Entrepreneurial activity and attitude in the United Arab Emirates.

Author:Erogul, Murat Sakir

The United Arab Emirates (UAE) has risen from one of the poorest countries in the world to an income level comparable to that of the industrialized nations. Today small to medium enterprises (SME) contributes 30% of GDP and accounts for 86% of employment (Nicola, 2009); moreover, the expansion of the SME and private sector is vital to further employment generation. Nevertheless, entrepreneurship amongst the Emirati community is not at the desired state due to the high salaries and benefits provided by public sector employment according to the Abu Dhabi Vision 2030 report (The Abu Dhabi Economic Vision 2030, 2008). Findings indicate that 92.4% of Emiratis work in the public sector (United Arab Emirates National Bureau of Statistics, 2011). The average starting salary for an Emirati university graduate in Abu Dhabi exceeds US$8,000 a month which is higher than the income most expatriate senior managers earn in the UAE. In this context, the challenge lies in developing innovative policies and programs facilitating young Emiratis to shift from generous government employment opportunities to prospects of self-employment.

The UAE governments effort to developing entrepreneurship as an explicit mission to economic development (The Abu Dhabi Economic Vision 2030, 2008) comes from the need and understanding that entrepreneurship is an effective means in changing the economic landscape of a country (cf. Baumol, 2002; Van Stel, 2006; Wennekers, Van Stel, Thurik, & Reynolds, 2005). This realization, in turn, has generated a significant amount of interest in how government policies may be instrumental in fostering entrepreneurial activity. Consequently, policy makers in the UAE continue enhancing entrepreneurial framework conditions as the ultimate approach to make the economy more dynamic and innovation-oriented. Furthermore, the creation of the Khalifa Fund for Enterprise Development (Khalifa Fund) and The Mohammed Bin Rashid Establishment (MBRE) for Young Leaders are two of the most visible initiatives that have helped increase the dialog amongst the government, businesses, and its citizens to encourage entrepreneurial attitude and facilitate entrepreneurial activity. Thus, to develop an enabling environment for Emirati individuals to progress.

Subsequently, the paper aims to provide recommendations to facilitating stakeholders to create new knowledge-based activities that may encourage the Emirati individual and community to increase entrepreneurial activity.

The paper has two key objectives:

  1. To explore the level of entrepreneurial activity and attitude to uncover factors determining the levels of entrepreneurial activity among the Emirati population.

  2. To identify policies that may enhance the level of entrepreneurial activity among the Emirati population.

    To facilitate entrepreneurship as a career choice among Emirati nationals, the paper provides an overview of environmental conditions and their impact on entrepreneurship in the UAE; a review of entrepreneurial activity and attitude among the Emirati community compared to expatriate community within the UAE, as well as other Middle East and North African (MENA) country respondents and innovation-driven country respondents; and lastly an overview of the challenges Emirati female entrepreneurs face in the UAE. The paper ends with a set of policy implications to help improve the external environment and promote entrepreneurship as a career choice.

    Literature review

    Overall, the UAE is witnessing a rising interest in entrepreneurship; however, several distinct environmental conditions such as the education system, lending institutions, bankruptcy laws and the nationalization process of the workforce have an impact on the perceived capabilities of individuals directly and indirectly. The public education system in the UAE is claimed to be not working and not meeting the needs of its students by inhibiting their ability to be creative and innovative (A1 Nowais, 2004; Ferris-Lay, 2010; Godwin, 2006; McCrohan, Erogul, Vellinga, & Tong, 2009). The primary weakness of the system is the qualifications and teaching styles adopted by teachers (A1 Nowais, 2004; Godwin, 2006; McCrohan et al., 2009). A focus on rote learning methods is dominant in the UAE public education system at all levels--both primary and secondary. Rote learning has a long-established history found in schools that society has traditionally deemed appropriate. Although this mechanical or repetitious manner of learning acquired by memorization without proper understanding or reflection is slowly diminishing within the present system, 93% of Emirati students entering the three public universities in the UAE require significant amounts of remedial training to bring them up to a level where they are capable of starting their tertiary studies (Godwin, 2006; McCrohan et al., 2009).

