SMEs and entrepreneurship are on the rise in the GCC, but key reforms are needed to help innovators thrive, Huda Al Lawati writes for Entrepreneur Middle East. Governments in the GCC are well aware of the rising importance of SMEs in contributing to economic growth and creating jobs, but the sector’s contribution to overall GDP remains small when considering its potential. While the entrepreneurial ecosystem in the region is beginning to see the establishment incubators, accelerators, and other tools to promote growth in the industry, Al Lawati sees an increasingly pressing need for institutional reforms to allow entrepreneurship to flourish in the GCC.

It all starts with education… Entrepreneurs often gain access to startup workshops and other initiatives geared toward providing relevant information after having “already missed out on a lot of preparation” during the early stages of education. Public schools must begin shifting away from syllabi geared towards rote memorization in favor for a holistic system that promotes independent thinking and a problem-solving approach, Al Lawati says.

…But legal and regulatory reforms are just as crucial. The introduction of the limited liability concept is imperative in the GCC, where bankruptcy remains grounds for imprisonment. “We find it difficult to embrace failure as part of any learning journey. Culturally, we are not very tolerant of failure, but this is only a very small part of the real issue at hand … The capitalist system has thrived on the concept of limited liability, whereby the risk that you take with a venture is limited to that which has been contributed into the venture, and nothing more. However, we have not implemented this truly into our corporate law.”

Startups are also faced with the unnecessary operational costs, such as paying to rent a working space that governments see as a requirement for any business in any stage of development, despite the fact that many small businesses do not need a physical office. Al Lawati says it is far more practical to introduce corporate taxes, which would not be applicable to ventures in their early phases or those that are incurring losses.