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In this episode of Count Me In, we talk future of small- to medium-size enterprises (SMEs) in the GCC region and the role the Abu Dhabi-based Khalifa Fun is playing in supporting this fundamental segment of the economy, both in the region and beyond. Marwan Al Souwaidi is a seasoned finance specialist and the Director - Finance & Procurement Support Services Department at Khalifa Fund. During his conversation with Rouba Zeidan, Marwan also shares insights on how SMEs can sustain and reinvent their business models during and post COVID-19.
Show Notes
Contact Marwan: https://www.linkedin.com/in/marwan-al-suwaidi-01189828/
Khalifa Fund for Enterprise Development: https://www.khalifafund.ae/
Khalifa Fund Mission: "To raise Entrepreneurs and SMEs efficiency by building capabilities, unlocking financing and service options, integration with different stakeholders and advocating the entrepreneurial culture."
FULL EPISODE TRANSCRIPT
Mitch: (00:05)
Welcome back for episode 72 of Count Me In, IMA’s podcast about all things affecting the accounting and finance world. I am your host, Mitch Roshong, and the episode I am introducing is for a conversation between our co-host Rouba Zeidan and Marwan Al Souwaidi, a seasoned finance specialist and the Director of Finance & the Procurement Support Services Department at Khalifa Fund. In this episode, Rouba and Marwan discuss the future of small- to medium-sized enterprises in the Gulf Cooperation Council and the role the Abu Dhabi-based Khalifa Fund is playing in supporting this fundamental segment of the economy. They also talk about how businesses can sustain and reinvent their models following COVID-19, so keep listening for another insightful and valuable episode of Count Me In.
Rouba: (00:56)
So let's start with the Khalifa Fund, which is the company that you represent. It was established in 2007 as an independent not-for-profit SMEs socioeconomic development agency by the government of Abu Dhabi. The fund was originally set up to support the culture of investment amongst UAE nationals and developing obviously the SME investments in the Emirates. What was the vision behind such an initiative byt Abu Dhabi?
Marwan: (01:24)
Prior to 2007, let’s say, actually no one was providing loans to small and medium enterprises, so there was a vague gap in the market. So, Khalifa Fund was established to take a position that banks and financial institutions we shy to take. So, the main idea or the main wisdom of creating the Khalifa Fund is to nurture the SME ecosystem in Abu Dhabi fairs, then by 2011, we moved to the entire UAE. So, that was the main wisdom or vision behind creating the Khalifa Fund: to encourage UAE nationals to go to the private sector, by establishing your own firms, take some employment from the public sector to the private sector, and provide like a financing vehicle, banks financial institutions did not take that step at that time.
Rouba: (02:43)
Okay. Initially you’d started for local purposes, national purposes, but eventually in 2015, the Khalifa Fund diversified its efforts internationally with a like a portfolio of some one billion dollars across 22 countries in 3 different continents : Africa, Asia and Europe. How were these regions selected? And what are some of the promising industries that the Fund is actually looking out for, and mostly interested in?
Marwan: (03:11)
Mainly, going international came from a direction from His Highness Sheikh Mohammed Bin Zayed, crown-prince of Abu Dhabi. So, the main idea is also to support the friend countries to boost their economy through creating employment in their country. That was the main wisdom behind going international. We have for example the Chechen Republic, mainly for innovation, also Belarus in the innovation sector, because we see that there is a big market or an encouragement for the society there to move to that. So, we analyze the country, before going there, we find potential areas that can be developed in that country and that can support the purpose of creating employment and enhancing the ecosystem.
Rouba: (04:18)
So, mostly, it revolves around innovation across various sectors. You’re looking for new ideas, fresh new concepts.
Marwan: (04:26)
True.
Rouba: (04:26)
Excellent. So, according to the Credit Bureau, the total credit for SMEs in the UAE totaled to 24 billion dollars by end of last year. How is that figure expected to increase or decrease under the current economic developments resulting from the COVID-19 pandemic?
Marwan: (04:44)
COVID-19 is the tipping point and I think the economy will be different. So, the methodology of the regular loan provided prior to the COVID-19 will be different post-COVID-19, entrepreneurs will be different, people who are going to go to them, to the market, need to be agile, flexible. The sector, private sector and classers will be different. We cannot say it’s going to increase or decrease because it will not be compared to what it was prior to COVID-19. This is something else that we are going to talk about.
Rouba: (05:31)
Would you imagine it to be stronger than it was pre-COVID?
