Plan to Support Small Businesses in Kuwait Lacks Clear Vision
Author: alhayat Posted March 15, 2013
The Kuwaiti National Assembly approved a new law to establish the National Fund for the Welfare of Small and Medium-Sized Enterprises and Development. The fund’s purpose is to provide financial assistance to small and medium-sized projects proposed or started by Kuwaiti citizens, especially the youth, in order to bolster private-sector activity. The fund’s capital was set at two billion Kuwaiti dinars [$7.04 billion], with the law stipulating that eligibility be limited to projects whose cost does not exceed 500,000 Kuwaiti dinars [$1.76 million], not including land value. The law also allows small-project entrepreneurs to receive land from the state under usufruct contracts.
More than a decade ago, the government established a similar institution to finance small projects, concurrently depositing monies at the Industrial Bank of Kuwait and other institutions in order to finance these projects under favorable terms. However, the funds disbursed by or through these institutions did not exceed 70 million Kuwaiti dinars [$245 million].
It must be stressed here that most companies or business establishments in Kuwait that are not part of the public or petroleum sectors are in reality small establishments. These comprise — according to official statistics — 85% of the total number of private institutions in Kuwait, each of them employing 10 people or fewer. The majority are owned by non-Kuwaiti residents, with Kuwaiti citizens acting as guarantors whose role is limited to receiving an annual or monthly salary.
Since the onset of the petroleum era, Kuwait has witnessed an influx of Arab and Indian expatriates who, for the most part, worked to satisfy the demands and needs of the local market by establishing businesses in various sectors. In light of the prevalent legal requirements, these expatriates have been obliged to take on nominal Kuwaiti partners in order to receive the necessary permits from the relevant authorities. These businesses rely on the efforts of expatriates, be they owners or mere employees, to satisfy consumer needs for goods and services and significantly contribute, as part of the non-public and non-petroleum-related sectors, to the country’s gross domestic product. A very small number of these institutions are wholly owned or operated by Kuwaitis. The issue, then, is not that the country lacks small businesses or projects, but that they are run and owned, in the most part, by non-citizens.
If we assess projects launched during the past two decades which received favorable state financing through the institutions and funds that were established for that purpose, we will find that many such enterprises were formed, but did not employ a significant number of Kuwaitis. Ventures such as restaurants, cafes, beauty parlors and medical clinics received state financing, only to be later proven not to have economic merit and to lack any significant chance of success. Moreover, these establishments were not suitable for the employment of Kuwaiti citizens, due to the nature of their business. Not many Kuwaitis are willing to work in restaurants, be it as kitchen staff or waiters. It is also very rare to find Kuwaitis willing to work in the beauty or hairdressing fields. Clinics, on the other hand, might succeed in finding Kuwaiti doctors of both sexes, but it would be hard to provide them with citizen assistants, nurses or clerks.
Economically speaking, one could say that establishing similar institutions in comparable fields leads to fierce competition requiring business owners to take on sizeable financial commitments, despite limited revenues. The copycat phenomenon might be the reason that drove those citizens to establish their chosen small businesses. However, the parties providing the financing should have conducted diligent feasibility studies before approving the disbursement of financial aid.
It is certain that many of these businesses will face difficulties in coming up with the funds needed to service their debt over the following years. Regardless of the fact that living standards are high in Kuwait, consumer spending has its limits, especially considering that two thirds of the country’s residents are expatriates, the majority of whom don’t spend much of their limited incomes locally.
Supporting small businesses remains a legitimate and acceptable endeavor, but it must be accompanied by a clear vision of the role that these projects play in the larger economic context. The fund’s future board of directors is expected to adopt appropriate measures to provide citizens with financing and support. The first criterion should be the establishment of economically feasible projects that fulfill the requirements for success. Therefore, adopted projects must be ones that lead to new and vital activities. The second criterion must be these projects’ ability to employ citizens, especially those possessing higher-education degrees. They must also be the types of businesses that are capital intensive and not labor intensive, in order to comply with Kuwait’s work environment.
In parallel to these projects, the state must develop the education system in the coming years, so that it may train a skilled citizen workforce capable of working in any project that receives funding.
Lastly, Kuwait’s economic dilemma — reflected in the widespread reliance on the state and its public spending, as well as the state’s attempts to find new employment opportunities for its citizens beyond the scope of government administrations and public-sector institutions — all drive us to search for alternatives for such a fund. But will that be enough to deal with the difficult structural situation?
Disbursing money to address structural problems is not enough. What is needed is for Kuwait to start developing modern economic policies and strategies that rely on rational and realistic constructs and philosophies capable of freeing the country from its welfare-based economy.
Read More: http://www.al-monitor.com/pulse/business/2013/03/kuwait-small-business-support.html