Running a business operation is challenging at the best of times; it becomes even more so under exacting circumstances. For many small and medium enterprises (SMEs), emergence of the COVID-19 global pandemic in 2020, when the business environment grew increasingly stacked against them, was probably the proverbial straw that broke the camel’s back.

In Kuwait, where SMEs were struggling to survive even before the arrival of COVID-19, the restrictions on business activity and mobility of people during the pandemic, further exacerbated the woes they faced. In early March of 2020, in the wake of an emerging COVID-19 health crisis in the country, the government announced a string of infection-preventive measures that culminated in a five-month long curtailment of most business activity in the country — arguably this was one of the longest business closures in the world.

In addition to the generic challenges that SMEs encounter due to prevailing onerous regulatory policies, lack of access to affordable financing, limited cash reserves, and a shortage of skills, during the five-month-long work stoppage period many entrepreneurs also had to cope with the blow to their business from unexpected loss of revenue. Besides the impact of the pandemic on their cash flow, the suspension of production and disappearance of demand during lockdowns also meant that many SMEs were unable to resume operations when the authorities began relaxing restrictive measures in August of 2020.

Moreover, by then many of the expatriates employed by SMEs had returned to their respective countries following the unforeseen loss to their jobs and salaries. New restrictions imposed on renewing or issuing new work visas also meant many of these workers remained stranded abroad even after epidemiological conditions in the country eased.

Though the exact figure on the number of SMEs operating in the country varies based on the definition of which businesses qualify as small or medium enterprises, a report by Kuwait’s leading asset management and investment banking firm Markaz puts the number of SMEs in Kuwait at around 25,000 to 30,000 firms.

The figure is based on a definition of SMEs as entities that employ less than 50 people and have an asset base of less than KD500,000, and annual revenues of less than KD1,500,000. Using this definition, nearly 90 percent of Kuwait’s businesses fall in the SME category. The Markaz report also noted that the SME sector contributed around 3 percent of GDP of Kuwait in 2018 at a gross added value of KD1.22 billion.

According to the World Trade Organization (WTO) , SMEs account for 70 percent of businesses in the emerging world and about 90 percent in the developed countries. Formal SMEs also contribute up to 40 to 50 percent of national income (GDP) in emerging and developed economies respectively. This number rises significantly for the world when informal SMEs, which constitute the bulk of small enterprises in the developing world, are included. SMEs also contribute to 50 percent of employment worldwide, and in emerging markets,nearly 7 out of 10 jobs are created by this sector.

Comparing the WTO figures for the world and correlating to the report by Markaz reveals a significant gap in the performance of SMEs in Kuwait. According to a recent World Bank study, though the number of SMEs in Kuwait is high, their overall contribution to the economy is marginal, at just 3 percent of GDP. This paradox is of concern, especially in comparison to other high income and emerging economies where SMEs account for a large part of economic activity in the private sector and contribute to nearly half of the country’s GDP. To place the productivity figures of Kuwait SMEs in a regional perspective, the United Arab Emirates has an SME footprint that provides 53 percent of GDP.

In addition to its weak productivity, SMEs in Kuwait also employ only around 7 percent of the total number of citizens engaged in the national workforce. In contrast, in most high income and emerging economies SMEs account for nearly half of the total workforce. The employment figures become even more revealing when the data on total national workforce is split down to its constituent elements.

According to data provided by the Public Authority for Civil Information (PACI), as of the end of 2020, of the total workforce of 2.1 million in Kuwait, around 470,000 were employed in the public sector and 1.6 million were in the private sector.
Among government employees, close to 77 percent were nationals and only the remaining 23 percent were expatriates. On the other hand, of the more than 1.6 million employed in the private sector, including all SMEs, nationals constituted less than 4 percent, while the overwhelming majority (96%) were expatriates. Figures also disclose that only less than 7 percent of nationals, around 27,000 citizens, currently work in the SME sector.

In addition, other figures from the World Bank show that Kuwait has a relatively low SME concentration with nearly 85 percent of SMEs owned by families and individuals, this translates to one SME per 43 nationals compared to one SME per 23 nationals in Saudi Arabia. Data from the Bank also reveals that SMEs in the retail and hospitality sector are said to account for 40 percent of businesses, construction and utilities are 30 percent and remaining SMEs are distributed among finance, industry and services.

Kuwait’s relatively poor performance in output and in job creation for nationals points to shortcomings on the part of the government, and among entrepreneurs, in developing a stable and sustainable SME environment in the country. In all fairness, it needs to be added that amid early indications of economic repercussions on local business activity, especially on SMEs, the government did move with unusual alacrity to enact a ‘semi-stimulus’ package through Cabinet decision 455/2020.

Decision 455/2020 requested the government-run National Fund for SMEs, and urged commercial banks in Kuwait, to provide loans to SMEs on a concessional basis. The decision also relieved SMEs from having to pay their social security contributions for a period of six months. In addition, decision 455/2020 provided SMEs with the opportunity to apply for a maximum loan of KD250,000 with a maximum tenure of 4 years at 2.5 percent interest rate, with the government agreeing to cover part of the interest on loans.

