Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Kuwait's economic makeover under threat as small businesses fight for life

Economic Indicators Aug 12, 2021 01:31AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Kuwaiti entrepreneur Abdulaziz al-Mubarak, head of the Kuwaiti Union of Small and Medium Enterprises, speaks at his children's clothing store in Avenues mall in Al-Rai, Kuwait, July 26, 2021. REUTERS/Stephanie McGehee

By Ahmed Hagagy

KUWAIT (Reuters) - Thousands of small and medium Kuwaiti businesses could go to the wall after being walloped by the pandemic, potentially torpedoing a private sector central to the country's efforts to remake its unorthodox and oil-pumped economy.

The government, which spends more than half of its annual budget on the salaries of Kuwaitis who mostly work in state jobs, has encouraged citizens to set up their own businesses over the past decade in an effort to engineer a private sector.

The aim has been to ease state finances, reduce reliance on the imported labour of expatriates who make up most of the population, and also help Kuwait diversify away from oil, which brings in 90% of state revenues but is looking increasingly precarious as the world moves away from fossil fuels.

Yet much of that decade of work to foster small and medium-sized enterprises (SMEs), which involved about $500 million of state financing, has been undone by the COVID-19 outbreak, according to many industry experts.

Most of the 25,000 to 30,000 SMEs in Kuwait were operating with limited cash reserves even before the pandemic struck and were unable to weather a halt in operations due to lockdowns, investment management firm Markaz said.

In an indication of the scale of the problem, Abdulaziz al-Mubarak, head of the Kuwait Federation for Small and Medium Enterprises, said that about 8,600 entrepreneurs were currently switching from working in the private sector to the government.

He warned that the cash crunch could "end the whole sector".

That's a major problem for Kuwait, where SMEs generate 11.9% of GDP by gross value added, employ tens of thousands of people and play an important role in sectors like wholesale and retail trade, food and drinks, hospitality and construction.

    Take Mohammed al-Blushi. His factory making trucks and smart homes from light steel suffered heavy losses due to COVID-19 restrictions. He has been forced to shrink his staff to just three employees from about 60.

    He came up with half of the 800,000-dinar ($2.7 million) financing to start his business four years ago, with the rest coming from a loan from a state fund.

The 36-year-old now fears he could default on the loan, and is holding out for further support from the government such as compensation for its pandemic losses or exemptions from certain debts.

"I will not give up," he said. "The crisis will subside, God willing."

DOUBLE SHOCK

Expatriates, mostly from Arabic and Asian nations, make up about 70% of the 4.6 million-strong population of Kuwait, a small country on the Persian Gulf sandwiched by bigger regional players Saudi Arabia and Iraq.

    Kuwait, like other oil exporters, was slammed by the double shock of low crude prices and the COVID-19 pandemic, leading to the economy shrinking by 8% last year.

On March 30 this year, parliament passed a law on financing for SMEs, but for some business owners it will prove too late.

    The law gives those affected by the pandemic access to funding of up to 250,000 dinars, of which the government guarantees 80%. Many SME owners say banks impose onerous financing conditions under the scheme, like proving the operational efficiency of projects. The repayment period is five years with a possible additional two years of grace.

A senior government source, who declined to be named, said some SMEs were reluctant to make use of the law because it offered loans rather than compensation, the state didn't fully guarantee the financing and the limit on the repayment time.

However the official said the legislation could be amended to provide more support business owners, if necessary. "All solutions are available to the government to support owners of SMEs," he added, without elaborating.

An amendment to Kuwait's bankruptcy law, which began to be implemented last month and freed SME owners from the threat of imprisonment from debt defaults, has offered some relief.

Yet entrepreneurs are still exposed to risks such as seizure of assets or insolvency if they can't settle their debts, said Fawaz Khaled Alkhateeb, an academic at the Kuwait International Law School.

Kuwait's economic makeover under threat as small businesses fight for life
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email