Helping the Little Guys

SMEs and the future of the economy

With aims to create a thriving 21st-century economy, the Kuwaiti state is investing in SMEs to spur growth well into the coming decades.

In healthy high-income and emerging economies, SMEs are one of the many engines of private sector growth and normally contribute 40 to 50% of the GDP. Yet according to the World Bank data, SMEs in Kuwait, which tend to concentrate on retail and non-financial services, were contributing just 3% of the GDP in 2016.

The discrepancy is due to a variety of reasons, including the fact much of Kuwait’s economic activity is based on petroleum production and about 80% of Kuwaiti nationals work in the public sector, two trends that have long stifled innovation. State officials are now seeking to diversify the economy in line with 21st-century development trends by offering financial incentives to bolster competition and create an environment where tech-savvy SMEs can thrive. The push has produced notable success stories as the Kuwaiti government looks to the future with aims to foster an innovative nation less dependent on hydrocarbon production.

Currently, Kuwaiti SMEs employ 23% of the country’s workforce, about half the average SME employment figures in both high-income and emerging economies, according to the World Bank. To stimulate growth in the sector, the state established a National Fund for SME Development in 2013, in which KWD2 billion (USD6.5 billion) was allocated to help create jobs for Kuwaiti entrepreneurs, boost private sector cooperation networks, and diversify income streams for the nation’s 4 million citizens.

Financing is a key resource in fostering any viable SME ecosystem, but Kuwaiti officials are focused on creating a sustainable economic engine through private partnerships that link international partners with local suppliers and customers. The fund is being coordinated with support from the World Bank and will work to streamline business licensing and bureaucracy that has long inhibited private business development in Kuwait. Apart from overseeing growth incentives and creating a business-friendly environment, the fund will also provide financing for up to 80% of capital for feasible projects.
Kuwait currently ranks 149th in the world for the ease of starting a business, well behind neighboring nations such as Oman (31st) and the UAE (51st), and one of the fund’s main goals has been to eliminate unnecessary hurdles faced by entrepreneurs. In effort to help prospective companies better navigate operational licensing and regulation protocols, the fund launched a call center in 2016 as well as Nuwait, an online information hub where private business owners can share advice while reading encouraging success stories from Kuwait’s blossoming start-up scene.

Among the most notable new companies founded in Kuwait is Carriage, an online platform now offering food delivery service across MENA nations, which has provided inspiration to young Kuwaiti tech entrepreneurs. In May 2017, Carriage was bought for a reported USD100 million by the German online food ordering company, Delivery Hero. The service has been compared to the British online delivery giant, Deliveroo, but differs as it specializes in deliveries within sprawling suburban landscapes, commonly found in Gulf nations. Carriage employs about 400 non-driver employees and has gradually expanded delivery services to include flowers, health supplements, and groceries.

The success comes on the heels of the USD170-million acquisition of another online Kuwait-based food ordering platform, Talabat, by the German e-commerce company, Rocket Internet. Together, the two acquisitions have put the spotlight on Kuwaiti business innovation, with some saying the country is set to become the Silicon Valley of the GCC.
The SME fund has helped spawn multiple success stories by supporting and promoting accelerators, incubators, and co-working spaces needed to create a start-up community. SMEs continue to prosper as the Kuwait-based Faith Capital venture fund invested USD8 million in Just Clean, a Kuwaiti laundry start-up founded by two brothers in 2016. The on-demand mobile application connects customers with free pick-up and delivery cleaning services and has expanded to Bahrain as well as the UAE since Faith Capital acquired it in 2017.

Kuwaiti SMEs and start-ups are only expected to multiply in the coming years as the government has shown long-term dedication to developing the sector. In January 2019, a USD200-million fund for technology investments was launched by the Kuwait Investment Authority, which should ensure the economy continues to diversify through e-commerce and mobile-based enterprises.