Challenges to SME Development in Kuwait

Nov 11, 2011

With the oil industry and the public sector being a leading contributor to Gross Domestic Product (GDP), the role of small and medium-sized enterprises (SMEs) in the economy has been modest in the Gulf Cooperation Council (GCC) countries including Kuwait. They contribute between 15% and 40% to GDP. This compares with 57% in Japan, 64% in Spain, 56% in France, 44% in Austria, 43% in Canada, 33% in Australia and more than 50% in the United States of America (USA). Thus the SME sector does not currently provide a sufficient engine for the achievement of the economic diversification objectives of the governments in the region.

However, worldwide SMEs have proven to be the most efficient instrument to accelerate the pace of economic and social development. They provide a fertile environment for training workers and developing their skills and help in speeding up the turnover of small amounts of invested funds. SMEs can provide valuable employment opportunities to a growing young population, improve productivity and help diversify the economy.

They are also attractive because of the simplicity of their establishment and administrative structure since usually only a relatively small amount of capital is needed for initial foundation and operation. In its most frequently chosen legal form, the limited liability allows them to exit the market with little significant impact.

While statistical information on the SME sector is not available in Kuwait due to the lack of an official definition and corresponding collection of data, anecdotal evidence suggests that their number surpasses 30,000 and represents 90% of registered companies. 85% seem to be owned by families and individuals. This would mean a relatively low SME concentration of one SME per 43 nationals as compared, for example, to Saudi Arabia, which has one SME per 25 nationals. SMEs in retail trade, hotels and restaurants are said to account for 40%, construction and utilities for 30% and the remaining SMEs are distributed among finance, industry and services. The prevailing ownership structures are an outcome of the law. In fact, the Law on Commercial Companies stipulates that the majority of any business has to be owned by nationals.

The country needs to tackle structural imbalances related to the labor market and the role of the private sector. For the SMEs to become major players in economic development and an important source of employment, a number of challenges need to be addressed.

Among others, these include finding a commonly accepted definition of SMEs, collecting appropriate statistical information, drafting an SME Development Strategy and Programmes, an underpinning institutional support structure, more entrepreneurial drive, simplified business registration and streamlined licensing procedures, easy and cost effective access to debt and equity finance, broader use of information and communication technology (ICT) and a widening of the market to create more opportunities through broader access to public procurement and the government’s withdrawal from a number of productive activities.

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