Kuwait benefits from an advantageous location in the Northern Gulf that provides convenient access to major markets in Europe and Asia. The country’s trade and investment profile has long been dominated by oil, with revenue from its vast reserves used to fund overseas investment, generating sustainable long-term returns and safeguarding future prosperity. As Kuwait emerges from the disruption of the Covid-19 pandemic with robust public finances and a new government in place following elections in September 2022, it has an opportunity to drive forward projects that diversify exports and attract inward investment in high-potential industries.
Oversight & Regulations
Several public authorities hold key roles in regulating trade and investment, and in setting policies to maintain stability and progress. The Ministry of Commerce and Industry (MoCI) oversees certain aspects of internal and external commerce, promotes Kuwait’s exports and supervises the trade in goods and services, among other tasks. Since the 45th Council of Ministers was appointed in October 2022, the MoCI has been headed by Mazin Al Nahedh, who is also the minister of state for communication and minister of state for IT affairs.
On the investment side, the Ministry of Finance has a vital function, with Abdulwahab Mohammed Al Rushaid, the minister of finance, also serving as minister of state for economic affairs and investment. Al Rushaid chairs the Kuwait Investment Authority (KIA), which is tasked with protecting the country’s future wealth by investing public funds at home and abroad to generate sustainable returns. The KIA manages the Future Generations Fund (FGF), Kuwait’s flagship sovereign investment fund, and the General Reserve Fund (GRF), which is the repository for national oil revenue and income derived from FGF investments. The GRF funds the government’s annual budget. Al Rushaid also chairs the Kuwait Direct Investment Promotion Agency (KDIPA), the public agency established in 2013 to promote direct investment in Kuwait and act as a one-stop shop for foreign entities seeking to invest in the country. In addition to its promotional and advocacy roles, licensing is KDIPA’s regulatory role, as it approves applications for investment licences in partnership with the relevant authorities.
Investment Landscape
KDIPA was formed following the passage of Law No. 116 of 2013, which allows up to 100% foreign ownership in a Kuwaiti company through direct investment. The law also established a negative investment list that opened up almost all sectors to the possibility of 100% foreign ownership, excluding those industries prohibited by the Council of Ministers. The most recent negative investment list from 2015 covers oil and gas extraction; fertiliser production; coke ovens manufacturing; gas production; pipeline distribution of gaseous fuels; real estate, with the exception of privately owned development projects; activities related to security and investigations; government administration; and activities associated with the sourcing of labour.
The promotion agency has the authority to award a variety of tax and Customs exemptions to licensed foreign investors based on an internal scoring matrix that takes into account the added value an investor offers in terms of job creation, technology transfer, economic diversification and human capital development (see Legal Framework chapter). Foreign companies or individuals who do not invest under the terms of the Law No. 116 framework can still incorporate a company, but it must be done in partnership with an entity from Kuwait, with a Kuwaiti national owning at least 51% of the business. Investors in the country benefit from low corporate tax rates and competitive cost factors, such as low energy and utilities rates and subsidised rents for qualified projects.
One recent legal reform with important investment implications was the passage of Law No. 72 of 2020, the Competition Law, which governs competition and safeguards against monopolies. The law entered into effect in 2021, with the Competition Protection Authority tasked with its enforcement. The legal framework prohibits agreements and practices that harm free trade or competition between competitors.
Kuwait has a long-established legal framework that governs public-private partnerships (PPPs), with Law No. 116 of 2013 replacing Law No. 10 of 2007, which focused primarily on build-operate-transfer business models. PPPs could potentially play a key part in the country’s broader efforts to widen the scope of private sector participation in the economy under the direction of New Kuwait 2035, the country’s long-term plan for diversified economic development.
The Kuwait Authority for Partnership Projects is the main body responsible for implementing PPPs. Despite being one of the first countries in the region to establish a legal framework for PPPs, such projects have stagnated in recent years; however, the improving economic performance and public finances driven by elevated oil prices and the post-pandemic recovery could kick-start activity in infrastructure development. In April 2022 the National Bank of Kuwait estimated that the government could award infrastructure contracts worth KD3bn ($9.9bn) that year, with PPPs featuring in a number of these contracts.
Trade Performance
Following a difficult 2020 due to pandemic-related disruptions in international trade and demand, Kuwait’s external trade figures recovered strongly in 2021 on the back of higher oil prices and increased demand. The Central Statistical Bureau valued exports at KD20.6bn ($67.8bn) in 2021, up from KD12.2bn ($40.2bn) in 2020 and KD19.5bn ($64.2bn) in 2019. Of these exports, oil and its by-products accounted for KD19bn ($62.5bn) of the total in 2021. This is a significant increase from the KD10.6bn ($34.9bn) worth of oil and oil by-products exported in 2020 and the KD17.8bn ($58.6) registered in 2019. China, South Korea and Japan are Kuwait’s largest markets for oil-related exports.
