Kuwait needs to nurture startups, encourage entrepreneurs
Govt needs to build on ecosystem of ‘smart specialization’
Berkeley Research Group (BRG) was commissioned by the Kuwait Foundation for the Advancement of Sciences (KFAS) and KAMCO Investment Company to investigate the business and strategic considerations facing Kuwaiti entrepreneurs as they decide where to found, grow and/or relocate their companies. The objective of the study was to identify the key barriers facing Kuwaiti entrepreneurs, analyze gaps in Kuwait’s entrepreneurial ecosystem on an objective basis as well as in comparison to the locations that these entrepreneurs are considering or have already relocated to, and finally to make recommendations as to how the government’s efforts to support entrepreneurship as a means to diversifying the economy can be better aligned with the needs and aspirations of Kuwaiti entrepreneurs. The study utilizes the Cluster of Innovation (COI) Framework for understanding entrepreneurial ecosystems.
The data for this study was collected from a representative sample of 35 Kuwaiti entrepreneurs. These entrepreneurs were categorized into five “archetypes,” which represents a framework for understanding how Kuwaiti entrepreneurs understand their target markets, the type of business environment in which they operate and/or need to operate in, and their growth strategy. These archetypes are:
1. “Home-Bound for Now” – born in Kuwait, focused on Kuwait
2. “Looking Around” – born in Kuwait, considering relocation
3. “Springboard” – born in Kuwait, split operations to grow
4. “Moving Out” – born in Kuwait, relocated headquarters
5. “Born Abroad” – founded outside of Kuwait
As part of the study, entrepreneurs that were interviewed were asked to rank the 12 Cluster of Innovation components and behaviors for each ecosystem in which they operate. The Kuwaiti ecosystem received the lowest average score of 4.5/10, followed by Dubai at 7.5/10 and the United States at 8.7/10. An examination of the average scores by archetype reveals that Kuwaiti entrepreneurs operating in Dubai rated Dubai higher and Kuwait lower than those operating solely in Kuwait.
The Kuwait-based entrepreneurs that we interviewed are more focused on local and regional markets while internationally-based Kuwaiti startups are more oriented towards regional and global markets.
The market opportunities and lifestyle in Kuwait, along with the “workforce support” supplement are key factors for companies located in Kuwait while access to regional markets, lifestyle and the role of government in setting favorable regulations are key factors for Kuwaiti entrepreneurs operating in Dubai.
Data on SME business activity in Kuwait
Kuwait has 60,000 registered companies of which approximately 25,000 can be considered SMEs. The National Fund Law defines SMEs as a small company with startup capital of less than 25,000 KD and 1 to 4 Kuwaiti national employees, and a medium company as a company with 25,000 – 500,000 KD in capital that employs between 5 to 50 Kuwaiti nationals. This definition excludes 90% of small enterprises in the countries that do not employ Kuwaitis, and also defines firms with thousands of employees as small because they employ only one Kuwaiti. The lack of a uniform definition makes it difficult to accurately estimate the true size of the contribution of SMEs to Kuwait’s economy, and precludes comparing Kuwait’s SME sector with regional and international benchmarks.
According to the latest data provided by the National SME Fund, 245 total projects have been funded since the National SME Fund began financing projects in March 2016. The National SME Fund categorizes its projects according to the following four categories: Commercial (44% of funded projects), General Services (32%), Industrial (17%) and Agricultural (8%). The below graphic illustrates this breakdown:
In 2015, the IMF indicated that SMEs account for about 50% of licenses granted to new businesses in Kuwait but receive only about 2.3% of total corporate loans. Most recent data, according to the Kuwait Institute for Banking Studies (KIBS), confirms that SMEs are “underbanked versus the rest of the world.” SME credit comprises only 7 percent of total bank financing in Kuwait compared to World Bank estimates of 13 percent in developed and 26 percent in developing countries. KIBS estimates the SME contribution to Kuwait’s GDP at under 10 percent versus a world average of 40%. While SMEs in Kuwait have access to financing through the National Fund and IBK, SMEs in Kuwait are significantly underrepresented in total loan activity compared to global benchmarks.
BRG’s review of publicly available information on entrepreneurs and startups in Kuwait to understand the challenges, opportunities, current trends and areas of focus highlighted the following traits:
Access to Capital: For Kuwaiti nationals, there are several options and routes to raise capital for new entrepreneurial ventures including private money (Kuwait has one of the highest savings rate in the world), a number of sources of government debt-financing and a nascent venture capital industry. However, there are some structural barriers that include banks’ concern about the management skills of SMEs and perceived high risk of default create difficulties in raising fund for expansion and development, overseas incorporation of SMEs and some typical concerns of having debt in the business.