Marwan: (05:36)
I think that COVID-19 is very challenging for the SME sector. So, SMEs that are going to survive during COVID-19 will end up learning a lot of things that they never learnt before. So, a solid will be much so important, and they can easily build on that. Entrepreneurs who did not survive during COVID-19 but saw how the market changed are going to come back with a different mindset and a different approach to the market. So, I think SMEs will be performing much better than before COVID-19.
Rouba: (06:27)
Amazing, a positive perspective, as it should be pf course. So, when looking at the stats on SMEs globally and regionally, it’s a fairly similar scenario across the board, in the sense that they represent the biggest percentage of the private sector businesses and employ the largest workforce. For example, if you zoom in on the UAE, they represent more than 60 per cent of non-oil GDP and 94 per cent of the total number of companies operating in the country. And when you look at the job spectrum, they provide more than 86 per cent of the private sector's workforce – according to the Ministry of Economy. What is the government doing to help them get through this critical phase which stands to have, as you mentioned earlier, a tremendous impact, in some cases it is going to mean everything in regard to survival?
Marwan: (07:22)
The government introduced many government stimuli. One of them is the targeted economic support scheme, the 50 billion dirham that was given to the banks, so the banks will support our financial support to the SMEs, out of their bank sheet, let’s say, which came like a heavy relaxation to the banks. Yes, so the banks, by the 50 billion dirham, which is the economic stimulus, will be able to provide financial support to the affected SMEs by waving a lot of fees, by waving or not taking the installment, during the next 3 to 6 months, plus providing loans for the working capital, because, again COVID-19 affected the working capital. The clash operating cycle. So, the banks are more relaxed now because they are going to provide the funds off their bank sheets, this is one thing. On the local governments, each Emirate has its own government stimulus to the SMEs. So, I think UAE is one of the best countries who proacted into supporting the economy beginning of March 2020. So, I think that the UAE government acted very fast.
Rouba: (09:04)
Yes, I definitely second that motion. I’m based in the UAE, have been for the past forty years, and to be honest, when you contrast this globally, I feel really privileged to be in this area at this critical time, they have been wonderful, in agility as you mentioned, it’s a crucial kind of attribute at this point. In a survey conducted by the Pearl Initiative, they found that 70% of SMEs surveyed in Saudi Arabia and the UAE stated that they face a number of challenges such as economic conditions and finding experienced personnel, they also noted a key one that comes to mind which comes to mind, which is raising capital. If this was already challenging to raise capital in Q4 of 2019, can we assume that it will be even more challenging post-COVID-19 and what are some of criteria funds like Khalifa will be looking for?
Speaker 3: (10:04)
As we said earlier, I think that the approach towards SMEs will be different, prior and post COVID-19. The entrepreneurs who will survive will look at the economy from a different perspective. New entrepreneurs, new entrances to the market, will have a different approach, again. We know that innovation played a critical role during COVID-19, most of the businesses who are able to move fast from being a normal shop to online, they get a bigger market share from people who did not react. People who moved, or businesses who moved, for example tailor shops, most of them are women tailor shops, some of them have moved to tailoring masks, surgical masks, those have benefited from COVID-19 against other tailor shops, in the same industry, in the same sector, who did not react and waited for customers to come to them and do the fitting, So, the approach will be different. Entrepreneurs, instead of looking at “I need a loan or a capital” they are going to be more specific, in needing for example procurement financing, we need a working capital financing, so I think these are much cheaper, or have a lower value than having a big capital. This is one thing. The second, we said that the government has provided stimulus from the central bank to the banks, they will be able to provide loans for SMEs, upon having good feasibility study, so the approach is different, this is concerning debt financing. We have another thing, which is equity financing, we know that this region is developing in the private equity and the venture capital market. So, we will see. We have “Ghadan 21”, which is promoting private equity, promoting angel investment, promoting venture capitals to come in, so I think that the approach will be different. We cannot say challenges to raise capital, no, it’s about the type of capital needed for these businesses.
Rouba: (12:59)
And do you think that it’s going to take time, or is this something that will be ongoing as we progressively come out of COVID-19?
Marwan: (13:07)
Rouba, did we ever think that some day we will be working from home as well as we do from the office?
Rouba: (13:15)
Absolutely not! I mean, I personally did, but not everyone.
Marwan: (13:18)
Not everyone, majority of the people. But we’re functioning well, we’re keeping things as smooth as possible. We changed on the personal level and that reflected on the way we do our businesses. We teach our children at home and they are getting grades similar to when they studied at school. We found some hidden skills in ourselves that were not there. Similarly, if we apply this on the economic level, of course these entrepreneurs have shifted their thinking, and we know that for most of them. COVID-19 will end but the people’s mindset will be different.
