Attitude toward Foreign Direct Investment
In 2015, Kuwait announced that it had attracted USD 1.2 billion of FDI under the umbrella of the new law. Despite that, the level of inward FDI remains low and diversification of the economy away from the petroleum sector remains a national goal. Barriers to foreign investment exist, including long bureaucratic delays in starting new enterprises, agency and sponsorship requirements, a constricted local real estate market, impediments to obtaining visas for expatriate workers and a local business culture heavily based on clan and family relationships that often preclude foreign participation.
Direct investment in the upstream petroleum and real estate sectors is not open to foreign firms. The FDI law does permit 100% foreign ownership in certain industries, including: infrastructure (water, power, waste water treatment, and communications); insurance; information technology and software development; hospitals and pharmaceuticals; air, land, and sea freight; tourism, hotels, and entertainment; housing projects and urban development; and investment management.
Other Investment Policy Reviews
The WTO conducted its latest policy review of Kuwait in 2012. The WTO’s findings noted that Kuwait was pursuing trade liberalization to reduce the economy’s high dependence on crude oil, which accounts for nearly half of GDP, 95 percent of export revenues, and more than 80 percent of government income. The WTO stated that steps were being taken to improve the country’s business environment, increase the productivity and growth of non-energy sectors, and increase the participation of the private sector (local and foreign) in the economy from its low level of about 25 percent in 2012.
Laws/Regulations on Foreign Direct Investment
In December 2013, Kuwait’s Law No. 116 of 2013, regarding the promotion of direct investment, came into effect, to replace its 2001 Direct Investment Promotion Law, as part of the Kuwait Development Plan (KDP). Spanning 2009 to 2035, the KDP aims to reduce oil dependency by transforming the state into a diversified commercial and financial hub. The KDP comprises five separate five-year plans; the current plan provides USD 116 billion for a broad range of projects, including 45,000 new housing units, metro and railway systems, and a new refinery. In the KDP, Kuwait is seeking to propel the private sector’s share of the economy to 41.9 percent, from its current level of 26.4 percent.
The new FDI law established KDIPA (http://kdipa.gov.kw/en/home-2) to facilitate licensing and incorporation procedures. In April 2015, IBM received KDIPA's first investment license, allowing the company to establish a 100 percent foreign-owned company in Kuwait and to benefit from the incentives and exemptions granted under the new law. Since IBM, KDIPA has granted foreign ownership licenses to Huawei, GE, and Berkeley Research Group.
Other recent legal measures to facilitate FDI and economic growth include Law No. 116 of 2014 regarding public-private partnerships (PPP), and a new Commercial Companies Law No. 25 of 2012, as amended by Law No. 97 of 2013. The PPP law changed the Partnerships Technical Bureau to the Kuwait Authority for Partnership Projects (KAPP) [http://www.ptb.gov.kw/en/Home]. KAPP expects to award many of the upcoming large infrastructure projects using the PPP framework.
The court system does not appear to be subject to executive or other interference against foreign investors or companies. Nonetheless, the business climate favors Kuwaiti- and GCC-owned enterprises.
While Kuwait does not yet have a website for online business registrations, a government site provides information about starting a business in Kuwait, http://e.gov.kw/sites/kgoenglish/Pages/Business/InfoSubPages/StartingABusiness.aspx). The Doing Business project provides information on the steps required to start a business in Kuwait, although the ‘time-to-complete’ estimates are optimistic. Typically, starting a new business in Kuwait requires a minimum of six months to a year.
KDIPA is establishing a “one-stop shop” unit to streamline registration and licensing procedures for investors, thereby reducing the bureaucracy that had caused concerns in the past. Its most recent license e met the deadline of approving a license within 30 days of the completed application.
While the World Bank defines a small and medium enterprise (SME) as any business employing fewer than 100 people, the Kuwait Small Projects Development Company (KSPDC), a state-financed fund established in 1997 to promote SME development, considers projects with capital up to KD 150,000 (USD 495,000) as small, and less than KD 500,000 (USD 1.65m) as medium-sized. The April 2013 Law No. 98 established the National Fund for the Support and Development of SMEs (enterprises that employ up to 50 Kuwaitis and require less than KD 500,000 in financing); however, the financing is limited to enterprises set up by Kuwaiti citizens.
KDIPA places emphasis on attracting investment in modern and sophisticated technologies, means of production and operations, management methods, and technical and marketing expertise that foster the objectives of development. Kuwait’s increasing need for engineering, design, construction, and management firms to execute planned infrastructure projects, as outlined in the KDP, may attract additional FDI to Kuwait.
Limits on Foreign Control and Right to Private Ownership and Establishment
As per KDIPA’s “negative list” issued in February 2015, foreign firms are barred from investment in the following sectors: extraction of crude petroleum, extraction of natural gas, manufacture of coke oven products, manufacture of fertilizers and nitrogen compounds, manufacture of gas, distribution of gaseous fuels through mains, real estate (excluding privately operated building development projects), security and investigation activities, public administration and defense, compulsory social security, activities of membership organizations, and activities of hiring labor including domestic labor.
