SMEs in Qatar have potential to grow

The entrepreneurial spirit is alive and flourishing in Qatar. This does not guarantee the growth of a non-oil and gas export-earning sector and economic diversification. Recent announcements confirm the government’s support for the private sector: Are there further reforms that could help?One of the heartening findings of a recent report into startups and other small businesses in Qatar has been a high level of entrepreneurialism among the population, which has continued to rise after the one-off opportunities of the 2022 FIFA World Cup. The report was produced by the Global Entrepreneurial Monitor (GEM), in collaboration with Qatar Development Bank.Total Early-stage Activity in setting up businesses, known as the TEA rate, is 15.4% among men and 13.1% in women. While the TEA rate fell from 17.2% to 10.7% between 2020 and 2022, probably attributable to the Covid-19 outbreak, it rose to 14.3%, post-World Cup, in 2023. The proportion of those running an established business also nudged upwards, from 3.9% to 4.4% in 2022-23.Overall, setting up your own business is viewed positively, as an aspirational career choice. On this measure, Qatar ranks second against a group of Middle East and North African countries.Many businesses are set up with informal loans, from friends and family. As with all start-ups, a proportion doesn’t succeed. It is likely that the report understates the level of failure – not through any fault of the authors, but because some activity is "off-grid”, and data is limited. In Qatar, a high proportion of entrepreneurs have set up a business while continuing to work full-time in a relatively well-paid, secure salaried post in the public sector. Their business loans are guaranteed against their salary, not only the business itself. If the business fails, the individual will be repaying the debt out of salary for many years.It is part of Qatar’s economic strategy to encourage entrepreneurialism and economic diversification, and this report produces encouraging findings. There is much scope for further policy reform. An economy will not be substantially diversified if it consists primarily of a small number of very large export-earning oil and gas firms alongside thousands of micro businesses in the services sector. There needs to be nurturing of businesses with potential to scale and grow internationally, for example in technology, information services and manufacturing.There is not a well-developed bankruptcy law in Qatar as one might find in the US or western Europe, and this reform would help, alongside sensible policy measures to prevent high borrowings from inexperienced start-up founders with little chance of success.The recent announcement to write off loans made to private sector companies under the National Response Guarantee Program (NRGP) during Covid-19 outbreak will have an impact. It is an understandable move, releasing resources for affected companies and drawing a line under the exceptional measures brought about by the pandemic. The move may, however, be perceived as unfair by those businesses that did repay the loans, or those who took out commercial loans. Thus, Qatar Development Bank also announced an initiative to arrange zero-interest short-term loans to companies that had settled their loans under the NRGP.To encourage private sector development, rather than a system of loans made against employees’ earnings from their day job, or soft loans that may ultimately be written off, it might be better for Qatar Development Bank or a related Fund to invest more fully in entrepreneurial endeavours by becoming an equity investor in enterprises with potential to scale, offering governance and training support to the business founders, and an experienced board director appointed by the Fund. If the directors of the company are full-time, and fully invested, it is likely that the firm has a better chance of success. Or, fresh loans could be made contingent on the owners undergoing training on governance and finance.Zero interest-rate loans will benefit some companies, but it would not be healthy to be inadvertently facilitating companies becoming dependent on cheap financing, rather than seeking to scale through organic growth, efficiency and profitable business model. Another option for companies that are struggling financially, but which have potential to scale, is partial debt forgiveness, rather than writing off the whole loan.There also needs to be incentives for expatriate individuals to set up a company and stay in Qatar.Overall, though, the report strikes a positive note about commercial ambition acumen in Qatar, and the government’s initiatives underline its commitment to continuing private sector development.The author is a Qatari banker, with many years of experience in the banking sector in senior positions.