Kuwait’s Economic Makeover Under Threat

Thousands of small and medium Kuwaiti enterprises could close as a result of the outbreak, jeopardising a private sector vital to the country’s efforts to restructure its unconventional and oil-driven economy.

In an effort to construct a private sector, the government, which spends more than half of its annual budget on salaries of Kuwaitis who largely work in government employment, has pushed individuals to start their own enterprises over the last decade.

The goal has been to improve state finances, minimise dependency on expatriate labour, and assist Kuwait in diversifying away from oil, which accounts for 90% of state revenue but is becoming increasingly problematic as the world moves away from fossil fuels.

According to many industry analysts, the Covid-19 outbreak has undone much of that decade’s work to encourage small and medium-sized firms (SMEs), which required roughly $500 million in state funding.

Most of Kuwait’s 25,000 to 30,000 SMEs had inadequate cash reserves even before the epidemic, and were unable to withstand a halt in operations owing to lockdowns, according to investment management firm Markaz.

According to Abdulaziz al-Mubarak, head of the Kuwait Federation for Small and Medium Enterprises, roughly 8,600 entrepreneurs are currently transferring from working in the private sector to working for the government.

He added that the cash crunch could end the whole sector”.

In Kuwait, SMEs account for 11.9 percent of GDP in terms of gross value added, employ tens of thousands of people, and play a significant role in industries like wholesale and retail commerce, food and beverage, hotel and construction.

Take, for example, Mohammed al-Blushi. Due to Covid-19 limits, his enterprise, which makes light steel trucks and smart homes, experienced significant losses. He was compelled to reduce his crew from around 60 to only three people.

He raised half of the 800,000 dinar ($2.7 million) needed to launch his company four years ago, with the balance coming from a state fund loan.

The 36-year-old now risks defaulting on the loan and is pleading with the government for more help, such as reimbursement for the government’s pandemic losses or debt forgiveness.

“I will not give up,” The crisis will subside, God willing.” He said.

Expatriates, largely from Arabic and Asian countries, make up around 70% of Kuwait’s 4.6 million-strong population, which is situated between larger regional heavyweights Saudi Arabia and Iraq.

Kuwait, like other oil exporters, was hit by a double whammy of low petroleum prices and the Covid-19 outbreak last year, causing the GDP to contract by 8%.

Parliament passed a law on SMEs funding on March 30 of this year, but for some business owners, it will be too late.

According to many industry analysts, the Covid-19 outbreak has undone much of that decade’s work to encourage small and medium-sized firms (SMEs), which required roughly $500 million in state funding.

The law grants those impacted by the pandemic up to 250,000 dinars in funding, with the government guaranteeing 80% of the amount. Many SME owners claim that under the plan, banks impose onerous financing criteria, such as establishing project operational performance. The payback duration is five years, with an optional two-year grace period.

Some SMEs were hesitant to use the law since it offered loans rather than compensation, the state didn’t fully guarantee the finance, and the repayment term was limited, according to a senior government source who declined to be identified.

However, if necessary, the legislation might be revised to provide further assistance to business owners, according to the source. “The government has all solutions available to support SMEs,” he added, without going into detail.

A modification to Kuwait’s bankruptcy law, which went into effect last month and removed the possibility of incarceration for SME owners who defaulted on their debts, has provided some comfort.Even yet, according to Fawaz Khaled Alkhateeb, an academic at Kuwait International Law School, entrepreneurs face dangers such as asset seizure or insolvency if they can’t pay their loans.

Source: The Daily Star

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