While small and medium-sized enterprises (SMEs) have historically made a relatively small contribution to Kuwait’s GDP, policymakers are eyeing ways to stimulate their expansion to foster a more dynamic private sector under the Kuwait National Development Plan (KNDP) 2020-25. By doing so, they hope to generate diverse new engines of growth and job creation, and reduce the economic reliance on public sector entities.

Addressing Imbalances

In contrast with other emerging and developed economies, where SMEs are responsible for the bulk of job creation and economic activity, local investment banking firm Kuwait Financial Centre estimates that Kuwaiti SMEs contribute 3% to GDP. Defined as entities that employ fewer than 50 workers, SMEs in Kuwait have an asset base of less than KD500,000 ($1.6m) and annual revenue under KD1.5m ($4.9m). The country has approximately 25,000-30,000 SMEs, representing nearly 90% of Kuwait’s businesses, and they are primarily concentrated in the retail and hospitality sector, which accounts for 40% of businesses, followed by construction and industry (30%).

These figures reveal room for improvement to help bolster not only the number of small businesses with operations in the country, but their contribution to the economy. According to a World Trade Organisation (WTO) report from June 2022, SMEs accounted for 70% of businesses in emerging economies and over 90% in developed countries, contributing on average up to 40% and 50% of GDP, respectively. In terms of the labour market, Kuwaiti SMEs employ around 23% of the country’s 2.1m workforce. In comparison, the WTO report found that on average, SMEs were responsible for 50% of employment worldwide and up to 70% in emerging economies, where the figure can be larger due to the informal economy.

While the private sector on the whole is a much larger employer than the public sector in Kuwait, a disproportionate number of citizens work for public sector entities, as they tend to offer more generous compensation packages. The large remuneration packages and long-term financial stability offered by the public sector can hinder the development of a vibrant non-oil private sector and make SME ventures less attractive for Kuwaiti nationals. As a result, SMEs are often headed by entrepreneurs who have a small business as a secondary venture from a full-time public sector role. According to the Public Authority for Civil Information, as of January 2022 the public sector employed 470,000 workers, 77% of which were nationals and the remaining 23% expatriates. Meanwhile, of the 1.6m workers in the private sector, less than 4% were Kuwaiti nationals and 96% expatriates.

The mid-2014 drop in oil prices and resulting expansion of the fiscal deficit put some pressure on government finances. This drew attention to the significant public sector payroll costs, which in turn created momentum to encourage Kuwaiti nationals to participate in the private sector or pursue entrepreneurships. This initiative requires a support structure that delivers access to managerial training, cost-effective finance and technological solutions to scale their businesses.

Support Structure

The government recognises the potential of the SME segment to propel economic diversification and private sector development, and has deployed schemes to provide funding, advice and support to encourage their growth. Within the framework of the KNDP 2020-25 and New Kuwait 2035, efforts are underway to channel investment towards human capital development and non-oil industries.

To achieve this, the World Bank and the Kuwaiti government agreed on a Country Engagement Framework for 2021-25, which focuses on innovation, private sector entrepreneurship and high-quality job creation. As part of its in-country efforts, the World Bank implemented an integrated SME capacity development programme, which included training more than 1000 Kuwaitis and organising entrepreneurship development events attended by over 500 entrepreneurs in January 2021.

Additionally, the government established a National Fund for SME Development in April 2013. This independent entity, with capital of KD2bn ($6.6bn), aims to create jobs for Kuwaitis, boost private sector engagement and accelerate income diversification. From 2016 until the start of the Covid-19 pandemic in early 2020, the National Fund disbursed funds to 870 SMEs at a combined cost of around KD150m ($493.6m). This represents roughly 7.5% of the fund’s capital, indicating room for more proactive funding to strengthen the SME ecosystem in the pandemic recovery phase.

Pandemic Challenges

Throughout the pandemic, businesses of all sizes were affected by supply chain disruptions and widespread lockdowns. According to global consultancy firm McKinsey & Company, between February 2020 and April 2021, 70-80% of SMEs across 32 OECD countries surveyed lost between 30% and 50% of their revenue. Kuwaiti SMEs were affected by a five-month-long suspension of business activity, loss of revenue, reduced availability of personnel and strained liquidity. A report by the Higher Steering Committee for Economic Stimulation – a task force launched on April 2020 by the Central Bank of Kuwait (CBK) to implement stimulus measures for the local economy – found that in the first six months of pandemic-related restrictions over a quarter of Kuwaiti SMEs faced nearly an 80% drop in revenue. Similarly, a report by the Global Entrepreneurship Monitor for the 2020/21 period showed that only 5% of surveyed Kuwaitis said their SME ventures were successful in 2020, while 50% knew someone who had closed their business due to the pandemic. However, the same report noted that 60% of surveyed Kuwaitis answered that they would start a new business in the next three years, indicating the potential for growth in entrepreneurship in the years to come.

To accelerate the post-pandemic recovery for SMEs, the Kuwaiti government enacted a stimulus package in March 2020 that provided soft loans to fund SMEs’ cash flow priorities. As part of the package, the National Fund for SME Development and commercial banks were requested to provide loans to SMEs on a concessional basis. The package also relieved eligible companies from social security contributions for a period of six months and allowed SMEs to apply for a loan of up to KD250,000 ($822,700) at a 2.5% interest rate, with the government guaranteeing 80% of the loan.

However, some conditions, including proof of operational efficiency of projects and the requirement that loans were granted only to existing clients of banks, were deemed burdensome for certain firms. Additionally, some SMEs were reluctant to accept loans rather than compensation from the government for lost revenue. A report from the CBK revealed that as of June 2020 local banks approved 199 loan requests worth a total of roughly KD110m ($362m).

The Kuwaiti SME ecosystem could benefit from a coordinated development strategy to synchronise support programmes. Informed policy interventions and clear regulations would guide entrepreneurs, help reduce costly business procedures, and establish training and education programmes to nurture entrepreneurship. Policies related to SMEs are currently spread across several ministries and agencies, resulting in fragmentation of services, but efforts are being made to create a more enabling environment. For instance, in October 2020 Kuwait became the most recent GCC country to amend bankruptcy legislation, freeing SME owners from the threat of imprisonment for debt defaults, a move that is expected to bolster the confidence in entrepreneurships.


The Kuwait Economic Society (KES) presented a public policy initiative in 2021 to create a grantbased programme, the Ina’ash SME Fund, that would offer relief to businesses impacted by the pandemic and strengthen the SME ecosystem. The proposal includes the development of a Special Purpose Vehicle with capital of KD125m ($411.3m) for a maximum period of two years that can be disbursed as grants to SMEs, helping them cover operational expenses.

Other benefits include waiving several government duties and fees, and committing to trade with other recipients of the fund – all of whom agree to measure and share data that can promote deeper research on Kuwait’s SME sector. The fund’s financing would come through long-term bonds issued by the CBK and other government-owned institutions, such as the Public Institution for Social Security and Kuwait Petroleum Corporation. The Kuwait Fund for Arab Economic Development and the Arab Fund for Economic and Social Development, which provide concessional loans and grants to developing countries, are also participating. The fund has yet to be established, but the engagement of various public and private stakeholders in efforts to improve the SME ecosystem is a welcome development.

Another possible reform would allow for start-ups to establish special-purpose vehicles that would be subject to minimal government regulation and allow for foreign ownership of more than 49%. This would bolster the competitiveness of local start-ups by giving them greater agility and more funding opportunities.