‘Reform’ urged to unlock SMEs economic power

KUWAIT CITY, April 20: Abdulaziz Al-Humaidhi, Chairman of the Board of Directors of the Kuwait Economic Society, affirmed that despite the increasing importance of small and medium-sized enterprises (SMEs) as drivers of economic growth and diversification amid current economic challenges, their actual contribution remains below expectations despite their large number.

Speaking to the daily, Al-Humaidhi stated that recent financing facilities represent a positive step but require a comprehensive reform framework to have a real economic impact. He explained that 99 percent of Kuwaiti companies fall under the category of SMEs, yet their contribution to GDP does not exceed 3 percent. This sector represents 22 percent of GDP in Saudi Arabia and 53 percent in the UAE.

The global average for the SME sector is 45 percent, indicating a significant development gap that requires urgent strategic intervention. Achieving the true impact of this sector requires three essential conditions - comprehensive legislative reform, accessible financing based on sound feasibility studies, and the creation of sustainable domestic demand. Once these conditions are met, the positive impact could begin to emerge within 5 to 7 years. Al-Humaidhi commended the Central Bank of Kuwait for launching a survey on financing SMEs, recognizing its role in enhancing the business environment for this vital sector. The decision to reduce the discount rate to 4 percent in September 2024 contributed to creating a more favorable monetary environment for borrowing and investment. However, from the perspective of the Kuwait Economic Society, these steps are still insufficient, as local banks require companies to have been established for three fiscal years before obtaining non-cash credit facilities. This presents a credit barrier that limits the benefits for entrepreneurs. Al-Humaidhi stressed that the absence of a comprehensive government economic stimulus program reduces the actual impact of these decisions, making a structured implementation framework necessary.

Based on a study by the National Fund for Small and Medium Enterprises, Al-Humaidhi reiterated that approximately 99 percent of companies in Kuwait fall under the category of SMEs, yet their contribution to GDP does not exceed 3 percent, reflecting a clear structural imbalance. He emphasized that the potential of the SMEs sector is substantial, especially given the entry of approximately 25,000 graduates annually into the labor market, most of whom head to the already overcrowded public sector. Al-Humaidhi affirmed that SMEs represent the most capable alternative for absorbing these graduates, but the current reality does not reflect this. Al-Humaidhi stated that the private sector contributes less than 13 percent to the national GDP, and the percentage of Kuwaitis working in it does not exceed 6 percent.

Main challenges facing the SME sector:

■ 70 percent of loan applications are rejected.

■ Loans do not exceed 4.7 percent of total credit.

■ 65 percent of projects face difficulty in obtaining land plots.

■ 45 percent suffer from weak demand.

■ Weak management and inadequate feasibility studies.

■ The economy’s 85 percent dependence on oil.

■ The migration of projects to other Gulf countries.

Proposals to strengthen the sector:

■ Establish a national recovery fund to support entrepreneurs

■ Expand the role of the National Fund to include licensing and land allocation and ease bank requirements

■ Allocate small government contracts to projects

■ Adopt artificial intelligence tools to enhance project efficiency

By Marwa Al-Bahrawi Al-Seyassah/Arab Times Staff