In terms of non-oil exports, the largest values in 2021 were derived from motor vehicles and semi-finished iron or non-alloy steel. That year, Kuwait’s largest non-oil export markets, in order of value, were the UAE, Saudi Arabia, China, India and Iraq.
The total value of imported goods was KD9.6bn ($31.6bn) in 2021, up from KD8.5bn ($27.9bn) in 2020 and close to the 2019 total of KD10.2bn ($33.6bn). Consumer goods accounted for 48% of merchandise imports in 2021, with capital goods accounting for 14% and the remaining 38% attributed to intermediate goods and other goods. Passenger vehicles, jewellery, telephones, gold and medicines were the top individual import categories by value, while Kuwait’s largest trading partners in order of value were China with KD1.7bn ($5.6bn), the UAE with KD1.1bn ($3.6), the US with KD769m ($2.5bn), Japan with KD554m ($1.8bn) and Saudi Arabia with KD509m ($1.7bn).
With the easing of pandemic containment measures in Kuwait and most of its key trading partners in 2022, and the price of oil remaining elevated through the year following the disruption to global energy supplies created by Russia’s invasion of Ukraine, Kuwait is on track to record positive figures in a number of trade-related indicators. According to the World Bank’s October 2022 “Gulf Economic Update”, Kuwait is projected to register a 61% nominal year-on-year increase in merchandise exports and a 35% nominal rise in merchandise imports in 2022. The IMF has estimated the country’s current account surplus would be 29.1% of GDP for 2022, up from 16.3% in 2021, 3.2% in 2020 and 12.5% in 2019.
Export receipts are expected to be facilitated by a 13.4% increase in oil production in 2022 as new capacity comes online at the Al Zour refinery. The government-owned refinery began commercial operations in the fourth quarter of 2022 and will eventually have the capacity to process 615,000 barrels per day of heavy crude once it reaches full capacity in 2023. As well as supplying low-sulphur fuel oil to the domestic power sector, it also produces jet fuel, kerosene and naphtha feedstock for export, with the first shipment of aviation jet fuel taking place in November 2022.
Economic Zones
One of Kuwait’s key priorities for diversifying its export base, attracting investment inflows and creating job opportunities is the development of economic zones to support high-value industries. KDIPA is mandated to establish and develop three economic zones (see analysis): Abdali, near the border with Iraq in northern Kuwait; Al Naayem, 70 km west of Kuwait City on the road to Saudi Arabia; and Al Wafra, 65 km south of the capital on the route to another border crossing to Saudi Arabia. These zones were at various stages of development as of late 2022.
The final master plan for Abdali was approved by the relevant authorities in 2021, and tenders were under preparation for the development and utilisation of the zone as of end-2022. Abdali has 13 distinct land uses designated for small and medium industries, storage and logistics, tourism, commerce, residents and labour accommodation. It is intended to be a gateway for international trade with the Northern Gulf, the Near East and Eastern Europe, with connectivity to the planned GCC Railway and Mubarak Al Kabeer port. The tender to design the master plan for the Al Wafra Economic Zone was awarded to Kuwaiti firm Pan Arab Consulting Engineers in March 2022. The Al Wafra project is expected to boost investment and trade in manufacturing, logistics and retail. The Al Naayem Economic Zone is somewhat slower in terms of planning and development. Originally envisioned as a zone to localise heavy industries, KDIPA was assigned to coordinate with the Public Authority for Industry on potentially combining the tendering for the design of the Al Naayem economic zone in 2021.
Silk City
Beyond these zones, another major project in the pipeline is the development of the Silk City economic zone, which has the potential to form part of China’s Belt and Road Initiative, and galvanise trade with the northern Gulf, Iran and the Far East. Government planning documents estimate that the project will increase non-oil GDP by 13% to 16%, and generate over 200,000 private sector jobs. Silk City will operate as a semi-autonomous economic region with its own legal framework and regulatory authority. The government aims to complete the master plan and have legal structures in place by 2025; however, progress has been delayed by the pandemic, political impasses and an economic slowdown in China.
Investment Performance
Owing to its economic structure, oil wealth and relatively small internal market, Kuwait’s outward foreign direct investment (FDI) has historically exceeded inward FDI. KDIPA reported that FY 2021/22 saw Kuwait attract FDI worth KD106.2m ($349.5m), bringing the cumulative total of direct investment since KDIPA’s operational start in 2015 to KD1.3bn ($4.3bn).
From 2015 until the end of FY 2021/22 the country received direct investment from 67 entities based in 25 different countries. Of this investment, the vast majority of it came from Europe (64.9%), Asia (23.7%) and North America (10.1%), with the Netherlands, China, the British Virgin Islands, Canada and Spain being the top-five individual sources of FDI during this period. Some 76.1% of investors established Kuwaiti companies and 22.4% established overseas branches, while 1.5% opted to open representative offices for their non-commercial activities.