The Commercial Companies Law intended to simplify the process for registering new companies in Kuwait and reduce wait-times associated with starting a new business, but a law mandating that a Kuwaiti national own at least 51 percent of all local companies remains in place, unless foreign investors apply through KDIPA.
The National Assembly has passed several privatization laws in the past eight years. The laws stipulated that privatizing any public service would begin with a transition to a public shareholding company. Under the law, 40 percent of any such company’s shares will be sold to citizens in an initial public offering, while 20 percent of the shares will be held by the government, and 5 percent will be distributed to current and former Kuwaiti employees. The remaining 35 percent will be sold at an auction to a local or foreign investor. Kuwaiti employees will have the right to retain their jobs in the privatized service for at least five years with the same salary and benefits.
Kuwait privatized its stock exchange in April 2016 and recently proposed privatizing the management and operations of their air and sea ports. The Kuwait Stock Exchange (KSE) is the fourth-largest in the GCC (after Saudi Arabia, UAE’s combined stock markets, and Qatar), with a market capitalization of KD 24.36 billion (USD 80 billion) as of March 10, 2016, down by 20 percent in the past year. [Note: All currency conversions reflect an April 2016 rate of KD 1= USD 3.3.] In February 2010, the National Assembly passed legislation to establish Kuwait’s first Capital Markets Authority (CMA) to oversee the KSE’s operations and procedures. The KSE began the several-year privatization process by creating a shareholding company in 2014 funded with KD 60 million (USD 198 million). In July 2015, the KSE was renamed the Kuwait Bourse Company, which began operations as a private company in April 2016 and is expected to be fully operational by December 2016. Ownership of its building was transferred to the CMA.
Kuwait has terminated the privatization plan of Kuwait Airways (KAC) and decided to maintain it as a national carrier. A new restructuring plan, introduced to the National Assembly in June 2015, was to retain 75 percent state ownership, sell 20 percent to Kuwaiti citizens, and transfer 5 percent to current and retired employees, excluding potential investors. The Assembly’s Financial & Economic Committee approved the plan in January 2016, as well as an additional KD 600 million to finance a new fleet of 25 Airbus and 10 Boeing jets. Kuwait has also abandoned plans to privatize their postal services.
Kuwait’s telecom sector is the largest source of revenue after the oil sector. Three private mobile telephone companies provide services with the government maintaining significant minority interests in all, and foreign companies own the majority stakes in two. In April 2014, the National Assembly passed legislation creating the independent Communication and Information Technology Regulatory Authority (CITRA) to liberalize markets in the mobile communications and Internet industries, and privatize some elements of the telecom market now handled by the Ministry of Communication (MOC), such as fixed telephone lines. CITRA officially commenced its duties in February 2016, by taking on some responsibilities of the MOC and receiving applications to hire specialized staff.
In September 2014, the MOC announced that the postal service would be transformed into a state-owned corporation. As of April 2016, the MOC had introduced a new bill regarding the postal services to the Council of Ministers for approval.
Screening of FDI
KDIPA screens and licenses proposed branches and representative offices of foreign companies. The process requires the submission of legal and financial documents by the applying company’s head office, as well as a certification of its commitment to fulfill obligations by the branch or representative office in Kuwait. In reviewing requests for licensing, KDIPA places emphasis on creating jobs and training/education opportunities for Kuwaitis, technology transfer, diversification of national income sources, increasing Kuwaiti exports, support for local SMEs, and utilization of Kuwaiti products and services.
Kuwait lacks comprehensive competition protection mechanisms. The government passed Protection of Competition Law No. 10 in 2007. It enacted by-laws in 2012 through the establishment of a Competition Protection Bureau (CPB) intended to safeguard free commerce, bar monopolies, investigate complaints, and refer to prosecution acts determined to undermine competition, supervise mergers and acquisitions, and fix commodity prices. As of April 2016, however, the CPB was not yet fully functional. The World Bank is working with Kuwait to amend the law and redefine the CPB’s mission.
Under the 1964 Public Tenders Law, all bids for government-funded infrastructure projects (excluding military and security programs) in excess of KD 5,000 (USD 16,500) must be submitted to the Central Tenders Committee (CTC). Unless licensed through KDIPA, foreign companies may only bid on these contracts through a Kuwaiti partner (holding a minimum 51 percent share). The National Assembly’s Financial Committee is reviewing a new CTC bill that calls for increasing the existing ceiling for direct contracts that do not require CTC approval to KD 20,000 (USD 66,600), provides for a 15 percent cost differential preference for domestic companies, and mandates that a single tender not be allowed to be redistributed as a sub-tender.