Kuwait laws fail to provide SME entrepreneurs with financial motivation: Economist

By Majd Othman

KUWAIT: According to Kuwait's Chamber of Commerce and Industry and Ministry of Commerce and Industry, there was a decline in the number of micro, small and medium enterprises after the pandemic. Before the pandemic, the number of registered businesses reached around 25,000 licenses under the third chapter of Kuwaiti labor law, and a total of 45,000 companies in Kuwait under the third and fifth chapter of Kuwaiti labor law. Kuwait Times spoke with Mohammad Bader Al-Jouan, a Member of the Board of Directors of the Kuwait Economic Society about the obstacles facing small and medium entrepreneurs.

Regarding the challenges that face entrepreneurs, Jouan said that there is a lack in Kuwait's law and legislation related to small and medium businesses that motivate entrepreneurs economically, while there were no solutions for the obstacle they face. "Small enterprises are an essential building block in any sustainable economy, while the international economy relies on business sponsorship and development," he said. "For example, in the United States, entrepreneurship contributes to 50 percent of the gross domestic product, while this sector in South Korea employs more than 80 percent of its population, unlike Kuwait's business culture that depends on financial support only."

Jouan pointed out that small and medium businesses around the world have the opportunity to develop and grow, and to become international companies that provide job opportunities for their citizens. Meanwhile, enterprises in Kuwait struggle to grow due to local legislations, while the government in Kuwait fights every year to provide 98,000 vacancies in its public sector.

Obstacles to growth

Regarding the main legislations that hinder the growth of small enterprises in Kuwait, Jouan stressed the confusion in decisions that Kuwait is experiencing. "The Financial Security Law that was approved by the government in 2021 during the pandemic to protect the small and medium enterprises has not entered into force," he said. "Meanwhile, the government has supported businesses that are in the shadow of the National Fund for Small and Medium Enterprises Development, although most outstanding businesses that deserve financial support are not related to the fund."

"More than 1,900 entrepreneurs' requests have been submitted to benefit from the Financial Security Law, and less than one percent have succeeded to take advantage of it," he noted. "This is due to the unmotivating regulations such as having banks bear the cost of borrowing for businesses, while the government only covers 80 percent of the borrowing amount, which is not suitable for banks and entrepreneurs alike."

As for the reasons for the importance of supporting small businesses despite their weak contribution to the gross of the national product, Jouan said that "some of segments of society believe that due to the lack of added value of enterprisers in contributing in the gross of the national product and not being a part of the recruitment process of the national labors, these kind of enterprises should not be supported. Therefore, they have deliberately been ignored, especially the consumer and luxury sectors."

He continued, "these reasons are not accurate at all levels. The current rentier economy has affected the business culture in Kuwait. There is a three percent of national GDP that enterprisers contribute directly with, and this ratio shows the enterprises' importance when we compare it with the four percent that communications and telecom companies contribute to the GDP. Not to mention, medium and small business has left a mark on GCC and Arab countries which contribute indirectly to Kuwait's GDP."

"Kuwait has laws that benefit the small and medium business entrepreneurs; however, they must be activated to create a healthy business environment, even if the government did not provide any financial support for them," Jouan said. "The entrepreneurs need to grow their business."

In Kuwait, several successful enterprises have lost their businesses due to the weak laws that protect their intellectual property. Regarding that, Jouan stressed that every new business should have its lawyer to protect its rights. Al-Jouan told Kuwait Times that the Kuwait Economic Society has proposed a draft law to the Capital Markets Authority (CMA) to provide unconventional support to small and medium enterprises through crowdfunding platforms, adding that it is expected to be approved soon.