Rouba: (14:11)
Yes, absolutely, it is one of those transformational kinds of experiences. So there has been a recent announcement that Abu Dhabi is set to allocate 15% of procurement spending and annual contracts to SMEs as part of the country’s economic stimulus package. How involved is the Khalifa fund with this mandate and what is the desired outcome from this?
Marwan: (14:38)
The Government of Abu Dhabi announced 15% plus paying all invoices in less than 15 days. That will contribute heavily to the operating cash cycle of the entrepreneurs. SMEs are very sensitive to the cash. By having the government buy from the SMEs, 15% of the government budget will go to the SMEs, the SMEs will have more cash that they can operate within increasing the level of employment, increasing the level of output.
Rouba: (15:27)
Or maintain their level of output…
Marwan: (15:31)
I think yes, maintain, but also this will increase their output. Khalifa fund is coordinating with the department of support to the government because that government is the one behind this initiative, trying to coordinate with them and sign an agreement which will allow all members of the Khalifa fund to participate in the government procurement. This is on the government level. But for Khalifa fund itself, we have that since a long time. We have two KPIs, which are the percentage of procurement, 15%, and the number of transactions with applicant. So, we do support them financially and through procurement.
Rouba: (16:34)
Okay, excellent initiatives by the way, especially in this dire phase where people assume that activity has slowed down. It’s good to see that initiatives are still running. What advice do you have for SMEs at this critical point in time, as they struggle to keep their heads above water, to keep their employees, what advice do you have to give them?
Marwan: (17:02)
I advise all SMEs to think about the opportunities of this challenge. Of course, there are many opportunities that arise from COVID-19. Look at that, and see your production cycle, how you can change it to fit the new requirements of the market. Try to connect cyberly with your customers, keep them, engage with them. Maybe they are not going to have the purchasing power, it might be low now, but in the future, at least you will be there. Your employees, you need to keep them engaged, try to brainstorm new ideas on how to move your businesses. For example, if you are a restaurant, you are only allowed 30% of capacity. So, what you do is: focus more to shift your strength to delivery. How do you do that? Through tying up with delivery channels like Deliveroo, Tawseel, Talabat… Try to find new windows for your businesses. This is the main advice that I can give to the entrepreneurs.
Rouba: (18:32)
Excellent advice, it’s finding opportunity in the adversity of this situation. It is a very warranted approach. I think it is the only way to come out of this, if you try to find a strand of hope and opportunity. So that’s been amazing advice, amazing feedback and input. Thank you so much Marwan, it was a pleasure having this chat with you this afternoon.
Marwan: (18:56)
Thank you, Rouba. Thank you.
Closing: (19:00)
This has been count me in IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like, what you heard, and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.
Khalifa Fund for Enterprise Development: https://www.khalifafund.ae/
Khalifa Fund Mission: "To raise Entrepreneurs and SMEs efficiency by building capabilities, unlocking financing and service options, integration with different stakeholders and advocating the entrepreneurial culture."
FULL EPISODE TRANSCRIPT
Mitch: (00:05)
Welcome back for episode 72 of Count Me In, IMA’s podcast about all things affecting the accounting and finance world. I am your host, Mitch Roshong, and the episode I am introducing is for a conversation between our co-host Rouba Zeidan and Marwan Al Souwaidi, a seasoned finance specialist and the Director of Finance & the Procurement Support Services Department at Khalifa Fund. In this episode, Rouba and Marwan discuss the future of small- to medium-sized enterprises in the Gulf Cooperation Council and the role the Abu Dhabi-based Khalifa Fund is playing in supporting this fundamental segment of the economy. They also talk about how businesses can sustain and reinvent their models following COVID-19, so keep listening for another insightful and valuable episode of Count Me In.
Rouba: (00:56)
So let's start with the Khalifa Fund, which is the company that you represent. It was established in 2007 as an independent not-for-profit SMEs socioeconomic development agency by the government of Abu Dhabi. The fund was originally set up to support the culture of investment amongst UAE nationals and developing obviously the SME investments in the Emirates. What was the vision behind such an initiative byt Abu Dhabi?
Marwan: (01:24)
Prior to 2007, let’s say, actually no one was providing loans to small and medium enterprises, so there was a vague gap in the market. So, Khalifa Fund was established to take a position that banks and financial institutions we shy to take. So, the main idea or the main wisdom of creating the Khalifa Fund is to nurture the SME ecosystem in Abu Dhabi fairs, then by 2011, we moved to the entire UAE. So, that was the main wisdom or vision behind creating the Khalifa Fund: to encourage UAE nationals to go to the private sector, by establishing your own firms, take some employment from the public sector to the private sector, and provide like a financing vehicle, banks financial institutions did not take that step at that time.
