Green SMEs in Middle East: Obstacles and Challenges

With ‘green’ being the buzzword across all industries, greening of the business sector and development of green skills has assumed greater importance all over the world, and Middle East is no exception. Small and medium-sized enterprises (SMEs) operating in eco-design, green architecture, renewable energy, energy efficiency and sustainability are spearheading the transition to green economy across a wide range of industries. Green SME sector in the Middle East has been growing steadily, albeit at a slower pace than anticipated.

Regulations

One of the major obstacles in the progress of green SMEs in the Middle East the has been poorly-designed regulation. According to Ruba A. Al-Zu’bi, a renowned sustainable development consultant in MENA, “SMEs should be the drivers of transformation towards green economy in the Middle East. Lack of clear policy direction and enablers are hindering growth and competitiveness of green SMEs”.

Product market regulations which stifle competition pose a big hurdle to SMEs operating in renewables, energy, environment and sustainability sectors.  For example, state-owned companies in GCC have almost complete monopoly in network industries which have large environmental impacts (electricity/energy sector) or control strategic environmental services (water and waste management sector).

Restructuring

Restructuring of the SME sector in the Middle East is essential to allow small businesses to grow and prosper, thus catalyzing region’s transition to a green economy. SMEs account for vast majority of production units and employment across the Middle East, for example SMEs are responsible for around 60% of UAE’s GDP.

Needless to say, participation of SMEs is essential in the transition to a low-carbon economy, thus paving the way for greening the business sector and development of green skills across all industrial segments.

Green SMEs require strong government support for growth, which is unfortunately lacking in several GCC countries. As Ruba Al-Zu’bi puts it, “Despite the humongous opportunity for green growth in the Middle East, magnified by climate change, water scarcity, oil dependency and environmental footprint, green SMEs are plagued by severe challenges and competition.”

Pressing Challenges

The Middle East region is facing multiple challenges in the growth of green SME sector. As Ruba Al-Zu’bi puts it, “The most pressing challenges are (1) increasing disconnect between education and market needs and (2) the disorientation of research and development from industry priorities and trends. Government agencies, business associations and NGOs need to play a bigger role in advocating more streamlined priorities for green growth across all industrial sectors.”

Green SMEs in the region are facing significant barriers to entry despite their key role in developing locally appropriate technologies and eco-friendly business models.

Promising Initiatives

Abu Dhabi has taken a great step towards consolidation of green SME sector by creating the Masdar Free Zone. As a business cluster, Masdar Free Zone endeavors to provide SMEs and startups with an environment that inspires innovation, offers business development opportunities and provides a living lab and test bed for new technologies.

However office rents has been a hurdle to overcome for green SMEs with limited financial capabilities.  “High office rents in Masdar Free Zone have been a major deterrent for small businesses desirous of setting shop in the business cluster”, says Dubai-based sustainability consultant Sunanda Swain.

In 2007, Qatar also launched a promising initiative to promote green growth in the form of Qatar Science and Technology Park (QSTP) with core areas of focus being energy, environment, health sciences and information and communication technologies. During the initial phase, QSTP has been heavily focused on establishing infrastructure and attracting large companies. During the second phase, QSTP intends to target SMEs and provide them support on legal matters, finance, mentoring and business planning.

Future Perspectives

Policy interventions for supporting green SMEs in the Middle East are urgently required to overcome major barriers, including knowledge-sharing, raising environmental awareness, enhancing financial support, supporting skill development and skill formation, improving market access and implementing green taxation.

In recent decades, entrepreneurship in the Middle East has been increasing at a rapid pace which should be channeled towards addressing water, energy, environment and waste management challenges, thereby converting environmental constraints into business opportunities.