Service Providers: There is a lack of proficient advisors and consultants in Kuwait.
Mentors, Incubators and Accelerators: Several co-working spaces have launched in Kuwait in recent years that provide coaching and mentoring services as well as foster a dynamic environment for new and potential entrepreneurs. While these are often incorrectly referred to as accelerators or incubators, they provide more impact and services than simple co-working environments yet do not necessarily provide the needed mechanisms for high-impact entrepreneurs to activate the ecosystem and multiply their impact. Stakeholder interviews also highlighted that entrepreneurs in Kuwait don’t need funding but need know-how, someone to help them shape and scale the business, and target the right clients, and that lack of proper mentoring and training is leading to many people to making “silly mistakes.”
Market: Kuwait is a wealthy country with a consumer society. Kuwait’s ample purchasing power represents a strong competitive advantage. This allows entrepreneurs ample opportunities for testing new services, validating a business idea and then growing it outside of Kuwait. Kuwait has had several of the most well-known success stories in the GCC to date.
High-caliber talent: Kuwaiti nationals are known for their entrepreneurial spirit, high levels of education and creative talent. Many of these youth are currently entering the job market. Conversely, the role of the government, a strong safety net and the high levels of public sector employment are seen as strong obstacles to developing an entrepreneurial culture. Another clear challenge to creating an environment in which startups can flourish is attracting talent into Kuwait. Kuwait suffers from a lack of technical talent, although the situation is improving as Kuwait nationals are beginning to train as software developers and coders.
Access to Technology and Research: Unlike in other top universities of the world, Kuwait lacks a platform in universities for startups that facilitates learning and research by students and researchers to develop real-world applications and start tech companies. There are several initiatives underway to change this, including Startup Kuwait, under Kuwait University, that helps young professionals and students as they pursue their entrepreneurial projects and serve as a feeder to the National SME Fund.
Strategic collaborations with Major Corporations: Kuwait lacks the phenomenon of high quality startups as spin-offs from larger companies.
Mobility of resources: Currently, laws and regulations are perceived as unfriendly with a great deal of bureaucracy around labor, employment law and regulations that make it difficult to hire and fire people.
Government Regulation: Government bureaucracy, in particular the length of time, opacity and number of procedures for business licensing and permits, is perceived as a major barrier to growth for startups.
Globally-oriented, entrepreneurial culture: Kuwait has a long and storied history of a bustling merchant culture and it is said that entrepreneurship is in Kuwait’s blood. Stakeholders said that the perks and stability of the government sector, along with societal pressure, have resulted in a limited number of people that are qualified and have the risk appetite to join an entrepreneurial venture, and that entrepreneurship is viewed as a hobby rather than a real job and is done for status or image rather than to create a sustainable business.
Kuwait’s Cluster of Innovation components and entities: Kuwait’s entrepreneurial ecosystem is dominated by co-working spaces and government entities.
Key Findings and Recommendations:
According to the study, there is a uniquely vibrant community of entrepreneurs in Kuwait that is impacting both the local economy and the economies of the broader GCC. There remain, however, key barriers and obstacles that, if not mitigated, have the potential to curb the longterm economic benefit to the Kuwaiti economy.
1. Kuwait-centric businesses that leverage local purchasing power are not sustainable in a post-oil era and will not diversify Kuwait’s economy unless they expand globally or attract tourist spending to Kuwait.
2. Kuwaiti startups targeting external markets plan to “go global” from birth and many find Dubai a more suitable base of operations than Kuwait. Rather than compete with Dubai to be the GCC hub for international business, Kuwait has an opportunity to leverage its homegrown talent and find a unique niche as a hotspot of locally-based but globallyoriented entrepreneurship.
3. Kuwait has the opportunity to create high-impact, global startups, but in order to retain them in Kuwait certain weak elements of the local entrepreneurial ecosystem need to be nurtured or improved.
4. Government programs and initiatives to encourage entrepreneurship and develop the ecosystem should better align with the needs of startups and adapt “lessons learned” from other Global Clusters of Innovation to fit a cohesive “smart specialization” strategy that encourages Kuwaiti entrepreneurs to “go global” while remaining rooted in Kuwait.