However there were several conditions attached to the support granted to SMEs, including that the loans were granted only to existing clients of banks and the business should be in a value-adding sector to the national economy. The SME business should also be capable of creating national employment. But most SMEs found these terms too exacting and burdensome, and many declined to accept the loans. Moreover, it soon became apparent that most SMEs were not interested in taking on additional loans, what they wanted was compensation from the government for loss of revenue during the lockdowns.

Small and Medium Enterprises (SMEs), which account for the majority of businesses worldwide, play a major role in most economies as the drivers of growth, job creation, innovation, poverty reduction, and social cohesion. They help develop entrepreneurial skills and stimulate competition for prices, product design and efficiency in the market. SME development needs to remain a high priority for most governments around the world.

While the overall problems faced by the SMEs are similar in most countries there are significant divergences in priorities and needs in different jurisdictions, and which cannot be addressed with a one-size-fits-all approach. However, introducing and implementing SME policies is complex and covers a wide range of interlinked areas. Governments will need to find informed policy interventions and solutions tailored to the needs of SMEs operating in the local market.

Overall it is widely accepted that a public policy framework that fosters a culture of entrepreneurship and innovation is beneficial to developing a vibrant SME environment. Public policy analysts point out that a number of actions can be taken by the government to support entrepreneurship, including targeted and timely intervention by the authorities, the establishment of education programs to help students get started on campus with incubator facilities, and promotion of entrepreneurs as role models.

Although the pandemic dented hopes, expectations and intentions among many citizens in Kuwait, the overall sentiment towards starting one’s own business and striking it out on their own still remains high. A report by the Global Entrepreneurship Monitor for the period 2020/2021 shows that among those surveyed for the report in Kuwait, nearly 60 percent said they intended to start a new business in the next three years, and close to a third of this number said they were already in the early stage of entrepreneurial activity.

Despite these positive attitudes and intentions towards entrepreneurship, the survey also revealed that only around 5 percent of those surveyed said their SME ventures were successful in 2020. Adding to this was the impact of the global pandemic on entrepreneurship in the country, with five in ten survey respondents saying they knew someone who had to permanently shutter their business due to economic repercussions brought on COVID-19 health crisis. Also nearly half of those surveyed said that while they saw good entrepreneurial opportunities in the current market, they would not start a business for fear it would fail.

The lack of confidence among many nationals in their ability to run an SME venture successfully is indicative of the several limitations that exist in Kuwait’s promotion of entrepreneurship among citizens. In most countries, SMEs are run by people for whom the business is their sole means of livelihood. In Kuwait, until recently, many SMEs were owned by ‘hobbyist entrepreneurs’ for whom the business was a secondary source of income that augmented the hefty emoluments and benefits from their full-time job in the public sector.

It would have taken exceeding extenuating circumstances for a citizen to forgo the lucrative remunerations and fringe benefits, as well as long-term stability provided by a government job and opt to start out on a SME venture with all its inherent risks. Experts point out that among the obstacles that stifles the spirit of entrepreneurship among young nationals are the government’s insistent commitment to provide public sector jobs for citizens, and citizens’ own sense of entitlement to life-long support and largesse from a welfare state.

However, the precipitous fall in oil-prices in mid-2014 led to a paradigm shift in this calculus on the part of both the government and citizens. Realizing that the public sector could no longer accommodate the thousands of young nationals who entered the labor pool each year, the government had to do a rethink on its assured national employment policy. Employment in an already bloated public sector had increasingly become untenable and unsustainable.

In a bid to get the private sector to engage more nationals in its workforce, the government implemented several coaxing and cajoling measures. However, as expected, private sector businesses were reluctant to hire nationals and instead preferred to employ expatriate workers who were more cost-effective and work efficient. It also did not help that most young nationals were not inclined to work in the private sector as this would have entailed them to actually work for a living..

But the worsening economic situation and falling finances that curtailed disbursement of government largesse to citizens, also led to many young citizens having to reassess their future prospects. Many young nationals, who had earlier chosen to sit it out and accept monthly handouts from the government while they awaited a public sector posting, began, if only reluctantly, to apply for jobs in a private sector that was not overly eager to roll out the welcome mat to them.

Realizing that the government could no longer be relied upon to provide them public sector employment, and discovering that they were not enthusiastically welcomed by private company owners, many young citizens opted to open their own SME business, enticed no doubt by the generous supportive measures from the government. This remains the prevailing situation.

In a post-COVID-19 world there are many opportunities that citizens opting to open an SME business can seize. However, a willingness to work, really work, and to take pride in carving out a livelihood through one’s own efforts are key factors helping any entrepreneur achieve success. The government can definitely do more than push the responsibility for SME development on the National Fund for SME, which has so far played a less than stellar role in providing SMEs with an encouraging and nourishing environment.

Besides improving access to financing for SMEs and streamlining the regulatory framework, the government could further support entrepreneurship in the country by creating an enabling environment, especially for women and those among the differently-abled seeking the entrepreneurial path. The authorities could also provide SMEs with training at different levels, and promote learning skills in latest digital techniques and technologies so as to foster the development of products and services made necessary by the fourth-industrial revolution.

More importantly, the government needs to remain committed to creating a successful SME sector and to maintaining an environment that is conducive and supportive of new businesses. This enabling ecosystem will ensure that in the longer term SMEs in Kuwait will become the drivers of innovative products and services that lead to a substantial rise in income, employment opportunities, and an overall growth in GDP, while contributing to the sustainable growth and development of the country.

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