The Government of Kuwait launched an ambitious development plan in 2018 known as ‘Vision 2035’ which aims to transform country into an international trade hub and diversify its oil-centric economy. The goal is to increase private sector participation in Kuwait’s economy by creating a more investor-friendly environment as well as to invest in the nation’s economic infrastructure via 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 New Kuwait projects, envisions public and private sector investment in the establishment of an international economic zone that could exceed USD 400 billion over several decades. With one of the world’s largest sovereign funds with more than USD 670 billion in assets as of March 2021, minimal taxes, and low-cost labor, Kuwait provides a great opportunity for investment. However, bureaucratic red tape and the frequent changing of the government has stalled the progress of many initiatives.
Several public-private partnerships are in the pipeline in the power, water management, and renewable energy sectors. Two billion-dollar hospitals were completed in the last two years. These institutions need foreign investment to operate and train hospital staff, as well as to deliver world-class equipment and IT infrastructure.
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 other GCC nationals, 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. KDIPA also provides certain investment incentives like tax benefits, customs duties relief, and permission to recruit foreign employees.
Kuwait has also made great strides in protecting intellectual property. Kuwait’s 2019 Copyright Law addressed serious concerns about Kuwait’s intellectual property protection regime. The Office of the U.S. Trade Representative (USTR) moved Kuwait from the Priority Watch List to the Watch List in its 2020 Special 301 Report because of the new copyright legislation and an increase in intellectual property enforcement actions. The Special 301 Report identifies countries that are trading partners, but which do not adequately or effectively protect and enforce intellectual property rights (IPR). Kuwait has continued to increase enforcement actions in 2021.
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 reduction in global demand for oil upon the onset of the COVID-19 pandemic in 2020 greatly exacerbated Kuwait’s fiscal deficit. However, the rapid increases in the price of oil since spring 2021 has allowed Kuwait to significantly reduce its deficit from KD 5.4 billion (USD 17.7 billion) in March 2021 to KD 406.4 million (USD 1.3 billion ) as of January 2022. However, reduced stress on the country’s finances has dampened support for economic and business reforms that Kuwait needs to become the investment hub envisioned in New Kuwait Vision 2035. Kuwait’s ability to implement these changes will determine whether the current financial windfall will result in an economically sustainable future.
As it develops the private sector to reduce the country’s dependence on oil, the government faces two central challenges. It must improve the business climate to enable the private sector and must prepare its citizens to work in the private sector. Political tension between the government and the elected National Assembly, a slow and overly complicated bureaucracy, inconsistent legal practices, and restrictive economic policies contribute to a challenging business environment for outside investors.
More than 85 percent of all Kuwaitis with jobs work in the public sector, where they receive generous salaries and benefits. This makes public sector jobs largely preferable to careers in the private sector. Convincing young Kuwaitis that their future is in the private sector will require changing social attitudes and raising the level of local education so that Kuwaiti businesses can compete internationally in sectors other than fossil fuels.