Kuwait's account balance returns to a surplus as oil price recovers and diversification strategies implemented

As a founding member of the Organisation of the Petroleum Exporting Countries (OPEC) as well as the site of approximately 7% of the world’s crude oil reserves, Kuwait has long been a major energy exporter. In 2017 the nation’s oil sector generated more than 90% of government revenues, and oil exports were equal to some 42% of GDP, the highest figure among member states, according to OPEC data. Like other countries in the GCC, Kuwait has long taken advantage of these revenues both to build a deep portfolio of global investments, thereby ensuring long-term returns, and to invest in economic diversification projects at home, with an eye towards developing new industries and attracting foreign direct investment (FDI) in strategic areas. In 2017 and 2018 the country made major strides towards greater diversification on various fronts. Boursa Kuwait, the nation’s stock exchange, for instance, introduced a series of major reforms aimed at modernising the stock exchange and tapping new sources of investment. Alongside this, in an effort to boost economic activity in these areas, the government moved to expand its public-private partnership (PPP) programme and relax a range of regulations related to trade and investment.

Economic Diversification

Given Kuwait’s long-standing reliance on hydrocarbons, the rise in global oil prices – from around $50 per barrel in 2016 to around $73 per barrel in mid-2018 – was widely taken to be a positive sign for the future of trade and investment in Kuwait. While the decline in prices that began in 2014 had put pressure on Kuwait’s long-term development plans, the improving energy revenues moving into 2018 will allow Kuwait to move forward with economic development and diversification plans that have been put under pressure in recent years. While the country faces a range of challenges related to trade and investment, including its relatively weak performance on international ease of doing business rankings, the state’s ongoing efforts to remove barriers to trade and develop new, non-energy industries bode well for investors and future returns alike.

Structure & Strategy

A range of state agencies are involved in regulating and facilitating trade and investment in Kuwait. Perhaps the key institution in the country in terms of outward investment is the Kuwait Investment Authority (KIA), the nation’s sovereign wealth fund (SWF). Founded in 1953 as a Bank of England account for depositing the government’s oil revenues, the KIA is the oldest SWF in the world. While the institution has to date declined to formally report its total assets or investment strategy, estimates from the IMF put the KIA’s holdings at around $530bn as of 2016. This is lower than a mid-2018 estimate of $592bn by the US-based Sovereign Wealth Fund Institute. The KIA is likely the fourth-largest SWF in the world, after Norway’s Government Pension Fund Global, the Abu Dhabi Investment Authority and the China Investment Corporation.

The KIA oversees two pots of investments, namely the General Reserve Fund (GRF), established in 1953, and the Future Generations Fund (FGF). The FGF, which was launched in 1976, is thought to be about twice the size of the GRF, as a result of the government depositing a minimum of 10% of state revenues on an annual basis since its creation. The GRF functions as an account that receives all government revenues and is used for transferring payments to the FGF and other state accounts as it is needed. Given this function, an estimated 80% of assets in the GRF are held in cash, with the remaining 20% invested in short- and medium-term assets in Kuwait and around the MENA region. The FGF, meanwhile, invests 100% of its holdings abroad, targeting long-term assets across diversified geographies and asset classes. By law, no withdrawals can be made from the FGF without prior government approval; the only known withdrawal from the FGF was made following the 1990-91 Gulf War, when Kuwait took $85bn from the account to fund rebuilding.

Most of the KIA’s international investments are managed by external fund managers. In some cases the authority has set up specialised companies to handle investment in particular markets or asset classes. For instance, in London the KIA owns an investment firm charged with overseeing global infrastructure assets. In recent years the authority has moved to shift an increasing percentage of fund management activities in-house, in part to consolidate control over its activities in light of volatile oil prices. Considering the scale of the KIA’s investments, the size of Kuwait’s population, and the rate of population growth, the country is widely regarded as particularly well situated to ride out future volatility. According to IMF data, as of the end of 2016 the KIA’s assets were worth nearly five times the value of Kuwait’s annual GDP, suggesting that the government could, if necessary, support the economy through considerable future shocks.


The KIA plays an important role not only in terms of foreign investment of the government’s oil revenues, but also in terms of state financing. For instance, the GRF has, in the past, extended liquidity to the state’s Treasury when required, and in 2017 the KIA was reportedly working with the IMF, the Central Bank of Kuwait (CBK) and the nation’s Debt Management Office to develop and put in place a liquidity forecasting framework.

In addition to the KIA, a number of other institutions are involved in overseeing trade and investment. The Kuwait Authority for Partnership Projects (KAPP), which was established in 2015 as a result of the passage of a new PPP law in 2014, has a mandate to assist other government entities in the process of launching PPP projects and identifying potential opportunities for new PPP investments. As of mid-2018 KAPP was in the midst of revising Kuwait’s PPP Project Guidebook, which is expected to result in streamlined project management and establishment procedures. In late July 2018 KAPP announced that it was seeking local, regional and international companies to invest in power plants and water desalination projects. This follows on the successful development of the Al Zour North independent water and power project, which was awarded in 2013 on a PPP basis (see Energy & Utilities chapter).

