Thursday, Nov 23, 2017
Industry & Trade | Middle East | Kuwait

Start-up Kuwait

Building an ecosystem for SMEs to thrive


2 weeks ago

Mr. Al-Jouan, Executive Chairman, Mr. Al Wazzan, Vice Chairman, and board members Mr. Boushahri, Mr. Jaffar and Mr. Al Mutairi, of The National Fund for SMEs Development
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Mr. Al-Jouan, Executive Chairman, Mr. Al Wazzan, Vice Chairman, and board members Mr. Boushahri, Mr. Jaffar and Mr. Al Mutairi, of The National Fund for SMEs Development, discuss what is I being done to build a thriving SME sector in Kuwait           

One of the targets of the New Kuwait Vision 2035 is to increase the GDP share of the private sector that now represents only the 30% of the Kuwaiti GDP. What are the most urgent reforms, in your opinion, to diversify the Kuwaiti economy and put the private sector as leader of the process?

Mr. Boushahri: We need to start handing some of the public companies to the private sector. As soon as investors realized that we were serious, as a country, to sell equity from our state-owned companies, the market will act naturally and will come towards business opportunities. And the same for SMEs: if the environment allows business to grow without any important hindrances, SMEs will grow naturally to fill market needs. We have started to experience that with the banks: they are creating departments to be able to digest the pipeline of available funding for SMEs. Incubators as well: we have seen some of the first ones appearing in Kuwait. We are working with them to establish the required criteria they must fulfil to be qualified and certified by the National Fund. We are sending good signals to the market in terms of what we are doing to encourage the growth of the private sector. Kuwait is a story of potential and has been for a while, and I think that we are starting to see a new generation with the focus on the private sector and a pragmatic mindset.

 

What are, in your view, the best ways to boost SMEs in Kuwait, especially those within the knowledge-based economy?

Mr. Al-Jouan: there is a general waking up to entrepreneurship among the young generation and also for doing something for Kuwait. The best example is of some of the people that left better things to devote some years of their lives to serve their country in the National Fund for SMEs Development. In every economy, to make it flourish, the active participation of the private sector is required. It is not the role of the government to dominate the market. As the Board of Directors, we believe the Fund should act as an enabler and provider rather than a creator or operator. Specially with the dynamic situation with SMEs and entrepreneurship. As part of the government, it is important that we move at the same pace that the sector is moving.

Our mandate is not new in Kuwait. The country has been supporting entrepreneurs and SMEs since the 90s. In 1997, the Government allocated funds to participate in the SMEs equity. However, this lacked something: the guidance and umbrella that will enhance and look at what is really required.

SMEs and entrepreneurs do not need just access to finance: they need correct policy-making, appropriate logistics support, land, export programs, etc. This is why, in 2012, our National Parliament enacted the legislation that created the current Fund with a clear mandate: create jobs, diversify the economy as much as possible through SMEs, as well as to enhance the SMEs ecosystem. The Government generously allocated KD 2 billion, which is one of the largest sums allocated to any fund in the world. We have several kilometres squared of land allocated, from different zoning: agricultural, industrial and commercial. In 2015 the Fund started operations focused on four main elements: financing, land distribution, training and incubation. However, we believe that something was missing: access to markets and we added this goal.

The Fund is encouraged to have an intensive relationship with other government entities. In our role as provider, we provide access to finance, debt and equity. For debt, we work with the local banks and we provide the money through the system.

SMEs basically grow through to two possible ways: from their possible income or by linking themselves with larger corporations. Regarding this second option, we are working in collaboration with KDIPA: they are in charge of brining multinationals to Kuwait, as they did with Huawei, IBM or GE, and we have to link them to Kuwaiti SMEs. We aim to complete the value chain by linking the knowledge and technology of international giants with the know-how and local knowledge from Kuwaiti SMEs.

We have the required capital, human capital and infrastructures to make it possible. If we close the knowledge gap we will see a more concrete knowledge-based economy ecosystem taking form.

Mr. Al Wazzan: The environment to translate a passion into a financially viable product or a service needs to be facilitated, with infrastructure, the required laws and funding. The required human capital, knowledge and skills is already in place. We just need to nurture them.

