It is easy to be your own boss in Dubai and set up a business with about Dh25,000. The paperwork has been reduced and your enterprise can be up and running within 10 days. People are coming with bags of money, a UAE citizen said. Not all, however, are success stories. Mahmood Saberi investigates the reasons why some companies fail to make it big in a booming economy.
The Economic Department in Deira swarms with hundreds of hopefuls every day, who plan to run internet cafes, restaurants or interior design consultancies in Dubai.
Efficient staff deal with papers in a matter of minutes and you come out of the licensing section an entrepreneur, raring to rake in money in an emirate where the economy is driven by high oil prices, low interest rates and good times.
Dubai has aggressively marketed itself as the place to be.
"The private sector plays a key role in the economy. The government is proactive, everything is straightforward and there is no red tape," says M. A. Rafik, managing partner of auditing firm Pannell Kerr Forster.
As people fly in from various parts of the globe to take advantage of the tax-free regime, the stable political environment and the thriving real estate market, agencies have sprouted around the city, promising to take care of everything related to setting up your own establishment.
Laxmi Konar, marketing manager of Index in Bur Dubai, says she has clients from the United Kingdom, Europe and |India. The agency gets 20 inquiries every day, and 15 of them come to fruition.
"There's a lot of scope for trading in commodities, imports and exports," she says.
Legal consultant Helene Mathieu says sometimes people are so impressed with Dubai that it plays against the investor. "People tend to lose their business sense," she says.
She says many people were also given the wrong advice and skipped the basic steps in starting a business, such as carrying out a feasibility study, picking the right location, the right product and the right quality.
Factors at play
But there are also other factors at play.
Overheads in Dubai are very high. You will pay a minimum of Dh50,000 for 800 square feet of office space.
Sushil Malhotra, an Indian expatriate from an auditing firm, was waiting to purchase a set of guides at the Economic Department which detail what type of businesses are open to expatriates and the licensing and commercial permit fees required.
"There's an acute shortage of office space in Dubai. It's just not available here [in Deira.] You need to work on a very tight budget," he says, noting the high cost of office rental which ranges between Dh100 and Dh120 per square foot.
"Getting a licence is tied to your tenancy contract. The high rents are killing the SMEs [small and medium-sized establishments]," Mathieu says.
Chairman of the Key Business Group, Ahmad Al Ashram, echoed this, saying that high rents were forcing many SMEs to move to other emirates where the rents are lower. "If you cannot pay the rent, you have to close down or move out," he says.
However, he says Dubai was still a good place to do business.
"It takes an incredible five days to start off here. I have people coming in from Portugal and Nigeria. I will have to start learning new languages," he says.
Malhotra says the other constraints were the high cost of manpower. Hiring a secretary would set him back by Dh3,000 per month, he says.
"It's a very competitive market here. You have to work on very thin margins. I am from Mumbai which has a population of 15 million. Dubai has a population of one million. The market is very small," he says.
Maiff Saaydeh from Jordan has put his interior design consultancy firm up for sale. He opened it four years ago. Now he has an acute cash flow problem.
"Everything depends on continuing projects. Payments are late 95 per cent of the time," he says.
He could have sustained himself when his first client defaulted on a payment of Dh150,000 for the job, but when his second client failed to pay him Dh200,000, it left him broke.
Additional work
The expat businessman says the courts help to recover money 90 per cent of the time, but it takes a long while to get it back. Unfortunately for him the costs also climbed as his clients wanted additional work done.
"It started with Dh100,000 and ended up costing Dh500,000," he says. Asked about other reasons why some businesses fail, Saaydeh says that by making it so easy to operate here, Dubai also attracted a "lot of unqualified people".
He says the concept of a local "sleeper" partner must be looked into.
According to law, people need a UAE business partner to obtain a trade licence. This partner will hold a 51 per cent stake in the venture.
The concept was started to make it easy for a UAE national to do business, but many instead sell their trade licences and live off the monthly income they charge foreign businessmen.
One government department official says he was distressed by this, as the money they make is "peanuts" compared to the risks they take. There have been many cases of expatriate businessmen running away after incurring millions in debts.
"You have scores of people in prison after taking such risks," another citizen says.
Mathieu says local bankruptcy laws "do not exist". There are risks in both directions, she said about the concept of local sponsorship.
Sponsor's role
There is another side to the story. One consultant says if a local sponsor defaults in some way in just one of the businesses in their name, then his other businesses will also be affected.
"Your labour visas will be delayed. Your trade licence will not get renewed in time. The biggest hurdle to business is the sponsor. Why should you need permission from a person and pay him for doing nothing?" he says.
One expatriate consultant who has ready businesses for sale, says the reason why enterprises fail is the lack of financial muscle and limited resources.
"It takes between six months to a year to break even," he says.
Mohan K., an Indian expatriate, says credit should go to the UAE that he was able to set up his first business here.
"I was not that type," he says, explaining that business was never in his blood.
He started his rent-a-car agency with just Dh19,000 three years ago. But things have changed since then, he says. The premium for car insurance is now high, Dh3,000 per year for each vehicle.
Getting a bank loan is very difficult and the various fees are climbing, including fees for renewing the trade licence.
He does not think that the local sponsor concept is a bad idea. "In other countries there are taxes. Sponsorship is just one way of passing the tax directly to the citizens," Mohan says.
He is selling his enterprise, but he is not giving up. He plans to set up another business soon.
"Do something you enjoy," he says, when asked what advice he would give new entrepreneurs.
Partner problems
Mahmoud Tahloul, a Syrian, is selling his restaurant he did not study his location properly. The area where he set up his Arabic restaurant was in an Indian neighbourhood. "I am selling also because of problems with my partner," he says.
Konar says opening a restaurant was not good business sense.
"There's stiff competition. It's only during the weekends you have a full house," she says.
Another entrepreneur says that despite being multicultural, the food tastes of expatriates had not changed since coming here.
"A Bangladeshi will go to a Bengali restaurant. A Lebanese will of course eat in a Lebanese restaurant and a Keralite in a Malayali outlet."
"I don't know, maybe it is the sun and the sea," Mathieu says, trying to explain the fact that the environment and regulations here make it easier for a budding businessman to make that single and fatal mistake which will leave him broke.
Gulf News
