Interview: Ezekiel Tuma
In what ways can the legal framework be improved to attract higher levels of foreign investment?
EZEKIEL TUMA: Kuwait has made progress towards relaxing corporate ownership restrictions. However, this remains one of the main limitations that foreign investors face. Subject to certain exceptions, there is a general requirement that at least 51% of the shares of a company be held by individual or corporate Kuwaiti nationals. A significant number of foreign investors are therefore not able to fully own businesses in the country, and the prospect of having limited control over an entity is unattractive to them.
This situation can be addressed by making further amendments to the foreign ownership restrictions, particularly with respect to non-sensitive sectors. Certain other jurisdictions in the GCC have taken more permissive stances with respect to foreign ownership, such as by generally permitting up to 100% foreign ownership in ventures, except for certain reserved sectors such as commercial agencies. These jurisdictions have seen positive results in terms of cumulative foreign direct investment.
How has the Competition Law impacted mergers and acquisitions (M&A) activity and the country’s overall business environment?
TUMA: The new Competition Law is a welcome development as it should protect the market and consumers. However, it is important that the law is implemented in such a manner that it does not become a hindrance to business. The law has impacted M&A activity significantly given that the current financial thresholds that trigger the application of the law are quite low and are much lower than those in other regional markets. By applying such a low threshold, a large volume of transactions are impacted and are required to submit an economic concentration application to the Competition Protection Agency (CPA). Such a requirement can lead to a critical loss of time, bearing in mind that M&A deals are often time-sensitive.
Revising the financial thresholds would benefit the overall business environment. Additionally, the CPA may consider introducing a fast-track option for straightforward cases, and in practice these tend to comprise the majority of submitted applications. In certain jurisdictions the approval process is separated into two stages: a first stage for the majority of cases where approvals are issued within 30 days and a second stage that deals with more complex cases requiring detailed review.
What factors have led to the rise in initial public offerings (IPOs), and how are international investors responding to new listings?
TUMA: One of the main reasons for the rise in the number of IPOs is current oil prices, which have led to an increase in liquidity that can be invested in such offerings. Business owners see this as an opportunity to raise capital. In addition, the legal reforms enacted by the Capital Markets Authority and Boursa Kuwait have enabled the IPO process to be more streamlined and predictable. Boursa Kuwait has also made efforts to internationalise investment opportunities in the local market by facilitating the admission of Kuwaiti stocks to various international indices. These developments have encouraged local businesses to seriously consider IPOs.
Kuwait is also experiencing a generational change in its large family-owned business community. A number of merchant families understand that if they wish to enjoy long-term success, listing on the stock exchange is a viable way to proceed. Listing would enable the company to attract additional capital, become more institutionalised and implement better governance practices, all of which can stimulate growth and enhance capabilities for expansion in the domestic, regional and international markets.
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