To sum up, the goals of the National Fund are:

  1. Financial and business support to entrepreneurs (start-ups) with packages of financial and technical services to entrepreneurs (start-ups) to help turn their ideas into profitable projects. Hubs provide both incubation and acceleration services to start-ups from targeted sectors, which include coaching, mentorship, training, financing, and workspace following specific programs. An Account Officer is assigned to follow up on the implementation of each start-up’s program during preparation, incubation, and acceleration phases.
     
  2. SME financing (for existing SMEs) through low-interest loans to existing SMEs, structured and co-financed with commercial banks. The National Fund provides 80% of financing at a fee of 2%, and commercial banks provide 20% of financing following the market rate. Eligible SMEs may self-finance 20% of the project size, and only receive up to 80% of the project size from the National Fund. The program finances of up to KD 500,000 per company. Commercial banks are responsible for disbursement and collection of loans, and receive service fees from the National Fund in return.
     
  3. Professional management and technical training to improve technical and management skills of SME owners and employees. The National Fund sub-contracts professional training centres to provide the training programs including business management, finance and accounting, sales and marketing, human resource management, information technology, strategic management, and entrepreneurship skills.
     
  4. Business development services as The National Fund offers advisory services to support development of existing SMEs through the hubs. Account Officers assist SMEs in diagnosing business development needs, developing terms of reference for required services, and facilitating provision of services through National Funds’ qualified consultants. The National Fund partially subsidizes the costs of advisory services, which includes a wide range of management and professional topics to support business development of SMEs.
     
  5. Allocation of lands and office space for SMEs, starting with office space for start-ups. At a later stage, the National Fund will allocate lands to projects, through utilizing its own land, or through partnerships with government or private entities.
     
  6. Facilitation of market linkages by reinforcing them between SMEs and anchor industries in Kuwait (oil and gas, telecom, aviation, and others). The National Fund also seeks to build linkages with export-oriented industries and foreign direct investments. On another front, the National Fund is working closely with the Central Tendering Committee to ensure integration of its SME portfolio into the government procurement process.
     
  7. Improving business environment for SMEs, for instance with the recent establishment of the one-stop shop (OSS) for business registration of SME clients. We are also working in tandem with other government entities to create business-friendly policy and regulatory frameworks to address government procedures that hinder the growth of small businesses. To aid in the reform process, the National Fund created a “business environment improvement” committee with relevant public entities to provide a venue for public-private dialogue.
     
  8. The development of entrepreneurial culture
     
  9. The promotion of certified Business Incubators

The Law from the National Fund enabled the Fund with the entire value chain for start-ups and entrepreneurial value-chain of Kuwait. From supporting them in services they might require at the beginning stages of their business life to ensure that 10% of the total government purchases are reserved for Kuwaiti SMEs, including the tenders the government will issue.

We believe that as leaders we should not start from zero in our strategy at the National Fund, but instead we looked at the strategy in place and improved it. The big shift we took is that: even if we were following the same strategy and goals than before, we will become an enabler rather than a regulator and a provider, which was the strategy of the past Board.

Another example of our openness is the fact that we do not have walls in our offices and even our Chairman shares the same space than the rest of the members of the staff, with a very reachable attitude.

Mr. Jaffar: we have been working with the General Secretariat of the Supreme Council of Planning and Development (GSSCPD) to have recognition from government regulations of the knowledge-based economy as an economic activity. Secondly, we are working with the GSSCPD to attract knowledge-based economy initiatives and provide them with the proper tools they need to develop the knowledge market.

We intend to be active also with other stakeholders that are getting other parts of the value chain of the knowledge based economy through specialized programs that will be created to support this kind of activities.

The history of entrepreneurship in Kuwait is interesting: it started before the oil era, deeply rooted within the foundations of Kuwait. We have a culture of trading, of international exchanges, which continues with our new generations going to study abroad and coming back and bringing knowledge and ideas form outside. There is one industry that Kuwaitis have penetrated with extraordinary success: food and beverages (F&B). The culture has changed: twenty years ago, being a chef was something without prestige. Meanwhile, nowadays it has become a very trendy and well-paid job in Kuwait. Now restaurants are probably the main reason for tourists to come to Kuwait from the GCC. Even the expats that live in Kuwait are happier with the wide variety of good-quality dining options.

