Sunday, September 27, 2015

Back To Business

Ahmad al Mutawa's 'awakening' moment, as he likes to call it, was when he was living the life in Dubai - drawing a big salary and staying in a big apartment.
The University of Southern California graduate had, towards the end of nearly two years' employment at an oil services major, an epiphany of sorts: that he needed to pursue his passion as his career.

Within two weeks of having his 'moment', he quit his job, went back to his home country Kuwait and started his own initiative.

He returned in 2007, a year after Iraqi dictator Saddam Hussein's downfall when much of the uncertainty that had plagued Kuwait as an investment hub was slowly beginning to lift.

More and more Kuwaitis have since begun to take the big leap to entrepreneurship in the oil-rich state, where jobs for life for nationals in the public sector have long been an established mechanism to distribute state largesse. Of the 410,000-plus Kuwaitis in employment, nearly 75 per cent work for the government. In comparison, only 21.8 per cent work in the private sector, according to Kuwait's Public Authority for Civil Information. There has been an upward trend in the number of Kuwaitis employed in the private sector in the last couple of years, however - only 18 per cent were employed in the sector in 2012.

Kuwait has long emptied its state coffers to pay high public wages and that situation is unlikely to change even in the current environment of low oil prices that is likely to make the country incur a deficit of $27 billion for the first time in 15 years, for the 2015-2016 financial year.

In fact, Kuwait is considering a bill to standardise wages to provide the nearly 45 per cent of state employees currently earning below the proposed pay scale an increase of 18 per cent in a massive spending exercise that will cost the country KD350 million ($1.16 billion) in the first year of its implementation.

However, despite high public sector salaries, Kuwaitis are making the transition into private business. Like anywhere else in the world, it is mainly "for independence and having a sense of purpose," says Kuwaiti-based venture capital (VC) investor Mijbel al Qattan.

Mohammad al Meer, who is founder of Google Developer Group Kuwait, says that part of the reason for Kuwaitis seeking to be their own employers is a tendency by state entities to delegate work to private sector contractors.

"Usually in the government, it is the third-party contractors who are implementing the actual solutions," he explains.

"Some engineers think that it might be better starting their own projects or businesses instead of working for either government or a bank, and only be in charge of looking or watching the third-party company doing the actual work."

With Kuwaitis no longer content to sit in government jobs and watch others do their work, many in the country are organising events to spread awareness and hone skills to start their own businesses.

Al Qattan, for instance, co-founded Startup Kuwait, an active initiative he says is aimed at enabling tech-fuelled entrepreneurship to flourish in the country.

Al Mutawa's consulting firm Mubaader Services also helps Kuwaiti small and medium sized businesses (SMEs) develop business plans and succeed. The firm, he says, has supported a portfolio of 850 clients and projects over the past six to seven years in Kuwait and helped more than 80 businesses to establish themselves in the Gulf Co-operation Council (GCC).

When it comes to supporting entrepreneurs most of the initiatives in Kuwait have largely been private sector-led and funded. However, this is set to change this October when the government is expected to launch the delayed $2 billion National Fund for Welfare of Small and Medium-sized Enterprises, which had been approved by the parliament in 2013. The intention is to provide entrepreneurs with 80 per cent financing for their projects, with the remainder 20 per cent guaranteed as a loan by Gulf Bank, Kuwait's second-largest lender.

Al Mutawa, who consults on the fund project, says when it does come into force it will be good news for Kuwait's entrepreneurial community.

"What they're formulating right now is the new businesses fund. For example, if you have a new idea, you want to establish a business and you want a loan or something.

"They will launch it within the next three to six months. They're hiring people now. It's a very positive step. It is one of the biggest funds in the world [for SMEs]."

Another important feature of the fund grants is "project leave", Al Mutawa explains. This allows a government employee who may be unsure of taking the risky step of leaving his comfortable job to start his own venture the option of returning to his old employer should his new business not prove successful.

