Weaning the economy away from its addiction to oil revenue, and citizens away from their sense of entitlement to perpetual handouts from a welfare state, are stumbling blocks that the government has struggled to overcome despite repeated attempts.
Unstable oil revenues and repeated annual budget deficits that have made digging into state reserves, or borrowing from debt markets the norm, combined with the inability to implement any meaningful reforms, will make it increasingly difficult for the authorities to continue providing efficient services that citizens have become accustomed to.
Economic and financial reforms introduced in the wake of low oil prices were watered-down under public and parliamentary pressure, and all but abandoned when oil prices began to show the earliest signs of revival. Wooing the private sector to help diversify the economy, to share in developing infrastructure, and create new jobs for nationals, have also been less than successful, even with the government promising to shoulder much of the burden.
Accustomed to a welfare state that takes care of their every need from cradle to grave, generations in the past have looked up to the government to provide them with secure public sector jobs that offer secure jobs, high salaries and perks, as well as life-long generous retirement benefits. But a bloated public sector already straining at the seams is in no position to accommodate the tens of thousands of young nationals who enter the work pool each year. It is quite evident that many, if not most, of the more than 15,000 young job hopefuls who annually enter the labor pool will end up on the unemployed list.
The New Kuwait 2035 strategic plan, envisioned by His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, is a way out of this impasse and aims to transform Kuwait into a financial, commercial and cultural hub in the region by 2035. The plan calls for diversifying the economy away from over relying on hydrocarbon revenues, developing infrastructure, reinvigorating the private sector, encouraging small and medium enterprises (SME)and promoting entrepreneurship among the youth.
Many young people realizing that relying on the government to find them suitable jobs is no longer a viable option have begun opting to work in the private sector. A handful of young Kuwaitis have also chosen to strike out on their own by rediscovering the trait of entrepreneurship that defined Kuwaitis in a pre-oil era.
Government is lending its full support to young Kuwaitis looking to set up their own businesses. The National Fund for Small and Medium Enterprise Development (NFSMED), founded in 2013 with a capital of KD2 billion, is tasked with fostering a climate that enables SMEs, supporting the youth, combating unemployment, and enabling the private sector to drive economic growth.
The law establishing NFSMED defines a small company as having a startup capital of less than KD25,000 and employing between 1 and 4 nationals, and a medium company as having a startup capital between KD25,000 and KD500,000 while employing 5 to 50 nationals. The Fund, which began financing projects in 2016, will finance up to 80 percent of capital for feasible small and medium projects submitted by Kuwaiti nationals.
Over two-thirds of the nearly 75,000 companies registered in Kuwait are reportedly SMEs with financing requirements that do not exceed KD500,000. However, data from the International Monetary Fund (IMF) indicate that though SMEs account for about 50 percent of licenses granted to new businesses in Kuwait, they receive only about 2.3 percent of total corporate loans.
The Kuwait Institute for Banking Studies (KIBS), confirms the IMF data and says that SMEs are “underbanked versus the rest of the world.” Credit to SMEs comprised only 7 percent of total bank financing in Kuwait compared to World Bank estimates of 13 percent in developed and 26 percent in developing countries. KIBS also estimates the SME contribution to Kuwait’s GDP at under 10 percent versus a world average of 40 percent.
Clearly, SME’s and the entrepreneurial ecosystem in Kuwait have potential to develop far more under proper stimulus. In 2017, the Kuwait Foundation for the Advancement of Sciences (KFAS) and Kuwait-based leading regional investment firm, KAMCO Investment Company, commissioned global consulting firm, Berkeley Research Group (BRG) to conduct a study on the entrepreneurial ecosystem in Kuwait.
The research aimed to identify the key barriers facing Kuwaiti entrepreneurs, analyze gaps in Kuwait’s entrepreneurial ecosystem and finally to make recommendations as to how the government’s efforts to support entrepreneurship as a means to diversifying the economy can be better aligned with the needs and aspirations of Kuwaiti entrepreneurs.
The study found that despite access to several funding options and routes to raise capital for new entrepreneurial ventures, there were several structural barriers, including concerns from banks about the management skills of SMEs and their perceived high risk of default, which created difficulties when it came to raising fund for expansion and development.
The lack of professional advisers and consultants to serve as coaches and mentors, and the shortage of co-working spaces to act as incubators and accelerators to foster a dynamic environment for new and potential entrepreneurs, were seen other drawbacks.
The country also did not have adequate platforms to facilitate learning and research to develop real-world applications and form startup tech companies.
Moreover, current laws and regulations, especially those dealing with employment and the hiring and firing of labor, as well as government bureaucracy, in particular the length of time, opacity and number of procedures for business licensing and permits, were seen as major barriers to growth of startups.
On the plus side, the report highlighted Kuwait’s long and storied history of a bustling merchant culture and entrepreneurial spirit, the high levels of education and creative talent of today’s youth, and the country’s strong purchasing power which represented a competitive advantage.
The BRG report concluded that Kuwait has the opportunity to create high-impact, global startups, but in order to retain them in Kuwait certain weak elements of the local entrepreneurial ecosystem need to be nurtured or improved. Meanwhile, government programs and initiatives to encourage entrepreneurship and develop the ecosystem should better align with the needs of startups and adapt to fit a strategy that encourages Kuwaiti entrepreneurs to “go global” while remaining rooted in Kuwait.
Reinforcing this view, Kuwait-based Cofe App, a coffee-centric marketplace app, recently announced that it has secured US$3.2 million in funding from a multi-national cross-sector base of entrepreneurs and venture capital funds from the Middle East and Silicon Valley. Conceptualized in Kuwait and developed in Silicon Valley, Cofe App, founded in the summer of 2017 by Ali Al Ebrahim and beta launched in February 2018, connects coffee house chains and independent coffee roasters with coffee lovers.
Staff Report
Read Today's News TODAY... on our Telegram Channel click here to join and receive all the latest updates t.me/thetimeskuwait