Rouba: (02:43)
Okay. Initially you’d started for local purposes, national purposes, but eventually in 2015, the Khalifa Fund diversified its efforts internationally with a like a portfolio of some one billion dollars across 22 countries in 3 different continents : Africa, Asia and Europe. How were these regions selected? And what are some of the promising industries that the Fund is actually looking out for, and mostly interested in?
Marwan: (03:11)
Mainly, going international came from a direction from His Highness Sheikh Mohammed Bin Zayed, crown-prince of Abu Dhabi. So, the main idea is also to support the friend countries to boost their economy through creating employment in their country. That was the main wisdom behind going international. We have for example the Chechen Republic, mainly for innovation, also Belarus in the innovation sector, because we see that there is a big market or an encouragement for the society there to move to that. So, we analyze the country, before going there, we find potential areas that can be developed in that country and that can support the purpose of creating employment and enhancing the ecosystem.
Rouba: (04:18)
So, mostly, it revolves around innovation across various sectors. You’re looking for new ideas, fresh new concepts.
Marwan: (04:26)
True.
Rouba: (04:26)
Excellent. So, according to the Credit Bureau, the total credit for SMEs in the UAE totaled to 24 billion dollars by end of last year. How is that figure expected to increase or decrease under the current economic developments resulting from the COVID-19 pandemic?
Marwan: (04:44)
COVID-19 is the tipping point and I think the economy will be different. So, the methodology of the regular loan provided prior to the COVID-19 will be different post-COVID-19, entrepreneurs will be different, people who are going to go to them, to the market, need to be agile, flexible. The sector, private sector and classers will be different. We cannot say it’s going to increase or decrease because it will not be compared to what it was prior to COVID-19. This is something else that we are going to talk about.
Rouba: (05:31)
Would you imagine it to be stronger than it was pre-COVID?
Marwan: (05:36)
I think that COVID-19 is very challenging for the SME sector. So, SMEs that are going to survive during COVID-19 will end up learning a lot of things that they never learnt before. So, a solid will be much so important, and they can easily build on that. Entrepreneurs who did not survive during COVID-19 but saw how the market changed are going to come back with a different mindset and a different approach to the market. So, I think SMEs will be performing much better than before COVID-19.
Rouba: (06:27)
Amazing, a positive perspective, as it should be pf course. So, when looking at the stats on SMEs globally and regionally, it’s a fairly similar scenario across the board, in the sense that they represent the biggest percentage of the private sector businesses and employ the largest workforce. For example, if you zoom in on the UAE, they represent more than 60 per cent of non-oil GDP and 94 per cent of the total number of companies operating in the country. And when you look at the job spectrum, they provide more than 86 per cent of the private sector's workforce – according to the Ministry of Economy. What is the government doing to help them get through this critical phase which stands to have, as you mentioned earlier, a tremendous impact, in some cases it is going to mean everything in regard to survival?
Marwan: (07:22)
The government introduced many government stimuli. One of them is the targeted economic support scheme, the 50 billion dirham that was given to the banks, so the banks will support our financial support to the SMEs, out of their bank sheet, let’s say, which came like a heavy relaxation to the banks. Yes, so the banks, by the 50 billion dirham, which is the economic stimulus, will be able to provide financial support to the affected SMEs by waving a lot of fees, by waving or not taking the installment, during the next 3 to 6 months, plus providing loans for the working capital, because, again COVID-19 affected the working capital. The clash operating cycle. So, the banks are more relaxed now because they are going to provide the funds off their bank sheets, this is one thing. On the local governments, each Emirate has its own government stimulus to the SMEs. So, I think UAE is one of the best countries who proacted into supporting the economy beginning of March 2020. So, I think that the UAE government acted very fast.
Rouba: (09:04)
Yes, I definitely second that motion. I’m based in the UAE, have been for the past forty years, and to be honest, when you contrast this globally, I feel really privileged to be in this area at this critical time, they have been wonderful, in agility as you mentioned, it’s a crucial kind of attribute at this point. In a survey conducted by the Pearl Initiative, they found that 70% of SMEs surveyed in Saudi Arabia and the UAE stated that they face a number of challenges such as economic conditions and finding experienced personnel, they also noted a key one that comes to mind which comes to mind, which is raising capital. If this was already challenging to raise capital in Q4 of 2019, can we assume that it will be even more challenging post-COVID-19 and what are some of criteria funds like Khalifa will be looking for?
