Entrepreneurship Kuwait

Entrepreneurship Kuwait

The concept of entrepreneurship has evolved across the past decades, both as a concept and in practice. Generally, however, an entrepreneur is defined as an individual who develops a business activity from an idea through innovation and leadership. In modern economics and policy studies, entrepreneurship has emerged as a crucial component of economic growth and development and financial freedom. Within the growing nature of the international political economy (IPE) and globalization, entrepreneurship has emerged as an approach towards economic freedom and alignment to the global markets. This paper is an examination of entrepreneurship status in Kuwait, the Middle East, and related issues on entrepreneurship as an economic policy for the country.

The status of entrepreneurship in Kuwait has significantly changed over the past few years, arising from a “cultural shift” and enabling policies (Pupic, 2018). Historically, Kuwait’s economic prominence delves into its oil-producing capacity as one of the major producers of the commodity in the gulf region. The nature of the product, however, and the shifts in the modern world and globalization has established a change in the national policies through the launch of the Kuwait National Development Plan of 2017, popularly referred to as Kuwait’s Vision 2035. The strategic plan emphasizes on entrepreneurial growth, which has achieved great attention on a universal level recently as a sustainable tool of economic growth in the modern global economies (Abu-Aishe, 2018). This has resulted in enormous scholarly research on the subject through both theoretical and empirical approaches towards practical policy mechanisms at both micro and macroeconomic levels. The entrepreneurship status of Kuwait can be examined through a review of the economic freedom indices, evaluation of entrepreneurship types, motivations and growth rates, and the knowledge spillover theory of entrepreneurship.

Oil has been the economic backbone of Kuwait since the country began exporting the commodity in 1946, becoming one of the wealthiest countries in the region and globally. According to the CIA World Factbook, there are about 102 billion barrels of oil reserves in the country’s territory, accounting for over 6% of the global oil reserves. Oil accounts for 60% of Kuwait’s GDP representing about 90% of the country’s total exports annually. The oil and energy sector is primarily controlled by the government and thus the existence of high dependence on the single commodity across the country. The 2008 global financial crisis developed from international politics on oil pricing and the same replicated in the 2014 oil price fall. It resulted in alternative energy sources leading to lower demand for the commodity and the eventual price fall in 2014. Kuwait’s dependence on oil markets resulted in a high public deficit and, therefore, a shift in policymaking for alternative economic and financial approaches.

The Kuwait Economic Reform Agenda of 2016 has established an emphasis on entrepreneurship towards the realization of a diversified economic environment and economic freedom of the people. In the 2019 global economic freedom index by the Heritage Foundation, Kuwait ranks in the 90^th position with a financial freedom score of 60.0. The concept of economic freedom refers to the freedom of the people in a country in making economic decisions and market competition (Lawson). Economic freedom in any state develops from the nature of institutions and policymaking processes towards promotion, nurturing, and motivating entrepreneurial activities (Sobel). The two concepts are connected mainly in examining the type of economic growth and development that exists in a country. The Knowledge Spillover Theory of Entrepreneurship establishes the entrepreneurial ideas to originate from the knowledge creation sources and their conversion into opportunities (both technological and commercial) for economic growth. Abu-Aishe sets the factor knowledge creation factor to exist in the country, but policies and institutional frameworks fail to motivate and nurture the ideas to grow within the state. Entrepreneurs face difficulties in establishing their businesses due to lengthy procedures and regulations across 11 government interfaces (Abu-Aishe).

Role of the Government in Entrepreneurship

Entrepreneurship plays a crucial role in the economic growth of every country as an essential tool for establishing a globally competitive and innovative private sector. The private sector is a critical component of the economic system since the government cannot achieve maximum possible employment capacity on its own. One of the significant ways the Kuwait government can improve entrepreneurship is through entrepreneurship development. Entrepreneurship development refers to the process of developing structures and frameworks for enhancing the skills and knowledge of entrepreneurs through training and educational programs. Equally, the government ought to establish enabling and motivating frameworks to influence people to start their business, such as the small and micro enterprises, to ensure a balanced economy across the board.

Entrepreneurship develops from the environment and cultural context of an economy. Despite the western and developed countries’ framework for entrepreneurship development, individual states should focus on examining practical approaches within their context. Developed countries have a long-standing strategy and experience in promoting entrepreneurship and should act as case studies in analyzing their development plans. In our case, Kuwait has developed mainly by focusing on its sole product, oil, but the times have changed, raising the need for reexamination of a development plan. IN the current globalized economic environment, the government of Kuwait should consider the following to support entrepreneurship:

1. Attract Investors to invest in the ideas of the locals.

Entrepreneurship is a process of converting ideas into economic activities to generate income and overall economic growth. It is also a costly venture for startups and hence the need for capital, expertise, and experience in the corporate world. According to Abu-Aishe, A (2018, p13), Kuwait’s economic environment is characterized by delays in enabling startup businesses to enter into the markets hence scaring away the investors willing and capable of investing in the country. The government of Kuwait should focus on establishing policies to ease the way people spend in the country, such as access to funding and banking services to attract investors into the country.

