAE Nominal GDP, 2006 – 2015f, (USD bn)
  7. 7. © 2014 AAA7 UAE SME Landscape In terms of regulations, the new UAE SME law aims to boost and support the development of the SME sector FederalLevel LocalLevel (major) SME Law (Law 2 / 2014) The SME Council The National Program of SMEs • The Program is established under MoE supervision to enhance collaboration and coordination with other stakeholders • Main responsibilities:  Capacity building guidance  Research, database and evaluation  Coordinating incentives  Encouraging partnership and mergers among SMEs MoE is tasked to set up and chair the Council and assign members from public and private stakeholders Main Responsibilities:  Policy and strategy making  Developing rules to coordinate between the National Scheme and other stakeholders  SMEs national KPIs  Firms classification review Abu Dhabi • Khalifa Fund Dubai • Mohammed bin Rashid Establishmen t for SME Development Sharjah • Ruad Est. Ajman • Chamber of Commerce and Industry plans Ras Al Khaimah • HH Saud bin Saqr for youth projects Fujairah • Fujairah small projects center Umm Al Quwain • On going activities Local Support & Initiatives to the SME Sector
  8. 8. © 2014 AAA8 UAE SME Landscape UAE SMEs make a major contribution to the economy and to employment, however the SME definition and concept needs to be revised 18 84 25 60 67 14 60 33 45 66 Oman UAE KSA Global EU SME Contribution to Employment (%) SME Contribution to GDP (%) 5 6 10 15 18 23 Oman China Jordan UAE US Bahrain SME Contribution to Employment and GDP, 2013 SME Density (SMEs per 1000 people*) • SMEs make a large contributors to employment and GDP – the significance of the sector is well-established • However, more work needs to be done around the definition of SMEs to better understand their contribution to the economy. This is in light with Law 2/2014 Sources: Hawkamah Institute for Corporate Governance, 2012; "Kuwait's SMEs: Looking for a Champion" Kuwait Financial Centre (Markaz); IWF Conference; MoCI; Chaaban J., Job Creation in the Arab Economies: Navigating Through Difficult Waters, 2010; http://www.tradingeconomics.com; SME- UAE Magazine-Abu Dhabi Commercial Bank (ADCB); Oman Supreme Council for Planning National Center for Statistics and Information: The Statistical Year Book 2012; European Commission [Annual report on Small and Medium-Sized Enterprises in the EU, 2011/12 (Ecorys); Capita Group International (CGI) 2011 Report
  9. 9. © 2014 AAA9 UAE SME Landscape UAE SMEs make a major contribution to the economy and to employment, however the SME definition and concept needs to be revised 18 84 25 60 67 14 60 33 45 66 Oman UAE KSA Global EU SME Contribution to Employment (%) SME Contribution to GDP (%) 5 6 10 15 18 23 Oman China Jordan UAE US Bahrain SME Contribution to Employment and GDP, 2013 SME Density (SMEs per 1000 people*) • SMEs make a large contributors to employment and GDP – the significance of the sector is well-established • However, more work needs to be done around the definition of SMEs to better understand their contribution to the economy. This is in light with Law 2/2014 Sources: Hawkamah Institute for Corporate Governance, 2012; "Kuwait's SMEs: Looking for a Champion" Kuwait Financial Centre (Markaz); IWF Conference; MoCI; Chaaban J., Job Creation in the Arab Economies: Navigating Through Difficult Waters, 2010; http://www.tradingeconomics.com; SME- UAE Magazine-Abu Dhabi Commercial Bank (ADCB); Oman Supreme Council for Planning National Center for Statistics and Information: The Statistical Year Book 2012; European Commission [Annual report on Small and Medium-Sized Enterprises in the EU, 2011/12 (Ecorys); Capita Group International (CGI) 2011 Report
  10. 10. © 2014 AAA SMEs By Sector in the UAESME By Emirate SME Capex / Sales Ratio for Key Segments of the Services Sector - Dubai SMEs Productivity Benchmarks (US$ PPP) Productivity of Labor - Dubai SMEs. (US$ PPP) 10 The majority of SMEs are located in Dubai and focus mainly on the trade and retail sectors Dubai 45% Abu Dhabi 32% Sharjah 16% Others 7% Manufacturing 11% Trade & Retail 73% Services 16% 2-10% Upto 5% Upto 5% Upto 2% Upto 2% Upto 1% Upto 0.5% Transport & Logistics Restaurants & Catering Business Services Construction & Contracting ICT Professional Services Travel Agencies & Tour Operators 107 59 31 26 Singapore South Korea Dubai New Zealand Source: D&B Business insights: SME Dubai; Local Media Reports 67 38 25 Meduim Small Micro UAE SME Landscape
  11. 11. © 2014 AAA11 The World Bank indicates that financing for SMEs in MENA and GCC regions is still low UAE SME Landscape 0.5%1% 2% 2% 2% 2% 4% 4% 5% 6% 10% 13% 15%16% 20% 24% SME Loans as a % of Total Loans for MENA Countries, 2011 Weighted Actual and Target SME Lending, 2011 Actual SME Lending Target for SME Lending  Only 20 percent of SMEs in the MENA region have a loan or a line of credit, and only 10 percent of their investment expenditures are financed by a bank loan  According to ACCA Global SME Survey, lending in the Middle East is recovering since 2012  In high income countries, nearly 22 percent of bank lending goes to small businesses  UAE is ranked 23rd out of 181 countries for “getting credit” in the 2014 World Bank Doing Business Survey, yet the SME demand for financing is high Source: The Status of Bank Lending to SMEs in the Middle East and North Africa Region: Results of a Joint Survey of the Union of Arab Bank and the World Bank which covered 139 banks in 16 countries in the Mena region; 2011 ACCA Global SME Survey, 2013
