Kuwait is a country of 1.4 million citizens and 3.3 million expatriates. It possesses six percent of the world’s proven oil reserves and is a major oil exporter. The economy is heavily dependent upon oil production and related industries, which are almost wholly owned and operated by the government. The energy sector accounts for more than half of GDP and close to 90 percent of government revenue. The fall in oil prices after OPEC+ failed to agree on production targets in 2019 and the onset of the COVID-19 pandemic led to dramatically reduced global demand for oil and exacerbated Kuwait’s fiscal deficit as oil prices dropped. In response to an evolving global energy market, in 2018 Kuwait launched a national development plan for economic reforms and diversification called New Kuwait Vision 2035. The country’s ability to implement these changes over the coming decade will largely determine Kuwait’s future.
As it develops the private sector to reduce the country’s dependence upon oil, the government faces two central challenges. It must improve the business climate and prepare its citizens to work in the private sector. The government has made progress on the business climate, improving from 97 to 83 among 190 countries in the World Bank’s 2020 Doing Business Report. Nonetheless, Kuwait remains the lowest ranked country in the Gulf Cooperation Council (GCC). A slow and overly complicated bureaucracy, inconsistent legal practices, and restrictive economic policies contribute to a challenging business environment.
More than 85 percent of all Kuwaitis have jobs in the public sector, where they receive generous salaries and benefits. Convincing young Kuwaitis that their future is in the private sector will require changing social attitudes, raising the level of local education so that they may compete internationally and removing perverse incentives. At present, bloated salaries, overly generous benefits, and short working hours make public sector jobs preferable to those in the private sector.
With a view to attracting foreign investment, the government passed a foreign direct investment law in 2013 that permits up to 100 percent foreign ownership of a business, if approved by the Kuwait Direct Investment Promotion Authority (KDIPA). All other foreign businesses must abide by existing law that mandates that Kuwaitis, or a GCC national, own at least 51 percent of any enterprise. In approving applications from foreign investors seeking 100 percent ownership, KDIPA prioritizes local job creation, the provision of training and education to Kuwaiti citizens, technology transfer, diversification of national income sources, contribution to exports, support for small- and medium-sized enterprises, and the utilization of Kuwaiti products and services. KDIPA has sponsored 37 foreign firms, including six U.S. companies. It also provides certain investment incentives like tax benefits, customs duties relief, and permission to recruit foreign employees.
Kuwait Vision 2035 focusses on improving the country’s economic infrastructure, such as the construction of new airports, ports, roads, industrial areas, residential developments, hospitals, a railroad, and a metro rail. The Northern Gateway initiative, which encompasses the Five Islands or Silk City projects, envisions public and private sector investment in the development of an international economic zone. It is not yet clear how increased fiscal pressure resulting from COVID-19 and lower oil prices will affect the plan.
|TI Corruption Perceptions Index||2020||78 of 180||https://www.transparency.org/en/cpi/2020/index/nzl#|
|World Bank’s Doing Business Report||2020||83 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||78 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||$398 million||https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=506|
|World Bank GNI per capita||2018||$33,590||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=KW|