2. Invest in the products and services needed by the people

In every economic investment, opportunities are the features that attract a person to invest in an idea. Every investor seeks to establish a company that deals with consumed products hence profitability in the market (Sappin, E, 2016). The government of Kuwait has a role in identifying such opportunities by examining prospective markets and encouraging upcoming entrepreneurs to generate ideas based on competitive products and services in the market.

3. Regional economic integration

Regional economic integration has evolved as a crucial component for countries to establish local innovation policies towards economic growth. Across the world, research-based evidence proves that regional policies based on innovation and entrepreneurship are fostering economic growth and competitiveness through a streamlined knowledge sharing (Huggins, R, Waite, D, & Munday, M, p1, 2018). offering ready markets for complementary goods and establishing terms of trade to benefit the upcoming entrepreneurs and consumers. Regional governments can create an environment of economic success through limited regulations of commerce, the flow of goods, and bringing production closer to the raw materials and the markets. In this approach, the government of Kuwait plays a crucial role in engaging diplomatic strategies to enable Kuwait entrepreneurs to enjoy the same business conditions as those in the surrounding countries towards meeting the global markets.

4. Promotion of new technologies

Technology is developing as a booming avenue to innovation and entrepreneurial growth across the world. Small and micro enterprises are developing growth and expansion strategies through the global market through channels established by new technologies such as the internet. According to Wim Naude (2018, p1), the convergence of the fourth industrial revolution with the latest technologies allows the emergence of newly industrialized countries and startup entrepreneurship. The government plays a crucial role in opening up the country of Kuwait to the rest of the world through the adoption and promotion of new technologies to establish opportunities for upcoming entrepreneurs to exploit.

5. Address environmental challenges

Sustainable entrepreneurship growth is a crucial component in establishing future economic growth, and environmental conservation develops as the starting in addressing this issue. In a 2011UNDP report on “Challenges to SME Development in Kuwait,” Koch, E established a great environment, ecological, financial, and legal, to limit the entrepreneurial motivations in the country. The government of Kuwait has a crucial role to play in establishing an encouraging financial environment through a banking system that promotes leasing and lending financial help to upcoming entrepreneurs. The government should also develop fiscal and monetary policies that address the entire macroeconomic problem, such as the government deficit, to ensure stability in the economic environment for businesses to succeed. Equally, the government should utilize government resources to establish supporting funds for groups of interest, such as young people and women, to encourage them to venture into innovative business ventures.

The government of Kuwait is in the development stages of establishing an economic policy to involve the society in its economic plan and Vision 2035. This is strategically aimed to benefit the upcoming generation of young people as the deficit and shifts in the global oil market suppress the former glory of the economic stability of the country. The young people stand to benefit from the policy interventions under implementations towards achieving maximum possible employment in the economy.

Youth in Kuwait

The young people consist of the vast majority of the people of Kuwait, accounting for over 70% of the country’s total population (UNDP, PAS, 2017). It is also critical to establish the diversified nature of the country’s demographic information with expatriates accounting for over 70% of the country’s total population. The majority age structure involves people aged between 25-54 years, with 52.39%, 15-24 years (14.96%) and ages 0-14 years (24.29%). People aged above 55 years account for only 8.35%, an indicator of the large proportion of people in the labor bracket. The young people in Kuwait enjoy relatively high standards of living attained from the top economic success from the energy sector, job opportunities and thus, prefer working in the public sector over the private sector due to short working hours, job security and more accessible path to career life (Abu-Aishe, A, p13, 2018). This factor has significantly impacted the entrepreneurship growth in the country due to what scholars have termed as the government’s accommodative nature for graduates, even when not in need of them. As the deficit cripples the public sector, concerns have emerged on the need to change the social, economic perspectives of the young people against working in the private sector. The government needs more economic ventures, and fostering an innovative private sector may be constrained by a lack of young people in the private sector.

In an examination of the young people in any country, its future is highly dependent on access to education, the education system, and preparedness to meet the economic needs. Kuwait is ranked the lowest in the gulf region pertaining to the quality of primary education and the graduate’s skillsets (Al Ahmadieh & Al Nabhan, 2019). This raises the need for educational reforms to meet the demand on a global perspective and the future demands of the economy. The government has equally responded through the National Development Plan with a lot of emphasis on human capital for economic transformation by 2035. Through the strategic plan, a new educational system is set to be implemented to ensure social and economic value, improvement of the status of the educators to attract more students into venturing in education and teaching careers, promotion of research and technology, and commitment to socio-economic reforms.

