There is an increasing recognition of the importance of SMEs in supporting overall economic growth. According to a recent survey of nearly 50,000 firms in 104 countries, SMEs provide as much as two-thirds of all employment, with small firms contributing more to employment in low-income countries than high-income countries. Our cross-country research also suggests that small and young SMEs are the net job creators in many countries. At the same time, research shows that growth and productivity among SMEs varies widely from country to country.
In Kuwait, having a healthy, vibrant, barrier-free SME ecosystem is critical to economic development. In fact, the private sector is anticipated to provide employment opportunities for a rapidly growing Kuwaiti labor force and to lead economic activities in various sectors to reduce the country's heavy reliance on oil resources.
This aligns closely with Kuwait's vision 2035, which envisages a revival of the entrepreneurial spirit of its people. This revival will allow the private sector to take a leading role in the economy, creating ample jobs for nationals, with the government playing only a supporting role. Through vision 2035, Kuwait expects to create a business climate that encourages local investment, competition, diversification, and growth.
Within the World Bank Group, our team has analyzed Kuwait's economic activities, with an aim to assessing SME's contribution to GDP, value-added employment, and productivity. The analysis reveals that the value added by SMEs in Kuwait trails far behind peer economies.
In Kuwait, despite 94% of Kuwaiti firms being categorized as SMEs, the share of SMEs in total value added is only 3.1% This share is concentrated in the real estate and retail sub-sectors. SMEs employ 23% of the total workforce in Kuwait. However, SMEs' contribution to the economy is marginal at 3% of GDP.
What are the main challenges faced by SMEs? As a result of in-depth discussions with entrepreneurs and stakeholders from different segments of small businesses (nearly 70 entrepreneurs), the National Fund and World Bank Group have identified a number of challenges.
Among these are excessive regulations, which hinder business activities from start up through growth to exiting; a lack of access to developed land and commercial and industrial premises; challenges recruiting and retaining skilled Kuwaitis in the private sector due to generous remuneration and benefits offered in the public sector; a small domestic market dominated by government and large corporations; a lack of access to finance for SMEs; and a limited capacity of programs meant to support.
SMEs owners have said that a majority of workers prefer government jobs because of the lower risk and the perceived low social status of entrepreneurs. The World Bank Group has been closely following the Government of Kuwait's efforts to address some of these constraints by supporting the diversification of the local economy and promoting the growth of an SME ecosystem. These efforts have led to the establishment of the National Fund for SME Development, which aims to help the country make great strides in its efforts to support youth, combat unemployment, and enable the private sector to drive economic growth. The Bank Group is privileged to work with the National Fund in supporting its vision.
Our current engagement with the Fund focuses on supporting its institutional establishment through a two-year technical assistance project, which supports implementation of the National Fund Strategy and takes a holistic approach to the development of an SME Ecosystem. In particular, we are supporting the National Fund in the following thematic areas: SME business environment, SME business development, entrepreneurship culture development, data collection, monitoring and evaluation, and the organizational set up and IT architecture.
Going forward, more work will be needed to advance the specialization and internationalization of SMEs. This will entail improving the efficiency of SMEs in order to link them with local, regional and international value chains. The National Fund will take on this specialized role, while continuing to serve the wider community of SMEs in Kuwait, and improving the business environment to facilitate entry, retention, and exit of enterprises. I would encourage entrepreneurs to take full advantage of the opportunities offered by the National Fund to help achieve their dream ideas. I also encourage the National Fund to provide more venues for interaction where public and private sector representatives can address common challenges, discuss opportunities for SME growth, and ensure that the voices of entrepreneurs are well-heard. When governments and the private sector work together, they can have a major impact on diversifying economies and promoting inclusive growth.