Changes in investment law draw tech giant to Kuwait


Economic News

15 Jun 2015
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Key changes to the legislation governing Kuwait’s foreign investment policy are already yielding significant results across the country’s ICT sector, led by the market entrance of an industry giant.

December 2014 saw Kuwait release long-awaited executive regulations for its Foreign Direct Investment (FDI) Law, No. 116 of 2013, which removed a 49% foreign ownership cap on most non-oil businesses operating in the state.

Less than six months after the changes were unveiled, US tech giant IBM became the first company to set up wholly foreign-owned operations in Kuwait. The firm has since announced further expansion plans that will see it team up with local industry players to introduce cloud computing services.

FDI law to boost non-oil growth

The law was first introduced in June 2013 and ratified six months later as a means of supporting the 25-year Kuwait Development Plan, which aims to reduce oil dependency and increase private sector participation across a broader economic base.

Sectors in which foreign ownership remains capped are now the exception under the new law, which opens businesses to 100% foreign ownership outside of 10 excluded sectors. These are those related to hydrocarbons activities, along with most real estate ventures, private security and labour services.

Tech giant gains a first

Aside from giving Kuwait’s ICT industry a boost, IBM’s strategy bodes well for broader non-oil growth, which sits at the core of the country’s expansive national development plan. Kuwait is currently laying the groundwork for diversifying its economy, which has seen it increase the focus on knowledge-based industries. The National Bank of Kuwait expects non-oil growth to rise to 5.6% during the 2015/16 fiscal year, up from 3.5% in 2014.

The milestone demonstrates significant progress in ongoing investment reforms that have enabled the Kuwait Direct Investment Promotion Authority (KDIPA) to assume the role of one-stop shop for foreign business licensure. “Given the great volume of interest and the dedication by KDIPA to make this programme successful, we envisage many large-scale companies being able to establish and operate in Kuwait,” Philip Kotsis, partner at Al Tamimi & Company, told local media.

IBM’s entrance to the Kuwait market forms part of a broader investment programme that will see the firm expand significantly across the Middle East in the coming years. The company’s new Kuwait City office is set to serve as a sales and customer service hub, with a focus on research, professional services, system integration and facilities management activities. Other areas to be targeted include cloud computing, social media, mobile services, big data and security systems.

Looking to the cloud

Local firms too stand to benefit from an expected rise in foreign investment on the back of the legislative changes. Leading the way, the IT infrastructure and management company United Business Group (UBG) said in May that it had entered into partnership with IBM Cloud to transform its business into a managed service provider. Under the agreement, IBM and UBG will offer a flexible hybrid cloud platform to Kuwait-based clients, using a system modelled after the OpenStack programme.

UBG will work with IBM Cloud to offer subscription-based cloud services to clients, in a move that will save costs and increase operational agility. The local firm will also offer IBM’s digital innovation platform, Bluemix.

A move towards cloud-enabled business models represents a significant growth opportunity for Kuwait’s ICT firms. At present, an estimated 80% of the country’s ICT spending is concentrated in telecommunications, according to the Kuwait Financial Centre, followed by computer hardware and software. However, the growing prevalence of cloud systems could see software revenues expand significantly in the coming years. ICT research firm Frost & Sullivan estimates that the GCC’s cloud computing market grew by 29% year-on-year in 2014 to reach $118.5m.

Meanwhile, Kuwait’s revenues from ICT are expected to reach $28bn between 2012 and 2015 – the third-highest earnings in the GCC – suggesting its efforts to move towards a knowledge-based economy are gaining pace.

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