While the government's latest incentive takes time to be refined, the private sector in Kuwait, like most sectors of the country's economy, also enjoys a degree of government subsidy.

The government guarantees bachelors with university degrees a minimum of KD690 to work in the private sector, over and above the salary paid by the employer. The amount rises incrementally for those who are married, and those with children. In contrast, Bahrain provides between BD50 to BD100 for their nationals employed in the private sector.

However, the big question on everyone's minds is whether Kuwait can afford such a scheme at a time when its finances are squeezed.

Al Mutawa says it is only natural for Kuwaitis to rediscover their natural entrepreneurial instincts as that is how the nation has always done business.

"I had people coming to me and telling me - you have oil, $10,000 salaries [per month], so why would you want anything like this in Kuwait where there are high salaries and people enjoy luxurious lives?" he said.

"I responded by saying that Kuwait, from the beginning, since the nineteenth and into the 20th centuries, in our blood we have this entrepreneurial spirit.

"Kuwait has always had open trade, they speak languages, they go to India, they go to the west. This is part of our culture, from the very beginning."

Optimistic as that may sound, access to finance remains difficult for SMEs in Kuwait. An article on the Kuwaiti entrepreneurial scene in Forbes noted how the country needed to develop a "more entrepreneurial culture" that encompasses its expatriate population as well.

Premlal Pullisserry, an expatriate entrepreneur who began warehousing SME BoxIt in Kuwait was able to develop his business idea thanks to the help provided by Kuwait-based business accelerator Sirdab Lab.

Pullisserry, who recently succeeded in attracting more funding to expand BoxIt across the region, says that other expatriate entrepreneurs have not been so successful.

"Being an expat has lots of pressure, because we are here on a very short term visa and it could be that if I [as an investor] give you certain amount of money, the person could disappear in no time," he says.

"If you are a Kuwaiti person, it is much easier for you to get some angel funding because you can invest a sure amount every year."

Another challenge for entrepreneurs in Kuwait is the difficulty in attracting foreign investment into a country, which is infamous for being one of the world's worst places to do business. It ranks 150 on the World Bank's Doing Business 2015 index.

"We tried to raise funding from Kuwait, but it is proving extremely difficult for us to get that moving," says Pullisserry.

"Even one of the Kuwaiti VCs who recently approached us said that, even if you have to receive our funding, you have to move your legal entity out of Kuwait, which means that even the Kuwaiti VC firm will not be in a position to fund us with our legal entity being in Kuwait.

"So that really opened our eyes, in terms of where to place our legal entity as a startup and we had to look at options outside Kuwait. The natural option was Dubai."

The UAE is the go-to option for many Kuwaiti SMEs that want to grow. A report by research firm Marmore noted that in Kuwait an entrepreneur has to deal with 11 government interfaces to do business, while that figure ranges from four to seven in other GCC countries.

Raghu Mandagolathur, who heads research at Kuwait-based asset manager Markaz, says that despite much development on the small businesses front, there is a lot more work that needs to be done to develop the sector in Kuwait.

"Though there is official support for SMEs in Kuwait, the concept of successful startup SMEs is still new to the Kuwaiti business culture," he says.

"Thus, rather than completely fresh startups, investors and banks may like to fund franchises, wherein there is a proven brand backing the investment, and there is operational support and training available for the applicant.

"The archaic bankruptcy laws can also unnerve new entrepreneurs."

For a country that is now realising the perils of a lack of diversification from oil, the low crude price era could ironically prove to be a boon - as well as a bane - for SMEs development, adds Mandagolathur.

"On the one hand, the government is likely to bolster attempts to grow the SMEs ecosystem in order to strengthen non-oil growth," he says.

"On the other hand, falling oil receipts may tighten funding available for SMEs, both in terms of private and public sector channels."

Should the Kuwaiti government succeed with its new initiatives to help the entrepreneurial community, it would be a win-win for its economy as well as its long term future stability.

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