Speaker 3: (10:04)
As we said earlier, I think that the approach towards SMEs will be different, prior and post COVID-19. The entrepreneurs who will survive will look at the economy from a different perspective. New entrepreneurs, new entrances to the market, will have a different approach, again. We know that innovation played a critical role during COVID-19, most of the businesses who are able to move fast from being a normal shop to online, they get a bigger market share from people who did not react. People who moved, or businesses who moved, for example tailor shops, most of them are women tailor shops, some of them have moved to tailoring masks, surgical masks, those have benefited from COVID-19 against other tailor shops, in the same industry, in the same sector, who did not react and waited for customers to come to them and do the fitting, So, the approach will be different. Entrepreneurs, instead of looking at “I need a loan or a capital” they are going to be more specific, in needing for example procurement financing, we need a working capital financing, so I think these are much cheaper, or have a lower value than having a big capital. This is one thing. The second, we said that the government has provided stimulus from the central bank to the banks, they will be able to provide loans for SMEs, upon having good feasibility study, so the approach is different, this is concerning debt financing. We have another thing, which is equity financing, we know that this region is developing in the private equity and the venture capital market. So, we will see. We have “Ghadan 21”, which is promoting private equity, promoting angel investment, promoting venture capitals to come in, so I think that the approach will be different. We cannot say challenges to raise capital, no, it’s about the type of capital needed for these businesses.
Rouba: (12:59)
And do you think that it’s going to take time, or is this something that will be ongoing as we progressively come out of COVID-19?
Marwan: (13:07)
Rouba, did we ever think that some day we will be working from home as well as we do from the office?
Rouba: (13:15)
Absolutely not! I mean, I personally did, but not everyone.
Marwan: (13:18)
Not everyone, majority of the people. But we’re functioning well, we’re keeping things as smooth as possible. We changed on the personal level and that reflected on the way we do our businesses. We teach our children at home and they are getting grades similar to when they studied at school. We found some hidden skills in ourselves that were not there. Similarly, if we apply this on the economic level, of course these entrepreneurs have shifted their thinking, and we know that for most of them. COVID-19 will end but the people’s mindset will be different.
Rouba: (14:11)
Yes, absolutely, it is one of those transformational kinds of experiences. So there has been a recent announcement that Abu Dhabi is set to allocate 15% of procurement spending and annual contracts to SMEs as part of the country’s economic stimulus package. How involved is the Khalifa fund with this mandate and what is the desired outcome from this?
Marwan: (14:38)
The Government of Abu Dhabi announced 15% plus paying all invoices in less than 15 days. That will contribute heavily to the operating cash cycle of the entrepreneurs. SMEs are very sensitive to the cash. By having the government buy from the SMEs, 15% of the government budget will go to the SMEs, the SMEs will have more cash that they can operate within increasing the level of employment, increasing the level of output.
Rouba: (15:27)
Or maintain their level of output…
Marwan: (15:31)
I think yes, maintain, but also this will increase their output. Khalifa fund is coordinating with the department of support to the government because that government is the one behind this initiative, trying to coordinate with them and sign an agreement which will allow all members of the Khalifa fund to participate in the government procurement. This is on the government level. But for Khalifa fund itself, we have that since a long time. We have two KPIs, which are the percentage of procurement, 15%, and the number of transactions with applicant. So, we do support them financially and through procurement.
Rouba: (16:34)
Okay, excellent initiatives by the way, especially in this dire phase where people assume that activity has slowed down. It’s good to see that initiatives are still running. What advice do you have for SMEs at this critical point in time, as they struggle to keep their heads above water, to keep their employees, what advice do you have to give them?
Marwan: (17:02)
I advise all SMEs to think about the opportunities of this challenge. Of course, there are many opportunities that arise from COVID-19. Look at that, and see your production cycle, how you can change it to fit the new requirements of the market. Try to connect cyberly with your customers, keep them, engage with them. Maybe they are not going to have the purchasing power, it might be low now, but in the future, at least you will be there. Your employees, you need to keep them engaged, try to brainstorm new ideas on how to move your businesses. For example, if you are a restaurant, you are only allowed 30% of capacity. So, what you do is: focus more to shift your strength to delivery. How do you do that? Through tying up with delivery channels like Deliveroo, Tawseel, Talabat… Try to find new windows for your businesses. This is the main advice that I can give to the entrepreneurs.
Rouba: (18:32)
Excellent advice, it’s finding opportunity in the adversity of this situation. It is a very warranted approach. I think it is the only way to come out of this, if you try to find a strand of hope and opportunity. So that’s been amazing advice, amazing feedback and input. Thank you so much Marwan, it was a pleasure having this chat with you this afternoon.
Marwan: (18:56)
Thank you, Rouba. Thank you.
Closing: (19:00)
This has been count me in IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like, what you heard, and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.
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