Dubai's lifeblood is the combination of small and medium-sized enterprises(SMEs). They are the small and medium enterprises that produce energy for them. SMEs are the backbone of the emirate's diversified economy. The following are some key data that underscore the nature and importance of these enterprises:
- SMEs are 95% of Dubai's business population
- It is estimated that they make up 40% of Dubai's income by the year 2040
- SMEs care for 42% of the workforce in Dubai
These whopping numbers reveal that SMEs undoubtedly fill a significant void when showing entrepreneurship and innovation in the emirate.
Methodology and Data Source
This study is credible based on a well-documented report submitted by Dubai SME. The report's methodology is as follows:
Concentration on economic performance having successes and failures shown in deep detail
Survey forms were taken away from 500 SMEs of three categories, which are:
- Manufacturing
- Trading
- Services
In this blog, we will explore different aspects of SMEs in Dubai, such as their financial health, profile, business outlook, and the kind of government support that they receive.
SME Definition for Dubai
In 2009, SMEs were defined in the UAE, and such a definition was set up through Dubai SME, which was part of the Department of Economic Development (DED). The definition categorizes businesses based on employee numbers and annual turnover. Such a definition varies from sector to sector, such as trading, manufacturing, and services. For example, assuming that a micro-enterprise is defined to have less than 9 employees and an annual turnover of AED 9 million or less, then the turnovers of medium enterprises in the manufacturing sector will be capped at 250 employees with turnover not exceeding AED 250 million.
SME Classification by Sector in Dubai
| Sector | Micro (Employees/Turnover) | Small (Employees/Turnover) | Medium (Employees/Turnover) |
| Trading | ≤9 / ≤AED 9 mn | ≤35 / ≤AED 50 mn | ≤75 / ≤AED 250 mn |
| Manufacturing | ≤20 / ≤AED 10 mn | ≤100 / ≤AED 100 mn | ≤250 / ≤AED 250 mn |
| Services | ≤20 / ≤AED 3 mn | ≤100 / ≤AED 25 mn | ≤250 / ≤AED 150 mn |
Source: (SME Report)
The Dubai Economy
Dubai's economy has grown remarkably over the last decade due to diversification in trading, tourism, and real estate. The government's proactive policies have helped the SME sector grow and contribute considerably to the overall economic output.
Key Economic Sectors in Dubai and SME Contribution
| Sector | Contribution to GDP | SME Contribution to the Workforce | SME Contribution to GDP |
| Trade | 30% | 33% | 47% |
| Services | 57% | 51% | 41% |
| Manufacturing | 14% | 16% | 13% |
Source: (SME Report)
Business and SME Landscape in Dubai
Small and medium enterprises constitute a vital share of Dubai's business landscape. Indeed, 95% of all establishments are SMEs. Of these SMEs, 72% assume the form of micro-enterprises. The percentages for small- and medium-sized enterprises are 18 and 5, respectively. The largest shares of SMEs are found in the trading sector (57%), services (35%), and manufacturing (8%) (SME Report).
Performance of the SME Sector
SMEs account for 40% of the Gross Domestic Product and 42% of total employment in the Gulf Emirate. The importance of such firms is high, as though they directly contribute to a large portion of the economic output, their labor productivity is relatively low compared to large enterprises. For instance, medium-sized firms indicate higher productivity at AED 244,785 per employee, while that indicated by micro-enterprises is AED 91,080 (SME Report).
Labor Productivity in Dubai SMEs (AED per Unit)
| Enterprise Size | Labor Productivity |
| Micro | AED 91,080 |
| Small | AED 138,058 |
| Medium | AED 244,785 |
Source: (SME Report)
Financial Health of SMEs
A financial analysis of 307 SMEs across Dubai reveals healthy profitability margins, particularly in the manufacturing sector, where operating margins range from 10-20%. Service SMEs show 12-25% operating margins, particularly in business services. Trading SMEs also demonstrate solid financial health, with the building materials segment showing net margins between 10-14%.