  12. 12. © 2014 AAA12 UAE SME Landscape AAA believes 5 fundamentals need to be addressed to assist and enhance the SME sector - Allocating 10% of the federal procurement to SME - Allocating 5% from PPP procurement to SME - Designated space and Networking Confidence Budget allocation Capital Market Accessibility Source of Funds SME Fundamentals Public Awareness Opex 3 Regulations 4 2 1 5 - YBL - SME Award LicensingIncentives - EDB - Local banks initiatives - DEA - Khalifa Fund portal - Sponsoring Guarantees Capacity Building Marketing support
  13. 13. © 2014 AAA13 UAE SME Landscape SME Law no. 2/2014 is a good basis for defining SMEs from a UAE perspective • Capital • Revenue • Net profit • Staff • Investment Classical Alternative Auditing • Social impact • Environmental impact • Entrepreneurship • Revenue- centric Defininga business Micro Small Medium Trading < = 9 Employees Turnover < = AED 9 mn& < = 35 < = AED 50 mn& < = 75 < = AED 250 mn& Manufacturing < = 20 Employees Turnover < = AED 10 mn& < = 100 < = AED 100 mn& < = 250 < = AED 250 mn& Services < = 20 Employees Turnover < = AED 3 mn& < = 100 < = AED 25 mn& < = 250 < = AED 150 mn& widelyused definition
  14. 14. © 2014 AAA14 The SMP Proposition A new Auditing Law is being drafted, which should take into account the diversity of market players Audit Law (Law 2 / 2014) Governing Bodies (3) - Ministry of Economy (regulator) - Accountants and Auditors Association - Securities and Commodities Authority Big 4 Deloitte, EY, KPMG, PWC UAE • 820 licensed individuals • Of which 406 are Emiratis Top 6 BDO, Grant Thornton, RSM, Baker Tilly International, Crowe Horwath International, Nexia. SMPs 95 Firms Market Players Source: Ministry of Economy
  15. 15. © 2014 AAA15 The SMP Proposition A new Auditing Law is being drafted, which should take into account the diversity of market players Audit Law (Law 2 / 2014) Governing Bodies (3) - Ministry of Economy (regulator) - Accountants and Auditors Association - Securities and Commodities Authority Big 4 Deloitte, EY, KPMG, PWC UAE • 820 licensed individuals • Of which 406 are Emiratis Top 6 BDO, Grant Thornton, RSM, Baker Tilly International, Crowe Horwath International, Nexia. SMPs 95 Firms UAE Professional Practice Structure Source: Ministry of Economy
  16. 16. © 2014 AAA16 The SMP Proposition Although data is limited, AAA was able to estimate the size of the SMP market in the UAE to USD 222 mn. This number need to be validated through census Big 4 67% Top6 14% SMP 19% EMEA SMP 42% Rest of world SMPs 58% Global Auditing Structure - 2012 % EMEA SMPs Market Share - 2012 % SMPs Country Size - 2012 Million US$ Estimating SMPs Market Size • US$ 166 Billion is the size of auditing services globally • Of which US$ 31.5 Billion is the size of SMPs worldwide • US$ 13.5 Billion is the SMPs size in EMEA region* 424 222 106 KSA UAE Kuwait Sources: http://www.reuters.com/article/2013/01/30/us-accounting-idUSBRE90T15W20130130 Big4.com. Top 6 companies websites. IMF database. Tanmia Capital Ltd * EMEA = Europe, Middle East and Africa Revenue per an SMP - 2012 Million US$ 3.3 2.4 2.7 KSA UAE Kuwait
  17. 17. © 2014 AAA17 The SMP Proposition The UAE may not need more Audit firms, however existing firms may build their business by delivering other professional / consulting services. Quality of work is key Auditing firms as a function of some underlying variables Revenue per an SMP - 2012 Million US$ 3.3 2.4 2.7 KSA UAE Kuwait • UAE may not require more auditing firms as it scores the lowest compared to some other GCC countries • Audit firms in UAE shall consider non-audit business to drive its business Market Capitalization per Auditing Firm - 2012 Million US$ 3.9 1.0 4.4 KSA UAE Kuwait GDP per Auditing Firm - 2012 Million US$ 5.3 3.6 3.7 KSA UAE Kuwait Sources: http://www.reuters.com/article/2013/01/30/us-accounting-idUSBRE90T15W20130130 Big4.com. Top 6 companies websites. IMF database. Tanmia Capital Ltd * EMEA = Europe, Middle East and Africa
  18. 18. © 2014 AAA18 The SMP Proposition In fact, the AAA has identified the following opportunities to expand the activities of SMPs in the UAE SMP options Based on ACCA and World Bank surveys, the following are issues that need to be addressed  Robust quality assurance systems  Specializing in certain business area, regulations  Back office integration  Innovation into niche markets / products  Adoption of quality and efficiency standards  Improving partnerships and supply chain relationships AAA Initiatives AAA is well propositioned to trigger with its strategic partners initiatives around:  Developing national quality control system  Leads generation and referral  Resources sharing  Web-based tools

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