Employment develops as another critical component in examining the status of the young people in any country. According to world bank data by globaleconomy.com, the youth unemployment rate between the ages of 15 and 24, consisting of the people in the employment gap, has grown from 4.28% in 1991 to 14.37 in 2019. The highest recorded unemployment rate was in 2015 when it reached 15.3%, mainly due to the oil price crisis leading to the public deficit. Generally, however, the country ranks better than most global states, and the public sector high demand for the workforce is historically manifested in the senior living standards enjoyed in the country and demand for human resources from outside the country hence the high migration into the country.

The general unemployment statistics in Kuwait among the older generations are lower than those among the early entrants into the economic labor force group. Kuwait’s workforce consists of people aged between 15 and 65, with women denied full participation in the economic agenda of the country. Unemployment mainly develops across three types: structural, frictional, and seasonal.

1. Structural Unemployment

Structural type of unemployment is an economic concept adopting a high emphasis among scholars due to the growing technological and industrial displacements in the workforce. According to Daniels, P, et al. (2017, p3-5), the concept of structural unemployment undertakes two approaches, the macroeconomic theory of unemployment and the understanding of structural unemployment as variable and subject to change. The macroeconomic theory of unemployment considers this type of unemployment as an effect of the equilibrium shift between inflation and unemployment. This implies that unemployment has to be maintained in a particular position to control the rate of inflation in an economy. The second approach, a more practical one, considers unemployment to occur from the equilibrium and mismatch of skills supply and demand. It is, therefore, a change bound to happen in the labor market as other factors such as age, technology, industrial shifts, and demographics impact the necessity of the skills in the market.

In 2014, Kuwait recorded its highest unemployment rate since 1988 (2.9% and 1.91%, respectively) (world bank) following the oil price shock of 2014. The global shift in the reduction of oil has established a change in the industrial specializations in the country, leading to structural unemployment.

1. Frictional Unemployment

Frictional unemployment is also considered as a significant cause of the current unemployment rate as people think working in the public sector over the private sector. As established earlier, the Kuwait government announced that around 80% of young people prefer working in the public sector and leading to unemployment even when other possible job opportunities exist. Frictional unemployment refers to the type of unemployment where people are in a transitional period from one job to another, such as students entering full employment status.

• Seasonal Unemployment

Seasonal unemployment occurs in commercial industries consisting of seasonal patterns such as tourism, harvesting, and agricultural sectors for employees whose skill sets don’t meet the annual requirements. In a less diversified economy like Kuwait, seasonal changes in workforce demand lead to cyclical forms of unemployment.

Trading Economics global macroeconomic forecasts expect the unemployment rate of Kuwait to reach 2.3% by the end of 2020, with the rising budget deficit expected to hit $30.33 billion. At this rate, the National Development Plan is viewed as the only helpful tool towards economic recovery in establishing stability for future economic growth.  High dependency on employment is also considered as a vice for the country, with only 1.74% of total employed consisting of self-employed individuals (4.82% in Saudi Arabia). With the majority of the population consisting of young people, the plan is critical in establishing a value-based education system for training innovators and future entrepreneurs so that people can depend on themselves towards job creation. A self-sustainable entrepreneurship approach would prepare young people to venture into the transformation of their own ideas to economic benefits and exploitation of the global market. This approach would further diversify the economy through alternative exports outside the country and an increase in the gross domestic product.

Regional Entrepreneurship Status

The Gulf Cooperation Council is a regional council consisting of six founder countries:

• United Arab Emirates
• Saudi Arabia
• Qatar
• Kuwait
• Bahrain
• Oman

The Gulf region is mostly known for its dominant global oil reserves, and the GCC emerged to establish a united political and economic agenda for the countries. Despite unifying geopolitical factors, however, the economic perspectives of the six countries differ, leading to different economic policies and ideologies. Over the past few years, the global fluctuations in the oil industry have established significant implications for the economies of the Gulf states and in different measures as well. In 2015, for instance, Saudi Arabia made more oil exports than the rest of the countries combined and therefore didn’t feel the impact of the oil price falls. While countries such as Kuwait have remained dependent on oil, other parts of the region, such as Dubai and Qatar, have integrated innovation, entrepreneurship, and multinational investments into their economic agenda.