FDI into Kuwait is regulated in large part by the Kuwait Direct Investment Promotion Authority (KDIPA), which was established as a result of the passage of Law No. 116 of 2013. This law, which represents a major shift in the existing framework for the promotion of FDI into the country, grants KDIPA a wide remit. The institution is responsible not only for receiving and approving applications for new investments in Kuwait, but also promoting the country at international trade shows, building up domestic industries in an effort to attract foreign players, and ensuring national development, such as that relating to technology transfer and job creation for nationals. In addition to establishing KDIPA, the 2013 law enacted various improvements to the investment framework, and established a raft of incentives aimed at attracting foreign investors. Key incentives enacted as a result of the 2013 law include granting foreign investors the ability to own 100% of a firm operating in Kuwait in nearly any sector of the economy, and allowing foreigners to set up 100% foreign-owned branches in Kuwait.

Improving Business Environment

One of KDIPA’s key tasks upon its founding in 2013 was to improve Kuwait’s score on the World Bank’s annual ease of doing business index. To this end, soon after it was launched the authority was put in charge of the Permanent Committee for Streamlining the Business Environment and Enhancing Competitiveness in Kuwait, which was founded by the Council of Ministers and counts 11 public sector institutions as members – among them the Ministry of Commerce and Industry, the Ministry of Finance, the CBK and the Public Authority of Manpower – as well as the Kuwait Chamber of Commerce and Industry, which represents the private sector, and two other NGOs – the Kuwait Economic Society and Kuwait National Competitiveness Committee. In conjunction with member institutions, KDIPA has coordinated national efforts to improve Kuwait’s score on the 10 indicators measured in the ease of doing business index. For instance, in the 2018 iteration of the index, out of 190 ranked economies, Kuwait was placed 96th overall, up from 102nd in 2017.

Kuwait ranked sixth in the world in terms of paying taxes, 70th in the category for registering property, 73rd in terms of enforcing contracts, and 81st in protecting minority investors. However, it ranked 149th in terms of ease of starting a business, slightly below the MENA regional average, and lower than Bahrain, Jordan and Oman. Nonetheless, this represents a significant improvement on the country’s 2017 ranking of 173rd on the same indicator. This jump is reflected in the 2018 World Bank report, which reveals that the number of procedures required to start a business in Kuwait dropped from 12.5 in 2017 to 9.5 in 2018, the number of days required decreased from 61.5 to 38.5, the associated costs fell from 2.8% of per capita income to 1.7%, and the cost of required minimum capital fell from 10.2% to 8.5% of per capita income. KDIPA, in cooperation with relevant government entities, is working to implement additional changes aimed at improving Kuwait’s score in the next report, and given that the country ranked eighth among Arab nations in 2018, there remains room for improvement.

Trade Data

The recent push to develop new sources of revenue and investment has taken place against a backdrop of slowing exports and declining government revenues since 2014, when the price of oil began to decline. Kuwait’s balance of trade peaked at around KD24bn ($79.6bn) in 2012 and 2013 alike, as a direct result of oil prices topping more than $120 per barrel. In 2014, when the price of crude began to drop, the country recorded KD19.8bn ($65.6bn), followed by KD6.9bn ($22.9bn) in 2015 and a decade-low of KD4.7bn ($15.6bn) in 2016, according to data compiled by the government’s Central Statistical Bureau (CSB). In line with the oil price rise in 2017, however, the country saw a slight recovery in the balance of trade, with provisional data showing a surplus of KD6.5bn ($21.6bn). Data from the first half of 2018 suggest that this growth will continue. The country saw a balance of trade surplus of KD2.3bn ($7.6bn) for the first quarter of 2018, compared to KD1.6bn ($5.3bn) during the same period the previous year. This rose to KD2.6bn ($8.8bn) in the second quarter of 2018 compared to KD14.5bn ($48bn) the previous year.

Oil is by far Kuwait’s main export. In 2017 the nation sold some KD15bn ($49.7bn) worth of the commodity to its trading partners, which represented more than 90% of Kuwait’s total exports, which amounted to KD16.7bn ($55.4bn). In addition to crude oil, Kuwait’s key exports include a number of oil-related products, such as propane, ethylene glycol, polyethylene and polypropylene, as well as some non-oil exports, including motor vehicles, telecommunications hardware and live animals.

Key export destinations for Kuwaiti crude and other products include India, which was the single largest export market for Kuwait in the first quarter of 2018, followed by China, Iraq, Qatar, Saudi Arabia, the UAE, Pakistan, Oman, Taiwan, the US, Brazil, Turkey, Australia and Jordan. Kuwait shares a land border with both Iraq and Saudi Arabia.


