Long in the offing, a new FDI law, which aims to improve Kuwait’s business climate and reduce obstacles to market entry, is set to play a key role in underpinning investment growth.
A national drive to bring the private sector on board for several billion-dollar infrastructure projects over the next five years is expected to set the scene for Kuwait to boost foreign direct investment (FDI) inflows.
The Direct Investment Promotion Law has been clarified by a raft of executive regulations were finalised by the government at the end of 2014, marking the last hurdle to its implementation. The investment law represents a major milestone, although questions are already being raised about how effective it will be in progressing projects and realising spending within targeted timeframes.
Building on reforms
The new investment law was drafted as part of the Kuwait Development Plan (KDP), the government’s long-term economic vision for the country. Spanning 2009 to 2035, the plan aims to reduce oil dependency by transforming the state into a diversified commercial and financial hub.
The initiative comprises five separate five-year plans. Running from 2015-20, the latest plan sets aside $116bn for a broad range of projects, including 45,000 new housing units, a metro and railway system, and a new refinery. According to the plan, Kuwait is looking to propel the private sector’s share of the economy to 41.9%, from its current level of 26.4%.
Bringing in businesses
Recent reforms introduced in Kuwait, such as a new public-private partnership (PPP) law implemented in October 2014 – which superseded an older law and established a clear regulatory framework for implementing PPP projects – as well as the long-awaited New Companies Law, are expected to be instrumental in boosting the contribution made by the private sector to economic growth.
In a key development under the new FDI law, a new organisation tasked with coordinating, licensing and boosting investment was set up in December 2014. The new entity, the Kuwait Direct Investment Promotion Authority (KDIPA), replaced the Kuwait Foreign Investment Board and falls under the Ministry of Commerce and Industry.
Experts say that the new FDI law addresses flaws in the previous system, as well as encourages the creation of new, large companies in the country. "The law is very clever in the sense that it promotes diversity and reduces too much dependency on oil and gas. This is the key and the way forward if you are looking at Kuwait's economy,” said Sherif Shawki Abdel-Fattah, a partner at PwC. “With the new law, you can now set up huge companies here in Kuwait 'except' those related to the oil and gas sector," he added.
Cutting red tape
There is also hope that the investment law’s regulations will reduce red tape and address lengthy licensing processes through the establishment of a “one-stop shop” specialised unit, where new businesses can be approved and licensed.
Stakeholders will be looking to the regulations to enhance Kuwait’s business climate. The country dropped seven places to 86th out of 189 economies rated in the World Bank’s 2015 Doing Business survey. Data from the National Bank of Kuwait showed that FDI inflows fell by 41% in 2013 to $2.3bn after FDI in the GCC fell for the fifth consecutive year according to the United Nations Conference on Trade and Development in their annually published World Investment Report 2014.
Amongst its tasks, the one-stop shop will be responsible for preparing introductory guidelines and giving clear requirements for investors, a cause for concern among interested parties in the past. The approval process for the incorporation process will take 30 days, whereas previously the process could take up to six months. KDIPA will also prepare a list of approved companies and offices responsible for following up on investor applications.
The executive regulations have been welcomed by stakeholders, although some questions remain whether the government will be able to realise its planned spending over the next five years. Sceptics point to the previous five-year plan, where only 57% of the budget was implemented for projects.
Recent announcements that the government is considering re-tendering its $8bn airport expansion project and package four of the Al-Zour Refinery upgrade have raised further doubts about how effective the law will be in helping Kuwait move forward on new ventures.
However, there are signs that investor interest is rising. The law firm Al Tamimi & Company said it had already witnessed a rise in interest since the regulations were released. “We are aware that several applications have already been submitted to KDIPA, and we anticipate numerous more applications will be submitted based on the number of inquiries we receive from our clients on a daily basis,” wrote Sonia A Salah, a lawyer at the firm, in a February 2015 Kuwait Times article. The government will be hoping for more of the same as the legislation beds in.