Profitability Ratios for Key SME Sectors
| Sector | Gross Margin Ratio | Operating Margin Ratio | Net Margin Ratio |
| Manufacturing | 30-40% | 10-20% | 7-18% |
| Services | 30-70% | 6-25% | 2-20% |
| Trading | 7-40% | 3-15% | 2-14% |
Source: (SME Report)
State and Characteristics of SMEs in Dubai
State and characteristics of SMEs in Dubai were assessed based on a survey of 500 SMEs across sectors such as Manufacturing, Trading and Services. The survey focused on assessing the state and characteristics of SMEs along certain key themes presented in Figure:
Source: (SME Report)
Degree of International Orientation
Dubai's SMEs are outward-oriented, with 51% exporting. The trading sector is the most internationalized, with 68% of the trading SMEs receiving revenues from international markets (SME Report).
Prevalence of Innovation
Innovation remains low among Dubai SMEs, with only 13% reporting the implementation of innovations. Manufacturing SMEs show a higher focus on innovation (29%) compared to trading (4%) and services (16%) (SME Report).
Level of IT Adoption
IT adoption is moderate, with 21% of SMEs utilising advanced systems such as ERP and CRM. Service-based SMEs lead the way in IT sophistication, with 26% using enterprise-level IT systems (SME Report).
Degree of Human Capital Orientation
Service SMEs focus the most on human capital, with 30% offering comprehensive training programs and performance evaluations. However, only 25% of SMEs across sectors have a dedicated human resource department (SME Report).
Degree in Corporate Governance Orientation
Corporate governance remains challenging, with just 18% of SMEs adopting key governance principles such as audited financial statements or advisory boards. Larger enterprises are more likely to implement formal governance structures (SME Report).
Level of Access to Finance
Access to finance is moderate, with 23% of SMEs securing bank financing in the last five years. The trading sector has the highest level of access, with medium-sized firms showing a higher propensity to obtain financing (SME Report).
Scalability Potential
Dubai’s SMEs have moderate scalability potential, with 19% of firms demonstrating high scalability. Manufacturing SMEs lead in this category due to higher capacity utilisation and growth expectations (SME Report).
Business Outlook and Key Business Objectives of Dubai’s SMEs
Optimistic business outlook in Dubai for SMEs. In Q3 2013, the BCI of SMEs registered a very optimistic level at 119.5 points. Expectations are optimistic, with future growth expected to be positive. Many SMEs focus strongly on market expansion. Over the next five years, 70% of the SMEs expect medium-to-high product demand growth (SME Report).
Government Support Ecosystem for SMEs
Dubai offers a robust support ecosystem for SMEs. Key government initiatives include access to financing, business advisory services, and opportunities for networking and collaboration. In collaboration with other entities, Dubai SME is central in offering programs to develop the SME sector. These initiatives help SMEs overcome innovation, corporate governance, and scalability challenges.
Conclusion
The small and medium enterprise sector is very important to the economic growth in the emirate, supplying a substantial fraction of the GDP and directly contributing towards employment. Nevertheless, weak areas have to be improved, particularly productivity requirements that need betterment, innovation levels that must improve, and corporate governance practices. Given this backdrop, the general prospects of Dubai SMEs look bright. Strong governmental support through access to finance, advisory services, and growth programs will make Dubai SMEs look well-geared for continuing success. Scale sustaining and competition edge improvement can be enhanced by focusing on technology adoption, international expansion, and business process improvements.
FAQs
1. What is the ratio of SMEs to other business sectors in Dubai?
95% of all businesses in Dubai are SMEs, which puts focus on the value that these players add to the economy.
2. In what sectors do most SMEs in Dubai operate?
Most SMEs operate in the trading sector (57%), followed by services (35%) and manufacturing (8%).
3. How significant is the role of SMEs in GDP in Dubai?
SMEs constitute around 40% of Dubai's aggregate GDP.
4. What are the major issues facing SMEs in Dubai?
SME faces low productivity, low adoption of technology, and gaps in corporate governance.
5. How does Dubai help its SMEs?
Dubai has undertaken various government initiatives to support the SMEs. One is access to financing. Another is business advisory services. There is also networking opportunities.