Entrepreneurship Status in Dubai

Dubai is commonly referred to as a getaway to the gulf region and has established itself as a global tourist destination for many tourists across the world. According to the comprehensive economic freedom index, United Arab Emirates is ranked in 9^th position with an index of 76% financial freedom. This factor implies that the country is the ninth freest country in the world economically and second in the Gulf region after Dubai. According to the Entrepreneur magazine, Dubai is a hotbed for opportunities due to an enabling economic environment attracting entrepreneurs and investors from the entire area and the world at large (Petch, N, 2017). As other countries in the Gulf region specialize in oil production, the technology industry in the United Arab Emirates alone attracted investment deals worth over US$ 1.1 billion in 2016 with small and micro enterprises accounting for over 95% of the total businesses in the country. This factor also accounts for 42% of the entire workforce in the region, according to 2017 stats by the Financial Times (Petch, N, 2017). The level of investor and entrepreneurs’ attraction in the city develops from the strategic policies that establish an environment for business success in the country.

The success of entrepreneurship in Dubai hasn’t evolved from scratch but relentless efforts by the government and the entire economic system towards economic prosperity. In 2014, the policymakers and the government set forth a pace for entrepreneurship development through the launch of Dubai Entrepreneurship Academy aimed at steering small and medium businesses into the corporate levels (Bitar, Z, 2014). The government has also established a university entrepreneurship program to align the university studies with market needs (gulfnews.com, 2019). These strategic strides are gearing towards the promotion of innovation for competitiveness in the global market and sustainable economic growth through balances between the public and private sectors.

Entrepreneurship in Qatar

Qatar is primarily known for its vast deposits of natural gas and hit the headlines in 2018 when it decided to leave the globally acclaimed Oil and Petroleum Exporting Countries (OPEC) to focus on alternative economic development approaches. One of such was entrepreneurship as the country was topped the 2018 entrepreneurship index by the Global Entrepreneurship Monitor (GEM) (thepeninsulaqatar.com, 2019). Similar to the United Arab Emirates and Dubai city, Qatar has established Doha as a global destination for multinational companies through diversification of its economy. The country has rolled equal strategies for economic growth through the establishment of the Center for Entrepreneurship in Qatar University and reinvestment in the ideas of the younger people by Qatar Development Bank. The country has equally invested innovative research and development through a partnership with the International Development Research Centre based in Canada, where studies on means to improve entrepreneurial performance are made. The analysis is employed in the educational system and serves a critical role in developing a value-based educational system.

Entrepreneurship Status in Saudi Arabia

Saudi Arabia is another giant economy of the Gulf, serving as the largest country of the six in geographical size and population. The country is the largest oil producer in the world and has established its economy around the lucrative commodity. Saudi Arabia is ranked at 91^st global economic freedom, next to Kuwait, with an index of 60.7%. Although oil is the main export commodity in Saudi Arabia, the country established structural policies titled Saudi Arabia Vision 2030, which has steered entrepreneurship to a visionary level for the future. According to the Entrepreneur magazine, the country has injected $19.1 billion in supporting indirect financing for SMEs and a further $1.1 billion in the Public Investment Fund. The country targets to nurture the growth of SMEs, with an estimated 76.3% of the total adult population pursuing some form of business opportunities in the economy. Through the approach, the Saudi government expects its GDP share of 20 to 30% to emerging from the SMEs by 2030 (Ashri, O, 2019). The Saudi government has also opened its gates for multinational companies to invest in the innovative ideas of its citizens to meet the technology and globalization advancement.

Kuwait Deficit and Its Future Impacts

The oil prices decline of 2014 set the Kuwait government into a fiscal deficit, running for its sixth year in 2020. This has led to the falling employment rates as the world bank estimations forecast an increase in the unemployment rate at 2.3% this year. Early this year, the government unveiled its budget proposals for the financial year 2020/2021, with the deficits expected to rise by $30.3 billion and a 6% decrease in the annual revenue. The economic meltdown serves as a warning to the policymakers on the need to establish robust frameworks for economic resurgence. This implied the need for economic diversification to set the countries activities within the global standards and cast out the economic brand of the “slowest reformer” among the Gulf Arab countries (MacDonald, F, 2020).

Kuwait’s economic future amid the current fiscal deficit is highly dependent on the economic policies rolled by the authorities to combat the threats. One of the major concerns is the growing rate of unemployment summed up by less private investments. The government has already proposed an innovative approach to the problem but has failed to implement the National Development Plan of 2016. Therefore, the future of the Kuwait deficit crisis depends on the success and implications of the policies by the government and how fast they will act to meet the global standards of modern economic growth and development. According to the International Monetary Fund, however, growth has resumed with the rise in hydrocarbon output and an increasing rate of fiscal balance (IMF, 2019). The change, however, needs strengthening policies to ensure the stability of the markets and economic development. The government is rolling out strategic approaches to the problem through the Future Generations Fund, and the policies can establish a stable and sustainable financial track for the country. All these features are, however, theoretical, and only the practical parts of the strategy will matter.

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