UHY GLOBAL AUGUST 2020 FEATURE WIDENING THE GULF


Gulf nations are synonymous with oil, but forward-thinking governments are making business easier in a wide range of sectors According to the World Bank’s Doing Business 2020 study, economies in the Middle East and North Africa (MENA) are doing more than ever before to improve the business climate for small and medium sized enterprises (SMEs). To emphasise the point, four Arab nations are in the study’s top ten countries globally for improving conditions for business. These findings are not down to luck. Collectively, governments of the MENA region enacted 57 business climate improving regulatory reforms in the 12 months to May 2019, up 14 on the previous period. Gulf economies were responsible for 35 of those. Saudi Arabia, Jordan, Bahrain and Kuwait all made the top ten improvers list, and the United Arab Emirates (UAE) ranked 16th in the world overall for ease of doing business in 2020. In fact, the UAE’s rise up the World Bank list over the last decade has been impressive, as Anand Ramani, corporate finance partner at UHY James, UAE, explains. “Our ranking today compares to a ranking of 46 amongst 181 countries a decade ago. This is a direct reflection of the significant efforts taken by the UAE government in improving the overall business environment in the country.” SMALL FIRMS IN FOCUS The UAE is just one of the governments around the Gulf that have been proactively liberalising economies, reducing red tape and inviting foreign investment. Qatar has taken huge legislative strides towards a goal of attracting more overseas capital. Kuwait recently leapt 13 places in the ease of doing business rankings in just one year. “The Kuwaiti government is supporting the private sector financially and non-financially,” says Wael Arafa, managing partner at Kuwaiti member firm UHY Pillars. “Young people in Kuwait want to be entrepreneurs, and are supported in that aim by the government through institutions like the Kuwait National Fund for Small and Medium Enterprise Development, the Industrial Bank of Kuwait, the Kuwait Direct Investment Promotion Authority and others.” SMEs have become a chief focus of economic activity in the region for a number of very good reasons. Populations are growing at a significantly faster rate in the Gulf Cooperation Council (GCC) area (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) than the global average, and young people make up a larger proportion of the total than elsewhere in the world. Governments hope SMEs will absorb large numbers of young people entering the labour market over the next few years. The potential is certainly there. One study found that SMEs could be worth USD 920 billion to the wider GCC economy by 2022, and employ 22 million people. Some countries are leading the charge towards a more diverse and innovative SME culture. The study noted that, in its Vision 2021 initiative, the UAE had set a target to increase the share of SMEs in its non-oil GDP from 60% to 70%. REDUCING THE IMPORTANCE OF OIL There is a growing acceptance of the need for economies to diversify away from over reliance on oil and gas. Saudi state-owned oil company Saudi Aramco was listed in the world’s most valuable IPO last year partly to allow the government to plough funds into the country’s non-oil sector. The UAE, while never as dependent on oil as some Gulf nations, is already well on the way to a more balanced economy and sustainable long-term prosperity. The oil and gas sector contributed only 25.9% of GDP in 2018, and that is expected to reduce to less than 20% in the next few years. “Going forward, we do not see the oil and gas sector playing a major role in the future economic development model of the UAE,” says Anand Ramani. “Once the contribution from oil and gas drops below 20%, it will become just one of the sectors contributing to GDP, alongside trade and the financial services and manufacturing sectors.” In that regard, the UAE is unusual in the region. In Kuwait, which controls 8% of global oil reserves, it is difficult to overstate the importance of oil to the economy. But even here, the need for diversification is widely accepted. “Oil will continue to play a vital role in the economy,” says Wael Arafa. “But the non-oil sector has experienced a slight increase and, with Kuwait and other countries in the region supporting projects aimed at broadening economic activity, we will certainly see an increase in non-oil projects and a wider spectrum in trading.” Moomen Elsalawy, partner at UHY Ammo & Co, Qatar, says that, Covid-19 notwithstanding, the Qatari economy is likely to expand significantly in the next decade, and that much of that expansion will come from non-oil sectors. “Recent economic policy is focused on developing Qatar’s non-associated natural gas reserves and increasing private and foreign investment in non-energy sectors, so I think that there will be a range of sectors beside oil that grow in importance,” he adds. For the Qatari economy, the pace of change has recently increased, alongside the level of government support. Qatar is currently subject to a blockade by neighbouring countries, including Saudi Arabia, the UAE, Bahrain and Egypt. They accuse Qatar of backing militant groups, something the Qatari government denies. Moomen says the blockade has forced Qatar to strive for economic self-sufficiency. “New factories were set up following the blockade to secure self-sufficiency, and the number of plants has doubled in the first six months, compared to the same period the previous year,” he says. “New food, cement, plastic and steel production plants have been developed at a particularly fast pace, and a total of 730 new industrial facilities have been registered.” Qatar’s SMEs are also encouraged by the government’s focus on foreign investment, which includes generous incentives. Moomen says that, taken as a whole, Qatar’s open market policy grants investors the opportunity “to make good profits and benefit from the freedom of unrestricted travel and movement of funds.” In the UAE, too, ambition has been backed with action. Anand mentions a recent economic stimulus package aimed at local businesses in Dubai and Abu Dhabi. The package includes a three-year freeze in government fees and proposals to allocate 20% of government contracts to SMEs. And that is not all. “If we set aside the recent impact of coronavirus, which is having a global