    In terms of financing, commercial banks appear to be reluctant to support the financial requirements of entrepreneurs and SMEs, the UAE government needs to address this important market failure, especially with 90% of employment in SME's (McCrohan et al., 2009). Very few banks appear to be providing facilities to start-ups (Duncan & Parmer, 2011). Conversely, the Ministry of Economy and the UAE Central Bank have endorsed a credit and finance scheme for entrepreneurs to help them overcome some of these difficulties. According to Preiss and McCrohan (2006) a lack of affordable credit from the formal financial sector is especially a crucial constraint for Emirati women entrepreneurs. Certain initiatives have been launched specifically to address these needs, i.e., one initiative encourages business women to invest in funds that are run by recognized banks and highly recommended investors such as the Forsa Investment Company for Women (forsa is an Arabic word meaning 'opportunity'), a fund which caters for wealthy women who would like to invest amounts over US$300,000.00. Another initiate has been the Enmaa fund which is a boutique bank for investors from the business community that wish to invest amounts starting from approximately $300.00 (Kannan, 2008). Due to the smaller size of businesses operated by women, compared to those of men, many bankers believe that loans given to women do not justify the amount of paperwork or time involved in processing the loans (Preiss & McCrohan, 2006). Lending and investment programs like the Forsa and Enmaa Fund may have a noticeable influence on SME development.

    Important indicator tools used within the Global Competitiveness Index Report, the World Bank Doing Business Report and the Innovation Index Report identified areas of regulatory weaknesses in the UAE concerning foreign investment and ownership restrictions, protection of investors rights, difficulties in contract enforcements as well as weak and ineffective business insolvency laws (McCrohan et al., 2009). Effectively, the aforementioned reports have recommended robust amendments to bankruptcy laws and encouraged hearty adoption to international standards for this important aspect of business operations. Ultimately, increased flexibility and modification is required for entrepreneurs and small business owners to not end up in the UAE jails due to cash flow difficulties (McCrohan et al., 2009). An efficient, effective bankruptcy law allows companies facing the possibility of liquidation, time to restructure their business operations, clear the debt obligations, and create a more efficient and hopefully profitable business operation. This appears to be a critical indicator of entrepreneurial activity and attitude as business discontinuation rates are comparably higher than other innovative-driven economies who have taken part in the 2009 Global Entrepreneurship Monitor (GEM) study (McCrohan et ah, 2009).

    Another environmental factor is the local sponsor requirement that was created within the legislative framework developed in the 1970s which has handicapped small business initiative and has played a negative role in developing entrepreneurship activity in the UAE among Emiratis. The UAE jurisdiction requires a local sponsor, representing the company. In other words, expatriates establishing a non-Limited Liability Company (LLC) business are required to have a local sponsor as an agent associated with their business and for an LLC entity, the expatriate must establish a 51 to 49% Emirati-expatriate partnership. The local sponsorship law along with nationalization process inhibits venture creation among Emiratis. Nationalization of the workforce is an affirmative action quota driven employment policy that ensures UAE nationals' employment opportunities in the private sector and public sector (Godwin, 2006). The protection of local jobs by the government is understandable; however, it has been creating a culture amongst the Emirati population dependent on public sector employment which is renowned in the UAE for its high salaries and relatively low productivity level.

    The local sponsorship requirement is claimed to be a key inhibitor of business start-up growth in the UAE (Preiss & McCrohan, 2007). Local nationals both men and women have used this legislation as a tool to source relatively low risk and fixed income streams by acting as a silent partner as opposed to starting their own business. Countries need people who can recognize valuable business opportunities and take initiative by having the required skills to exploit these opportunities (Bosma & Levie, 2009). The local sponsorship law in the UAE disables the transfer of knowledge and demobilizes the Emirati population with limited needs for entrepreneurship. Conversely, if attitudes toward entrepreneurship are positive, this will generate cultural support and cooperation toward entrepreneurial activity. Bosma and Levie (2009) argue that as individuals see more and more successful entrepreneurs in their area or in the media, this may enhance their perception of their own...

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