Even before the COVID-19 pandemic happened, small and medium enterprises in Kuwait were already having a difficult time operating their businesses.
Small and medium enterprises, also known as SMEs, weren’t already doing quite well, with many of them just trying to make ends meet. When the COVID-19 virus started going around last March of 2020, many countries were grappling with how to curb the transmission, provide necessary healthcare services, and keep the economy running.
This has pushed government officials to enforce public health measures to address the situation. The mobility of citizens and the operations of businesses were tightly restricted. What was thought to be a brief respite turned out to be a five-month long ordeal that is still ongoing to some extent.
But the challenges that small and medium enterprises in Kuwait face do not just revolve around the COVID-19 restrictions.
These enterprises in the country have long faced limitations brought about by a lack of access to the necessary resources for them to grow. Affordable financing is not available, cash reserves are limited, and skilled employees are hard to find.
More limitations were added when the COVID-19 pandemic occurred. Owners of small and medium enterprises in Kuwait had to deal with their meager profit, if there was any at all.
By the time August 2020 came, the COVID-19 situation in the country started to calm down, with the number of new COVID-19 cases going down by then. Government officials decided to ease restrictive public health measures because they could already safely reopen the economy. Curfews were canceled, establishments were allowed to open, and employees were able to go back to the office.
However, not all the challenges faced by small and medium enterprises in Kuwait were lifted together with the restrictions imposed. The lockdowns that were implemented stopped their production as well as the demand for their products. Because of this, many businesses could not reopen just like the economy did.
Small and medium enterprises in Kuwait also lost the expat employees that they had. Apart from that, businesses could not easily find new employees to recruit by the time they needed the workforce. Many foreign workers decided to return to their home country when the COVID-19 pandemic started because they were left unemployed.
New restrictions on the renewal and approval of work visas also made it difficult for expat workers to come back to Kuwait when the situation in the country improved.
Small and Medium Enterprises in Kuwait
Based on a report by Markaz, which is the leading asset management and investment banking firm in the country, there are around 25,000–20,000 firms in the category of small and medium enterprises in Kuwait.
They defined small and medium enterprises in Kuwait 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.” With this definition, around 90% of the total number of businesses in Kuwait can be classified as SMEs.
It was also stated in the same report that 3% of the country’s GDP in 2018 was contributed by small and medium enterprises in Kuwait. This had a gross added value of KD1.22 billion.
Small and Medium Enterprises in the Emerging World and Developed Countries
SMEs contribute to 70% of business in the emerging market economies, as stated by the World Trade Organization (WTO). The number is higher in developed countries, with SMEs accounting for 90% of businesses.
Formal SMEs contribute 40% to the gross domestic product (GDP) of emerging market economies, while it is at 50% for developed countries. However, these numbers can greatly increase when informal SMEs are accounted for. This is because the majority of SMEs in emerging market economies are usually informal.
SMEs are also beneficial for the labor market in the country. They contribute to 50% of employment in different countries across the world. In emerging economies, around 7 out of 10 jobs are created by SMEs.
When the values reported by the WTO are compared side by side to those reported by Markaz, small and medium enterprises in Kuwait appear to be lagging behind.
This finding is similar to what was reported by the World Bank. The study conducted by the institution found that the number of small and medium enterprises in Kuwait is high. Despite this, they do not contribute much to the economy of the country. Specifically, they only contribute 3% of the GDP.
On the other hand, SMEs in high-income countries and emerging market economies contribute much more to the GDP of their respective countries. In some cases, the contribution of SMEs to the GDP of their country is nearly as high as 50%. This is the situation in the United Arab Emirates, where SMEs contribute 53% of the GDP.
Apart from that, there are not that many employment opportunities provided by small and medium enterprises in Kuwait. They only hire 7% of the total workforce in the country. This is much lower than the 50% seen in high-income countries and emerging economies.
According to the Public Authority for Civil Information (PACI), in the year 2020, 1.6 million of the total workforce in the country were employed in the private sector, which already includes SMEs. The majority of the employees in this sector are expatriates, making up 96% of the total employees. Kuwaiti nationals make up only 4% of the total workforce in the sector.
At that time, around 27,000 nationals were working in small and medium enterprises in Kuwait, representing less than 7% of the workforce.
The SME concentration in Kuwait is one SME per 43 Kuwaiti nationals. This is because as many as 85% of the small and medium enterprises in Kuwait are owned by families and individuals. Saudi Arabia has an SME concentration of 1 SME per 23 nationals.
Most of the SMEs are also in the sectors of retail and hospitality, as well as construction and utilities, accounting for 40% and 30% of the businesses, respectively. The remaining percentage is scattered across the sectors of finance, industry, and service.
Both the government and the entrepreneurs are responsible for the current situation of the small and medium enterprises in Kuwait. However, the government did provide a semi-stimulus package for the businesses affected by the economic situation.
Cabinet decision 455/2020 involved the provision of loans with a concessional rate offered by the National Fund and commercial banks to SMEs. Businesses could also apply for a loan of as much as KD250,000 with lenient payment terms. These loans can be paid off in 4 years with an interest rate of just 2.5%, with the government shouldering some part of the interest fees. Additionally, SMEs were exempted from their social security contributions for 6 months.
But, these financial assistance programs weren’t easily accessible to those who needed them. Loans could only be given to SMEs that were already clients of the banks. At the same time, businesses should be part of a sector that contributes to the GDP and can create jobs for nationals.
These conditions were too much of a barrier for supposedly interested applicants. As such, many decided not to apply for such loans. A majority of SMEs also preferred to receive direct financial aid from the government instead of taking loans. This will enable them to recover the income that they have lost and not add any more to the existing debt they have.
A Conducive Political Environment is Needed
The development of small and medium enterprises in Kuwait should be prioritized by the government. A robust SME sector will contribute to the country’s economic growth, create more jobs for nationals, reduce poverty, promote innovation, and strengthen solidarity among citizens.
Many factors come into play when tackling this daunting task. However, an effective policy framework will benefit small and medium enterprises in Kuwait, as what has been seen in other countries.
Policy interventions and solutions by government officials should take into account the specific issues of SMEs in the country. They should also actively promote “a culture of entrepreneurship and innovation” among citizens through various means. This can involve creating incubator facilities in educational institutions for the formation of entrepreneurs at a young age. These facilities provide resources, such as space, mentorship, and funding, which can help budding entrepreneurs begin and grow their startups.
Citizens are Still Interested in Starting Businesses
Despite the challenges brought about by the COVID-19 pandemic, many Kuwaitis are still interested in starting their own enterprises.
In the Global Entrepreneurship Monitor 2020/2021 report, 60% of the respondents claimed that they wanted to start a business within the next 3 years. Nearly 20% of these respondents also said that they were in the initial stages of doing so.
However, for those who have already started their businesses, only 5% said that they were successful in 2020. Many of the respondents were also afraid of starting their businesses during this time, despite identifying possible business opportunities. They are not willing to take the risk because they might end up failing.
The government should boost entrepreneurship among Kuwaitis so that they can become more confident and skilled when venturing into business. Additionally, in a conducive political, social, and economic environment, small and medium enterprises in Kuwait can succeed and contribute to the betterment of the country.