Mr. Al Jouan: The National Fund has already created the standard by laws that an incubator company should have. Now we have ongoing awareness campaign to highlight the importance of incubators, establishing the required links to make them tangible between banks and investment companies for instance. Anybody can open an incubator that can be accredited from the National Fund. We offer our support and we offer them a successful model we believe in. By regulating incubators, we are opening a window of investment opportunity for international investors to tap into this opportunity and our local talent pool.

 

The National Fund created a “business-environment improvement” committee with relevant public entities to provide a venue for public-private dialogue. What are the main hindrances identified to improving the business environment and how is the committee addressing them?

Mr. Al Jouan: Most of the corporations aim at profitability without being aware of the importance and value of SMEs. We are explaining on behalf of SMEs to big corporations by specifying the advantages of working closely. But also, we are informing entrepreneurs about the advantages of linking their SMEs to big corporations. One of the major moves that happened in the past are in the banking industry: the majority of banks are creating an SMEs department which has never happened before.

Mr. Al Mutairi: Indeed, we are in collaboration with other government entities, for example, the Sabah Al-Ahmad Center for Giftedness and Creativity, with which we have signed an agreement to enforce the protection of the intellectual property generated by SMEs. Another example is our collaboration with the National Technology Center, to encourage the commercialization of the items developed by the SMEs. We believe that when we raise awareness of the value, business will arrive. Finally, I would like to highlight our agreement with the Kuwait Institute for Scientific Research (KISR) through a structure where we take their patents and we put them in the market place through SMEs. KSIR support them technically and the National Fund, we support them financially and put the right business model for them. We are in a very advanced stage with them. KSIR acts as a R&D division for several SMEs, especially in the areas of alternative energy, agriculture and water, which are critical to this region. They are the first using the reverse osmosis in the world in a commercial scale, desalinating water to be then bottled and distributed.

At the end of the day, our goal is not only to keep these businesses in Kuwait but to export our knowledge and our services to first the rest of the GCC and then to the world.

Our focus is to help our SMEs and develop a proper transfer of technology within different sectors, acting as the “gel” between all the different stakeholders.

 

Aldihany, founder of Brilliant Lab, identifies two key gaps in the Kuwaiti entrepreneurship ecosystem: a need for greater corporate support and angel investments. How should the public and the private sector address these gaps?

Mr. Jaffar: today, entrepreneurs can go to angel investors and propose them businesses. In the old days there was nobody to go to; they had to invest in themselves. However, investors now are competing to put the money in potentially successful projects, which is a great thing. However, it is true that if we compare Kuwait with Dubai we are still far behind. But if we compare it with our own situation five years ago, the variety of angel investors now in our country is quite important.

 

In your mission to improve the business environment for SMEs, the National Fund supported the establishment of a one-stop shop (OSS) for business registration of SME clients. What has been the feedback on this?

Mr. Al Jouan: Now you can get a license to open a business in less than three days. This is why, beyond government reforms on easing business, another problem in Kuwait is that the lifestyle is not as attractive to expatriates as it is in Dubai. In order to be a regional player, Kuwait needs to attract those talented workers. We believe we have talent but as an open society we need to combine it with the foreign one to become a regional player.

The government has dedicated an entire building for SMEs that has 12 government ministries and agencies to get everything you need for registration, including the National Fund. Ministries like Trade, Interior, Manpower, Health, etc. – you can finish all the paperwork within a day. We are advising in the preparation of new legislation to be passed by the National Assembly. We are also establishing an internal strategy of what should be the role of the National Fund with the venture capital funds.

 

How is the Fund supporting Kuwaiti SMEs in their internationalization efforts to further diversify your national economy?

