Kuwait: A compelling story of entrepreneurship growth despite weak support
The SME/startup sector in Kuwait is on the verge of becoming a serious contender not just locally but also globally.
With scarce financing, and a country still largely dependent on oil revenues to move its economic agenda forward, Kuwaiti entrepreneurs have had to rely on smarts, initiative, and global best practices to survive.
But they just decided to instead thrive.
Hear me roar
CNN recently reported on Carriage, the online ordering and delivery platform which has transformed the food delivery game in Kuwait, spread to neighboring countries and provided inspiration to a new generation of Kuwaiti tech entrepreneurs.
“Carriage was snapped up by German online food ordering giant, Delivery Hero, for a reported $100 million in May 2017, a sizable sum for a company that was just 18 months,” said CNN.
Similar in concept to British online delivery company Deliveroo, which operates in urban areas in Europe and Asia, Carriage’s main challenge was finding a way to cater for the sprawling suburbs prevalent in Kuwait and other Gulf cities without compromising on the quality of food delivered.
Like many oil-rich nations in the Persian Gulf region, Kuwait has its sights set on creating more innovative private sector firms as part of Kuwait national development plan, a Unified Direction for a Prosperous, Sustainable Future to transform the country’s economy.
“As of 2017, close to 80% of Kuwaiti nationals were employed in a public sector largely funded by oil revenues,” according to a report by the Tri International Consulting Group.
“A range of government-backed programs, such as the National Fund for SME Development, has been created to help support new startups. Accelerators, incubators and co-working spaces, meanwhile, have been formed with the aim of inspiring the country’s youth and turning Kuwait into a nation of tech-savvy innovators,” said CNN.
Samar Baqer Al Abdullah, an assistant professor of marketing at Kuwait University and former adviser to the CEO of the National Fund, told CNN last year that startups in Kuwait were “the biggest trend right now”.
Other prominent Kuwait tech startups include food ordering firm Talabat, which sold to German e-commerce group Rocket Internet for $170 million in 2017, and the laundry app JustClean.
Challenges facing Kuwaiti start-ups
Numerous challenges also remain for startup founders in a country not renowned for its streamlined regulatory frameworks.
The World Bank currently ranks Kuwait 149th in the world for the ease of starting a business, comparing unfavorably to neighboring nations such as Oman (31st), the UAE (51st) and even war-torn Syria (133rd).
A 2017 report from MAGNiTT, which tracks entrepreneurship in the Middle East, found that Kuwait accounted for just 4% of investment deals in the region in 2017. That compared to 37% in the UAE and 7% in Saudi Arabia.
Kuwaiti media also reported in February that the National Fund for SME Development had its mission redefined after youth groups and entrepreneurs voiced their displeasure with how it was being run.
Oil risks and non-oil efforts
Brent oil prices are in the $73 range, but Kuwait faces credit risks because national policies are behind the curve when it comes to supporting non-hydrocarbon growth, Moody’s Investors Service found.
United Press International (UPI), a leading provider of news, photos, and information, reports Fitch Ratings finding Kuwait’s credit strengths were supported by a low-price policy peg for Brent crude oil at $56 per barrel, about $20 per barrel less than current levels.
“That report, however, found that strength is balanced by an economy that depends heavily on oil, is exposed to geopolitical risks and has a weak business environment behind it,” UPI said.
“The country has been slower than its regional peers in developing its non-oil and private sectors,” Moody’s report read.
Kuwait is the fifth-largest producer in OPEC, pumping about 2.7 million barrels per day.
Moody’s estimated public and private investments should support non-hydrocarbon growth rate of about 4 percent through 2021.
“Kuwait’s credit profile would be supported by a steady diversification of government revenues and economic activity away from the oil sector,” Thaddeus Best, a Moody’s analyst who co-authored the report, said in a statement.
Kuwaiti banking support
A recent research by Marmore Mena Intelligence Ltd, a fully owned research subsidiary of Kuwait Financial Centre (Markaz) and credit rating agency Moody’s said private sector lending growth in Kuwait is gradually expected to rise over the next few years and reach 4% in 2020 from 2.8% on average in 2017, supported by Kuwait’s Vision 2035.
“Development of non-oil industries and improving infrastructure network will be a significant driver of loan demand,” The report said.
Overall loan growth in Kuwait is estimated to have grown at 2.8% in 2017, as compared to 1.2% for the GCC.
“Corporate loans make up nearly 50%of total loans and approximately 30% of total assets while revenues account for nearly a 25% of total revenue for the year 2017,” said the report.