impact on travel, trade and tourism, generally speaking the hospitality, healthcare, education and fintech sectors have all registered significant growth in the last few years in the UAE,” says Anand. In Kuwait, the financial services sector is experiencing significant growth, and the Kuwaiti government is also channelling support towards the food processing and construction industries. In addition, Wael says UHY Pillars now works with a wide portfolio of SME clients in the retail, real estate, services and non-profit sectors, and that many small and medium sized companies are transitioning to fully exploit the potential of the digital economy. A DIGITAL FUTURE? The UAE is one of the most digitally advanced nations in the world, fuelling the rapid emergence of a digital startup culture. Ranked 12th (up from 17th) in the 2019 Institute for Management Development (IMD) World Digital Competitive Rankings – ahead of economies including Australia, the UK, Germany, New Zealand, Ireland and Japan, among many other developed economies – Anand Ramani says the nation has been identified as leading digital competitiveness within the Middle East region. “The explosion of smartphone ownership in the UAE in the past ten years, coupled with high internet penetration and the readiness of government bodies to embrace technology, has transformed nearly every aspect of life in the country, from how we communicate, to how we work, shop, get around, and pay our electricity bills,” says Anand. “The rise of fintech in the UAE over the past few years is another trend to watch as banks, financial services, and back office functions across all business segments brace for massive disruption.” And this momentum is further boosted by the Emirates Blockchain Strategy 2021, which aims to move 50% of government transactions onto the blockchain platform by 2021. “Blockchain technology will help save time, save effort and resources, and allow people to process their transactions at a time and place of their choosing,” he says. “By adopting this technology, the UAE government expects to save USD 3 billion in transaction and document processing costs annually, reduce printed documents by 398 million, and save 77 million work hours.” But the UAE is certainly not alone in its digital ambition. Technology plays a key role in the economic visions of states across the Gulf. Fintech hubs are emerging. The central banks of Bahrain and Kuwait have established regulatory sandboxes where fintech startups can experiment, while Qatar Development Bank has announced the launch of fintech incubator and accelerator programmes. Saudi Arabia’s Vision 2030 strategy includes a commitment to increasing the contribution of the digital economy to non-oil GDP. Startups are key to this digital transformation, and while the UAE is a startup hotspot, there is evidence of growth across the region. In 2019, USD 704 million was invested in over 560 venture deals, compared to USD 15 million in a handful of deals in 2009. The atmosphere of startup growth in the Middle East has been compared to Silicon Valley in the 1990s. MEETING NEW NEEDS As the region diversifies, UHY members are upgrading skills and specialisms to meet the needs of new business sectors. “At UHY Pillars we are trying to capture clients’ needs and provide customised services,” says Wael Arafa. “For example, the last two years have seen a boom in the food and beverage sector, and in response we have developed new services to cover the needs of our clients and potential clients in this area.” UHY James in the UAE is also broadening its expertise as new types of business seek its services, many from the technology and sustainability sectors. “We now have clients from proptech, fintech, crypto currency, specialised healthcare, AI, vertical farming, hydroponics and more,” says Anand Ramani. “In the past, our clients were from manufacturing, real estate, trading, healthcare and hospitality.” SMEs across the region rely on high quality professional advice of the kind offered by local UHY member firms. While the non-oil SME sector is growing, there are still real challenges to overcome. Chief among these, says Anand, is access to finance. “Unfortunately, many of the financial institutions still follow checklist-based banking and collateral-based lending, instead of cashflow-driven criteria. SMEs, given the nature and size of their business, generally struggle to offer these collaterals or satisfy the documentation requirements,” he adds. Across the region, UHY member firms are helping SMEs overcome this handicap by advising them on the most appropriate ways to raise growth capital. And with the Qatari blockade inhibiting trade, and the long-term effects of the Covid-19 pandemic still unknown, experienced professional service providers have never been so important. A thriving SME sector is crucial to the long-term prosperity of the region, and the business climate has been improving rapidly in many GCC countries. Like the rest of the world, the Gulf now faces a challenging period. UHY member firms are on hand to help ensure that recent advances in business-friendly initiatives are implemented and sustained. UHY IN THE MIDDLE EAST UHY has member firms located in 12 countries across the Middle East region including the ‘European Gateway’ jurisdictions of Cyprus and Turkey. As well as offering specialist local and regional knowledge across a wide range of sectors and services, our member firms in the Middle East work together with colleagues across the UHY network provide tailored solutions to best meet client needs. EGYPT Cairo UHY United for Auditing, Tax Advisory & Financial Services Contact partner: Ahmed Hegazy UHY Waled Mounir and Muhammad Arafa Contact partner: Waled Mounir IRAN, ISLAMIC REPUBLIC OF Hadi Hesab Tehran Contact partner: Hamid Reza Keyhani ISRAEL UHY Shtainmetz-Aminoach & Co CPAs Contact partner: Kobi Shtainmetz JORDAN UHY Arab Auditors Contact partner: Nabil Haddad KUWAIT UHY Pillars Contact partner: Wael Arafa LEBANON UHY Andy Bryan Contact partner: Elie Abboud QATAR UHY Ammo & Co Contact: Moomen Elsalawy SAUDI ARABIA UHY Abdul Jabbar Certified Accountants and Consultants Office Contact partner: Elsayed Elboussery TURKEY UHY UZMAN Sworn In CPA and Independent Auditing Inc. Contact partner: Şenol Çudin UNITED ARAB EMIRATES UHY James Chartered Accountants Contact partner: James Mathew


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14