Kuwait’s rank in terms of ease of doing business has dropped by 7 points in 2015

Expanding the private sector and amending banking and labour laws are crucial reforms for business in Kuwait
 
April 23, 2015 - PRLog -- Marmore MENA Intelligence, a research subsidiary of Kuwait Financial Centre “Markaz”, recently released its report on Starting a Business in Kuwait, part of the broader Doing Business series. In this report, Marmore examines and analyzes various parameters involved in starting a business in Kuwait, and compares it to GCC peers and global leaders. The report also discusses challenges and proposes Best Practices that could ease the process of starting a business in the country.

The report stated that the Ease of Doing Business rankings, published every year by the World Bank, measures how easy or difficult it is for a citizen of a country to start and run a small- or medium-sized enterprise, while following the relevant local regulations. Kuwait, which has a per capita income of USD 47,639, falls in the High Income category among the 189 economies that were considered for the 2015 rankings.


Table 1: Kuwait Ease of Doing Business and Starting a Business, 2014-15 Rankings

Year:
2014 and 2015
Ease of Doing Business Rank: 79 and 86
Overall DTF:63.05 and 63.11
Rank: 146 and 150
Distance to Frontier (DTF):70.91 and 71.3
Procedures (number): 12 and 12
Time (days): 32 and 31
Cost (% of income per capita):1.1 and 1.9
Paid-in min.capital (% of income per capita): 77.9 and 74
         Source: World Bank doingbusiness.org

The above table indicates that Kuwait’s rank has dropped by 7 points. Ranking of economies is determined by arranging the list of economies in accordance with their distance to frontier (DTF) scores, which benchmarks economies with respect to regulatory practice, and shows the absolute distance to the best performance in each Doing Business indicator. Distance to frontier score is measured on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. Kuwait’s DTF score has improved marginally during the last five years.

Among the GCC peers, Kuwait is the lowest ranked in both Doing Business and Starting a Business. The country has the highest number of procedures (12), compared to Oman (5) and UAE (6), and the longest time duration to complete the procedures (31), compared to Oman (7) and UAE (8). In terms of costs required, Kuwait (1.9%) fares reasonably well compared to UAE (6.3%) and Qatar (5.2%), and is worse off in the paid-in-minimum-capital parameter compared to UAE and Saudi Arabia, which require no minimum paid-in capital requirement. Comparing the ease of starting a business DTF, we see that Kuwait is the farthest among the GCC peers from the requisite benchmark. Using the rank simulator tool provided by the World Bank, it can be seen that Kuwait’s Ease of Starting a Business ranking drops to 84 (compared to 150), if the number of procedures is halved and if the time taken to complete all the procedures is similar to that of Oman’s. It further drops to 51 (placed higher than UAE), if the minimum paid-in-capital requirement from a regulatory perspective becomes 0%.

Table 2: Comparison with GCC peers

Economy:
UAE,Qatar,Saudi Arabia,Oman,Bahrain,Kuwait

2015 DB Rank:22,50,49,66,53,86

Starting a business 2015 rank:58,103,109,123,131,150

DTF:76.81,69.96,69.99,66.39,69,63.11

Procedures:6,8,9,5,7,12

Time  (days):8,8.5,20.5,7,9,31

Cost (%)**:6.3,5.2,4.0,2.4,0.8,1.9

Cost (USD):*,*,1,026,605,231,832

Paid-in Min. Capital (%)**:0.0,62.6,0.0,206.3,192.2,74.0

Ease of starting a business (DTF):89.97,83.14,82.71,79.29,76.92,71.3

         Source: World Bank doingbusiness.org, * - Calculations based on business spending details; ** - As a % of income per capita

The report added that in Kuwait, an entrepreneur has to deal with 11 government interfaces to start a business, while other GCC peers have interfaces ranging from 4 to 7. The number of interfaces has a visible correlation with the number of days to complete the procedure of setting up a business. In Kuwait, the registration process involves registering with five different government agencies, the most in the GCC. Reserving a unique company name takes a day in Kuwait and UAE, whereas in Saudi Arabia and Qatar, the process is completed online. The process in Kuwait also involves receiving inspection of company premises by the Municipality, something which is unique to Kuwait (in the GCC), and takes up to 5 days.

There are many areas where reforms can be implemented readily, but the government’s vision for reform is constrained by social factors, as the public sector employs more than 80% of the national population. Any attempt at reforms may involve reorganizing and restructuring to remove redundancies, which may affect the workforce. Another issue is the lack of a large domestic market, unlike Saudi Arabia and UAE, which may dampen entrepreneurs’ enthusiasm for setting up business in the country. In April 2014, the UAE approved Federal Law No 2 of 2014, which among other things, stipulates that UAE’s federal authorities and ministries must procure at least 10% of their purchasing, servicing and consulting requirements from the UAE’s SMEs. This not only opens up the lucrative government projects’ market for the Emirates’ SMEs, but allows them to build the initial revenue base that can be used to expand capacities in terms of addressing the export market, later. Lack of private sector development and availability of skilled workforce are other factors that diminish zeal for establishing businesses in Kuwait.

There are a lot of inter-connected issues that need to be dealt with to improve the overall experience of setting up a business in the country. For example, starting a business would involve improving conditions for foreign investments into Kuwait (for e.g. foreign technology transfer is needed in several areas for Kuwaiti companies, particularly SMEs, to thrive), and to develop the current skill level of the workforce. To make any progress, the government would need to focus on expanding the private sector, and amending banking and labour laws, for the same.

About Marmore
Established in 2010, Marmore is a research subsidiary of Markaz, an investment bank and asset management firm that celebrated 40 years of business in 2014. Marmore caters to the growing research and information needs of organizations in the MENA region. The company publishes reports and conducts research on demand.

For further information, please contact:
Osama Al Musallam
Senior Communications Officer
Media & Communications Department
Kuwait Financial Centre S.A.K. "Markaz"
Tel: +965 2224 8000 ext 1819
Dir: +965 2224 8075
Fax: +965 2249 8740
Email: omusallam@markaz.com

Web: Markaz.com

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