The Dubai government has said it plans to expedite payments to small and medium-sized companies. It has made a commitment to pay SMEs within 30 days instead of 90 days.
SMEs make up for more than 90 per cent of the total enterprise population of the United Arab Emirates (UAE). As such, the government plans to reduce insurance requirements for SMEs when supplying government agencies, to encourage them to tender for government projects.
It also plans to allocate about US$270 million worth of projects to joint ventures between public and private sectors to attract private-sector investment and reduce the burden on the budget. Additionally, the government plans to allocate 5% of its capital projects to SMEs to allow them to get projects worth of up to about US$109 million.
According to Gulf News, banking sector credit to SMEs in the UAE has been tightening, following a significant rise in non-performing loans. The excessive leverage combined with a breakdown in payment cycles led several small business owners skipping their loan payments, resulting in a big surge in non-performing loans for banks during the past three years.
“Cash flow shortages, tighter liquidity and difficult credit conditions have been major hurdles for SMEs in recent years. Any efforts to reduce the credit period of government contracts will substantially reduce the cash crunch”, Shailesh Dash, founder of Al Masah Capital told Gulf News.
With the shortening of payment times, SMEs in the UAE will be able to focus on running their business and taking care of clients without having to worry too much on their day-to-day cash collection.
Dubai, and the UAE as a whole, have been implementing policies to lower the cost of doing business. Additional policies have also been implemented to attract foreign investments, create jobs and boost economic growth. However, late payments are still the main cause of small businesses failing in the UAE.