Branson, who has founded dozens of businesses under the Virgin brand, said providing bankruptcy protection was a priority for a region where millions of new jobs desperately need to be created.
“I’m flabbergasted to hear there’s no bankruptcy law [in the UAE],” Branson said, speaking exclusively to Arabian Business on the sidelines of the Government Summit in Dubai.
“What transformed Great Britain was, in about 1850 the bankruptcy law was brought in and people didn’t have to go to the watch house [jail] if they went bankrupt and they had a chance to start again.
Unemployment is a burgeoning, serious issue in the Middle East, where the population is getting younger and international authorities, including the International Monetary Fund, estimate hundreds of thousands of jobs need to be created every year just to maintain current unemployment levels, which are already in double figures.
This has led to a greater push for entrepreneurship, with the UAE government and others establishing support funds and planning a stock exchange dedicated to small and medium sized enterprises to help them access funding.
However, many are still not willing to take the risk of setting up a business with the knowledge that if they fail, they face a jail sentence.
Bankruptcy legislation does exist in Kuwait but has not been enforced.
According to the World Bank’s Doing Business survey, which ranks each country by its “ease of doing business”, the UAE was listed in 26th place last year. But when it comes to resolving insolvency, the country is ranked in 101st place, behind Azerbaijan, Togo and Senegal.
It takes an average 3.2 years to resolve an insolvency issue, compared to the OECD average of 1.7 years, and the recovery rate is 29.4 cents in the dollar, as opposed to 70.6 cents in the OECD countries.
Many in the private sector also have voiced their support for bankruptcy legislation, which would make it possible for failed businesses to be shut down in a structured manner, providing an opportunity for creditors and shareholders to recoup some of their lost investment.
Standard Chartered UAE chief executive Jonathan Morris said not having a bankruptcy law was hindering business growth.
“The UAE has built this incredible infrastructure that it is leveraging brilliantly,” Morris said in September.
“What is lacking at the moment is the institutional infrastructure. What we really need is an effective bankruptcy law, an effective companies law, a banking law and so on to bring the institutional infrastructure to world-class standards.
“If they do that, I think the level of foreign direct investment is going to go through the roof.”
For more, see Arabian Business