As a result of the limited nature of local manufacturing capacities, Kuwait imports a significant percentage of the products consumed by the local population. Additionally, the country is a hub for re-export to the northern Gulf region, particularly to Iraq. Over the past decade Kuwait has seen steady growth in imports on an annual basis. In 2017 the CSB recorded total imports worth KD10.2bn ($33.8bn), up from KD9.3bn ($30.8bn) in 2016 and 2015 alike, KD8.8bn ($29.2bn) in 2014, and KD8.3bn ($27.5bn) in 2013. In the first quarter of 2018 imports into the country were recorded at KD2.6bn ($8.7bn), up from KD2.5bn ($8.3bn) during the same period in 2017. In the second quarter of 2018, imports totalled KD2.7bn ($9bn), up from KD2.4bn ($8.1bn) in the second quarter of 2017, an 11.6% year-on-year increase. The data suggests that 2018 will see a continuing upwards trend in the country’s overall imports.

The types of products imported into Kuwait vary widely, with the list topped by motor vehicles, though a percentage of these are re-exported to neighbouring countries. Other key categories include mobile telephone handsets, pharmaceuticals, cigarettes, jewellery, gold, oil-drilling equipment, including steel pipes and industry pumps of various sorts, and major foodstuffs such as rice. The largest sources of imports coming into Kuwait in the first quarter of 2018 were China, the US, the UAE, Japan, Saudi Arabia, Germany, India, Italy, South Korea, the UK, France, the Netherlands, Turkey, Spain and Switzerland, according to CSB data.

Strategising Improvement

Boosting trade, and particularly non-oil trade, is one of the key objectives of New Kuwait 2035, a comprehensive economic diversification and national development plan launched by the government in 2017. The initiative lays out a range of goals for Kuwait to achieve by the year 2035, including increasing FDI by 300% and positioning Kuwait as a global hub for the petrochemicals industry. To achieve these bold goals, the New Kuwait 2035 details 164 strategic development programmes, based on seven pillars: global position, human capital, public administration, infrastructure, health care, economy and living environment. In 2016 and 2017 alone, the government spent KD2.3bn ($7.6bn) on related projects, including the development of the new airport, a major port expansion, a range of oil infrastructure projects and various other transport and power initiatives, according to the General Secretariat of Supreme Council for Planning and Development, which is involved in many of the country’s large-scale projects. A range of these initiatives – particularly the new airport and port – are expected to have knock-on effects on trade (see Transport chapter).

In March 2018 the government announced the Northern Gulf Gateway development project, which aims to add $220bn to Kuwait’s GDP by developing the non-oil sector, turning Kuwait into a regional hub for the manufacturing, tourism and leisure industries. Premised on attracting some $200bn in FDI by 2035 – the Northern Gulf Gateway is a flagship project within the New Kuwait 2035 vision – is expected to create as many as 400,000 jobs for Kuwaiti citizens in knowledge-based sectors and industries, while also attracting 3m-5m tourists annually to the nation by 2035.

Boursa Kuwait

Another key area of recent development activity with major implications for the future of investment and trade in Kuwait is Boursa Kuwait. In April 2018 the Capital Markets Authority (CMA), the sector regulator, announced the start of bidding for a 26-44% equity stake in the bourse, with the winner bidding not only for ownership, but also to operate the stock exchange for the foreseeable future. The privatisation of Boursa Kuwait has been a long-term goal of the CMA since the authority was established in February 2010.

In June 2018, meanwhile, Boursa Kuwait adopted the FTSE Russell Industry Classification Benchmark (ICB) for all listed stocks, aligning the exchange with best practices. “Adopting the FTSE Russell ICB ensures that our bourse will adhere to international standards and increase transparency as well as adopt universal benchmarks, allowing the exchange to flourish and expand,” Khaled Abdulrazzaq Al Khaled, CEO of Boursa Kuwait, told local media in mid-2018. This change, which went into effect in September 2018, took place as a direct result of Boursa Kuwait being added to the FTSE Secondary Emerging Markets classification list in September 2017. It is expected to generate inflows of as much as $700m in foreign capital to the bourse (see Capital Markets chapter).


Considering the varied efforts to attract new investment and ongoing economic diversification plans, combined with recovering crude prices, it is not surprising that the nation’s non-oil economy has expanded in recent years. In 2017 Kuwait’s non-oil GDP posted growth of 2.2%, according to an October 2018 economic brief by the National Bank of Kuwait, up from 1.6% the year before, with 2018 expected to bring an increase of 2.8%.

Much of this expansion is a direct result of capital spending by the government itself, under the aegis of both the New Kuwait 2035 development programme and also a result of a series of shorter-term projects. Government expenditure on capital projects, like the Northern Gulf Gateway integrated mega-project, will likely account for a considerable percentage of Kuwait’s non-oil GDP for many years to come, and will thus drive trade and investment in the nation for the foreseeable future and beyond.

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The Report: Kuwait 2018

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