State help is needed to whittle down the cost of loans to small businesses and to push local banks to improve lending, the CEO of Dubai retail conglomerate Nikai Group said.
The UAE government must intervene to slash interest rates on business loans to fuel growth among small and medium-sized enterprises, said Paras Shahdadpuri.
“We’re entrepreneurs, business people. Our creation of jobs is through the intellect of whatever we have. I only wish the banks could really further this. I really wish there was further support coming from the government of the UAE,” he said.
“The interest rates which we pay to the banks range from six percent to eight percent. It’s very high and wipes away all our profits.”
In Dubai, the country’s trade and tourism hub, SMEs contribute to at least half of the emirate’s economic output and employ around two-thirds of its estimated 1.4 million workforce.
SMEs in the trading sector typically have up to 75 employees and a maximum turnover of AED250m ($68m).
Shahdadpuri, who is president of Dubai’s Indian Business and Professional Council, said UAE banks had some of the highest lending rates in the Gulf, compared to other dollar-pegged currencies.
“If you go all over the world, the interest rates for borrowings by businesses are not more than 2.5 percent. Even in Saudi Arabia, which is also a dollar-pegged currency, the interest rate is much lower; it’s 50 percent of what it is here,” he said.
Bank loans to SMEs accounted for only two percent of total lending in Gulf Arab countries, an October survey by the Union of Arab Banks and the World Bank showed.
Nikai Group, an electronics and white goods distributor that has positioned itself as a low-cost alternative to brands such as LG and Panasonic, sold more than 1.2 million units in 2010.
“The UAE gave us lesser returns and revenues for 2010, as compared to 2008. But we were able to make up by going horizontal; we expanded our territory,” Shahdadpuri said.
“We went very strong into the Gulf market, into the Commonwealth of Independent States and the African markets. So that was able to break up some of the shortfall.’
The group plans to tap the Iraqi market in 2011, its CEO said.
“Iraq can easily be up to $30m or $40m per year [for us], easily. [It’s] a big market which we would like to tap this year,” Shahdadpuri said.