Kuwait needs to nur­ture star­tups, en­cour­age en­trepreneur­s

Govt needs to build on ecosys­tem of ‘smart spe­cial­iza­tion’

Arab Times - - BUSINESS -

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.

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