Dr. Rasheed Al-Qenae, Managing Partner, KPMG in Kuwait talks about the situation of small businesses in Kuwait. He further talks about how SMEs should consider benefitting from the pandemic. 

What has been the overall impact of the COVID-19 pandemic on SMEs? Which sectors have been impacted the most?

Without a doubt, both the local and global economies have witnessed a severe slump in economic activity since the onset of the COVID-19 pandemic. The primary impact of this situation has been on business liquidity —the availability of cash to keep the business running and pay loan installments. This is dependent on the business's ability to generate revenue and collect debts.

The lockdown measures undertaken to contain the spread of the COVID-19 pandemic have impacted businesses in terms of demand (revenue), supply chain (material and end-product delivery), and operational continuity (manpower/resource constraints), while operational costs (rents, salaries, etc.) continue to exist.

B2C businesses, especially the Food and Beverage (F&B) restaurants and retail (including salons, and shops) sectors, were highly impacted. However, the FMCG (grocery and home supplies) businesses have, in general, done exceedingly well as people continued to stock up (‘pantry stocking or storage’) on supplies. Most of the FMCG businesses and others moved to online/delivery models to counter the situation.

As per the report by the Higher Steering Committee for Economic Stimulation — Dr. Mohamed Yousef Al Hashil (President of the Committee), as of June 2020, there was a drop of about 75% in the number of visitations to restaurants, entertainment sites, etc. and about 26% of the companies witnessed a drop of 80% in revenues. With lower revenues, SMEs’ primary concerns have revolved around access to liquidity, repayment of loans and avoiding bankruptcy.

For B2B businesses that were allowed to operate, there were additional concerns around low demand from downstream businesses and the availability of manpower to operate, especially where their employees live in the areas locked down earlier.

 

What are the measures taken by the Government of Kuwait and how can SMEs benefit from these?

The Kuwait Government has been responding to the needs of the SME community in Kuwait and announced initiatives to help SMEs with their recovery process.

The government announced a stimulus package through the CBK to help SMEs with their working capital requirements for 2020 (such as rental expenses, salaries, and other contractual obligations) through the provision of soft loans (capped @ max 2.5%, interest with flexible repayment terms*). Not only that, but the government also relieved entities from paying social security contributions for a period of six months (March 2020).

*More information on repayment terms click here

 

What are the immediate actions SMEs can take to kick-start their recovery?

Businesses will typically move through 4 stages in response to the COVID-19 pandemic: reaction, resilience, recovery, and the new reality. Above all, SMEs should be very attentive to their financials and financial position (cash) and continuously monitor their cash flow movements on a weekly/monthly basis while the pandemic and its related financial impacts persist.

It is critical for SMEs to focus on the following:

  • Revenues: SMEs should consider different sales channels such as e-commerce in order to maximize their reach to customers. During the last year, business digitization has accelerated sharply. Today, there are many solutions available at low monthly fees to take the business online and many third-party delivery companies are also providing services to manage logistics. SMEs could provide discounts and offers to customers to attract sales. SMEs can also consider partnerships with other businesses or online marketplace to sell products.
  • Expenses: SMEs should focus on non-discretionary expenses and reduce avoidable costs; cutting down/pausing any planned but non-critical expenditures where possible. Furthermore, they may wish to try and agree on an installment plan for payments (for instance, rents), use automation/technology to reduce turnaround, and therefore reduce the operational cost.
  • Receivables: SMEs should push for collections, assess the financial health of companies they need to collect from, and maybe come to an arrangement with them to collect immediately.
  • Financing: SMEs should also consider obtaining soft loans under the CBK stimulus package (from local banks) to bridge any funding gaps.

 

What are the medium- to long-term measures a small business should take to go into a recovery mode?

They should try to extract benefits from the situation rather than waiting for the time to pass and analyze all the available options and opportunities. In the medium term, they could look for where they could make improvements, and in the long term, realign their business model.

Additionally, they should try and understand the core competence of the business and focus on this, and continue with rolling three-month budgets and plans to adjust to the market dynamics. Some SMEs might also need to look into restructuring operations or redefining their business strategies.

How is KPMG supporting SMEs in this regard?

KPMG has been actively working with SMEs in Kuwait over the years in terms of guiding and assisting them; we are one of the pioneers in this initiative. We have been working with various SMEs and funds for a  long time including the erstwhile KSPDC (Kuwait Small Projects Development Company), IBK Small Industries Fund, etc., and now with the KNF and banks.

We have been helping SMEs from conceptualization of ideas to implementation, assisting with feasibility studies, business plans, introduction to investors for funding support, funding applications to KNF/banks, system and policy requirements, and back-office accounting support.

Since the onset of the COVID-19 pandemic, we have come up with a few ‘Thought Leaderships’ or insight papers to help SMEs navigate their challenges; these have been released on various social media platforms. 

We have been assisting SME clients with the preparation of cash flow projections for upcoming periods to assess their liquidity position and funding requirements, and to help them prepare loan applications as per the requirements of local banks for the CBK stimulus package. We are always available to assist Kuwait’s SMEs as they seek to launch, establish and grow their businesses.