Mr. Jaffar: In my opinion, one of the advantages of Kuwait when compared with the other GCC countries is that their local successes regarding SMEs are coming from expats based there. Our success stories, that by the way are the most profitable, are entirely coming from Kuwaiti entrepreneurs. However, we do not want to stop attracting foreign talent to come and settle in Kuwait. This foreign talent attraction is something where Kuwait needs to catch up. Our neighbours are doing a better job than us where Europeans and Americans living and setting up their start-ups in Dubai. Easing the regulations is almost done, the challenge now is to offer an appealing lifestyle. The new generation is passionate about having their own business.

Mr. Al Mutairi: As Kuwaitis, we are open to different nationalities. We only represent one third of the total population of the country right now. However, we have successfully avoided xenophobia or the fear of having foreigners stealing our jobs. We are fine and relaxed with the situation. Our legal system protects foreigners and Kuwaitis equally. In some of our neighbours, you have the labour camps separated away from the urban areas. However, in Kuwait they are fully integrated, living all over the place and our crime rates remain low. This a strength we have when we design our future strategies as a country.

 

As experienced professionals regarding innovative Kuwaiti SMEs, could you highlight two successful examples of them for our readers?

Mr. Jaffair: We have some successful entrepreneurs that after successfully selling their SMEs for millions of dollars founded their own venture capital firm.

It is true that, in order to attract more capital to Kuwait, we need success stories, as this is what stays in investors’ minds, and what communicates better. Today we have them: Talabat is the best example, together with Carriage and a San Francisco-based company called One Global. The millionaire acquisitions of these start-ups created by Kuwaitis established a well-gained reputation of our entrepreneurs around the GCC.

Now, something is happening very soon in the dot-com sector that is going to literally change the perception of Kuwaiti entrepreneurs worldwide. It will not stop here as every six months we calculate that million-dollar acquisitions of Kuwaiti start-ups will be happening. All of these shows that things in the SMEs environment are moving in the right direction.

We do not have to see our neighbours as a zero-sum game. I think we can take advantage of their success too. There is value enough to go around. The key for Kuwait is to identify first which strategic sectors we would like to activate and secondly, in which current active sectors we have advantages and thus we can further nurture. For instance, we have thriving creative and F&B industries: how can we facilitate the next steps for these sectors? Which other areas do we want to associate with Kuwaiti competitive advantages and how can we facilitate the growth of those sectors?

Mr. Al-Jouan: This success story has not only engaged the F&B sector, it has spread to all different areas as architecture, interior design, organic agriculture, food processing, raising the quality of imports and awareness of ingredients, social media management, etc. – all of this thanks to the food industry. One of the main reasons behind the booming of this sector has been the fact that most of the young generation has not had the luxury that their parents had of having a cook in the house: they were eating outside more and thus contributed to boost the sector. That young generation is now entering into the adult life and having children and the taste is evolving. This is why, the evolution of the F&B business in Kuwait will be the development of upscale dining options.

 

What are the three main challenges that Kuwait faces as a country, in your opinion, to achieve the goals inside Vision 2035?

Mr. Boushahri: New Kuwait Vision is purely matter of execution. You have to believe the roles of the people participating in the strategy: if you put the private sector leading, you will have bigger levels of accountability, efficiency, quality and delivery. The Government is addressing it with the creation of the PPP project to have the mega-projects developed with the two sectors together. The Higher Council of Privatization is another key player in this process. The public sector should admit that its main role must be regulator and supervision and that to make things more forward it needs to allow the private sector to lead the economy again. We need to redevelop the entire public institutions in Kuwait in terms of human talent and revamping them by adjusting the number of required staff. The National Fund can be a good example to follow.

 

As members of the board of the National Fund for SMEs, what are your biggest ambitions regarding the New Kuwait Vision 2035?

 

Mr. Al Jouan: We are determined to have an increased participation of SMEs in the development of Vision 2035. We are fully engaged with the Supreme Council to contribute in the diversification beyond oil required to achieve the New Kuwait, where our main natural resource will be human capital.

Mr. Boushahri: We agree that the biggest growth in any country of the world comes from SMEs, so we would like to turn our SMEs’ growth into GDP contribution, which is a long-term project. From the current contribution of 8.6% of GDP, to something close to what develop markets carry now.


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