The majority (99.6%) of FDI went into the services sector, with ICT (32.3%), oil and gas services (29.1%) and construction services (16.7%) proving to be the most attractive opportunities. Notably, FY 2021/22 saw the insurance sector’s first FDI following the passage of Law No. 125 of 2019, the new insurance law, and its executive regulations, into force in June 2022. Investment in the sector came from UK-based Sedgwick Risk Services, which was licensed as a 100% foreign-owned, single-person company through an investment of KD2.5m ($8.2m). The largest single FDI deal in FY 2021/22 involved SinoTharwa Drilling Company, a Chinese-Egyptian joint venture holding a major contract with Kuwait Oil Company to supply rigs for workover operations, which established a foreign branch through a KD31.1m ($102.3m) investment.
In 2021 outbound FDI totalled around $3.6bn, down from $8bn in 2020. The outbound FDI figures exceed the inward FDI ones due to the national strategy of investing the country’s oil wealth abroad through the KIA to generate sustainable long-term returns. Figures from the Ministry of Finance show the FGF achieving a 33% growth in returns in FY 2020/21. The Sovereign Wealth Fund Institute lists the Kuwait Investment Authority as the fourth-largest sovereign wealth fund in the world, with $750bn in assets under management. The KIA has historically kept a low profile and avoided commenting on performance and strategy, but this could change as the institution comes under pressure to enhance efficiencies and accountability.
Investment Priorities
FDI has a key role in the realisation of New Kuwait 2035, as the country seeks to develop a more diversified and innovation-led economy that generates high-value jobs in the private sector. Policymakers recognise the importance of attracting international companies to help raise productivity while facilitating technology and skills transfers that strengthen long-term competitiveness.
Although Kuwait publishes annual development plans, the Kuwait National Development Plan (KNDP) 2020-25 is the country’s medium-term plwan for achieving progress towards the goals of New Kuwait 2035, including growing FDI by facilitating entry into the national economy. KDIPA is tasked with achieving this and ensuring that local partners and talent benefit from the resulting capital accumulation and technological progress.
KDIPA monitors the direct, indirect and extended effects of the value added contributed by licensed investors once they begin operations in the country. The cumulative expenditure by licensed investment entities from January 1, 2015, to December 31, 2020 was KD690.5m ($2.3bn), of which 72.4% was spent on local content, 22.2% on advanced technological devices and equipment, 2.9% on salaries for the domestic workforce, 2.2% on government taxes and fees, and the remainder on social responsibility activities and training programmes.
It is important for international investors eyeing opportunities in Kuwait to have a clear strategy for value added in terms of skills and technology transfer in order to receive the full benefits available from KDIPA, such as tax and Customs exemptions. KDIPA estimates the value of Kuwait’s project pipeline at $170bn, with major opportunities for investment available in oil and gas services, ICT and the green economy in particular. In its September 2021 investment guide, KDIPA highlighted opportunities in infrastructure, chemical manufacturing, environmental services, health care, education and training, urban development, financial services, tourism and hospitality, transport, storage and logistics services, and technology, digital and marketing.
Challenges
Kuwait has often been ahead of its regional peers when it comes to enacting investor-friendly regulations – PPP legislation being a notable example – but political deadlocks have slowed the progress made on key strategies that could accelerate private sector development, creating uncertainty among international investors.
On the policy side, while the new government action plan for the 17th Parliamentary session spanning 2022-26 includes many objectives to facilitate the expansion of the role of private companies and capital in the economy, frequent changes in the Council of Ministers and the composition of the National Assembly have stalled progress in its execution. In a similar vein, international companies weighing up opportunities in Kuwait’s $170bn project pipeline may be wary of the potential for approvals to stall due to the possibility of changes in leadership at the relevant authorities, or political disagreements on the viability and importance of certain projects. The delay in the implementation of numerous PPP deals over the years has created a negative perception among some elements of the international investment community.
Another consideration for international investors is the relatively small and static private sector business community and the continued appeal of public sector jobs for Kuwaiti citizens (see Economy chapter), which could make it difficult for the private sector to meet its commitments to hiring and training nationals, and engaging local suppliers. As such, international investors would welcome evidence of clear progress, particularly in relation to small and medium-sized enterprise growth and private-sector development.
On a positive note, a generational transition is under way at many of Kuwait’s large family businesses, with the younger generation appearing increasingly open to modernisation and transparency in an effort to secure long-term success. For example, in February 2022 Boursa Kuwait reported that eight family-owned businesses would undergo initial public offerings through 2024. This could help to drive increased dynamism and productivity in the local business sector, improving the investment climate in the process.
Outlook
The outlook for Kuwait’s exports is positive, as elevated oil prices and robust demand support rising revenue and bolster the country’s fiscal position. This provides an opportunity for policymakers to invest the windfall from these activities in policy initiatives to improve the investment climate and advance the development of the private sector in support of long-term diversification goals. To achieve real progress, it is hoped that the elections and the formation of a new government can achieve the unity required to accelerate progress in business-friendly reforms and policy implementation, as well as provide international investors with the assurances necessary for them to commit to major capital projects. In turn, this could expedite progress on the development of economic zones, which could act as a major long-term boost to FDI inflows, export revenue and job creation.
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