Kuwait’s GDP has undergone significant expansion in recent years, with the spike in global oil prices enabling the country to maintain a trade surplus amid domestic political changes, international geopolitical tensions and economic uncertainties. Major ongoing infrastructure developments in the country’s oil sector are set to boost capacity and output and further drive receipts derived from the country’s number one export.
Guided by medium- and long-term development plans, Kuwait is in the process of diversifying its economy as it shifts its focus from resource-based to knowledge-based industries. Increased privatisation is central to that drive, with government entities dominating economic activities and high public expenditure historically returning budget deficits. The development of the country’s small and medium-sized enterprise (SMEs) ecosystem is intended to provide a stable and agile foundation from which a more versatile business community can grow, while attractive business ownership allowances are designed to propel the privatisation push and attract higher levels of foreign direct investment (FDI).
New Kuwait 2035
The rebranding of the national vision for the future of the economy was unveiled in January 2017 under the title New Kuwait 2035. The overarching aims of New Kuwait 2035 are to reduce the country’s economic dependence on oil-related industries and exports and cultivate a knowledge-based economy, propelled by private investment into non-oil activities such as electricity generation, manufacturing and transport. Indeed, the comprehensive restructuring of Kuwait’s historically public-sector-dominated economy is a central part of realising its economic goals.
The New Kuwait 2035 vision identifies seven pillars that are in need of reform or reinforcement: public administration, economy, infrastructure, living environment, health care, human capital and global position. In attempting to transform Kuwait into a regional financial and cultural centre, 129 initiatives and programmes were in the process of being implemented as of early 2024.
As a result of these initiatives, Kuwait plans to enter the top 35% of countries worldwide across all development indicators by the plan’s end date. To achieve this, the government is working to cultivate a fertile ecosystem for SMEs to drive the economy forwards, while the knowledge and resources of the country’s top industrial players and investment bodies are being harnessed to improve synergies between the public and private sectors.
Since the launch of New Kuwait 2035, progress towards its realisation has been guided by shortterm roadmaps. The latest of which, the Kuwait National Development Plan (KNDP) 2020-25, is designed to address the most immediate and pressing challenges facing economic development, which centre on the drive to establish an SME ecosystem that can imbue the economy with agility and innovation, while boosting job creation for Kuwaiti citizens.
Master Plan
Kuwait’s physical and economic development is also guided by periodic long-term master plans. The fourth of those, the Fourth Kuwait Master Plan 2040, was launched in September 2023 and details the government’s vision for the urban, economic, social and environmental development of four key regions of the country: Kuwait City urban region, the northern economic region, the southern industrial region and the western resources region. Vacant land in those areas is set to be appropriated for private housing, investment and other commercial and industrial purposes, with sustainability a core focus. Job creation for Kuwaitis is also central, with the government forecasting the availability of 3.3m jobs throughout the four regions by 2040.
Mirroring the approach taken in implementing New Kuwait 2035, short-term roadmaps will guide progress towards the realisation of the fourth master plan. The one that covers the 2023-27 period details 107 projects to be implemented throughout the four identified regions, including important infrastructure projects such as the construction of the Kuwaiti portion of the GCC Railway network and the Kuwait International Airport Terminal 2 project. Meanwhile, major new real estate development will be executed under the plan, as will expansion of the country’s roads and logistics infrastructure.
Key Authorities & Laws
Kuwait has one of the most open political systems in the Gulf. The royal family appoints a government, while the 50-member Parliament is democratically elected. The emir of Kuwait selects a prime minister, who in turn recommends a Council of Ministers, or Cabinet, 15 of whom sit in Parliament. Parliament debates policies and passes laws, which then require approval from the emir in order to be brought into force. Parliament also has the ability to call a vote of no confidence in ministers and cross-examine their policy choices.
Political impasse has caused bottlenecks in recent years and hindered economic development, leading to Parliament being dissolved nine times in four years – most recently in February 2024. A new Parliament was elected in June 2023 and a new government formed soon afterwards, but the Emir, Sheikh Mishal Al Ahmad Al Jaber Al Sabah, again dissolved the legislative body in February 2024.
Multiple government bodies, such as the Ministry of Finance, the Ministry of Foreign Affairs and the Ministry of Interior, are instrumental in designing fiscal, immigration and economic law and policy, while, in light of the important role oil industries play in the country’s economy, the Ministry of Oil is highly influential in industrial activities and development.
A key authority for international investors is the Kuwait Direct Investment Promotion Authority (KDIPA), which was founded in accordance with Law No. 116 of 2013 regarding the promotion of direct investment in Kuwait. The KDIPA operates under the umbrella of the Ministry of Finance and is tasked with planning and establishing special economic zones, handling investment applications and licensing, extending incentives and exemptions to potential and existing investors, and coordinating those efforts with relevant government bodies, as well as engaging with the private sector to identify and eliminate barriers to investment.
In line with that same direct investment law, 100% foreign business ownership is permissible with the approval of the KDIPA. The economic activities that are not open to full foreign ownership are the extraction of crude petroleum, extraction of natural gas, manufacture of coke oven products, manufacture of fertilisers and nitrogen compounds, manufacture of gas, distribution of gaseous fuels through mains, real estate, security and investigation activities, public administration, defence, compulsory social security, membership organisations and recruitment of labour. Other activities are subject to the pre-existing law requiring all firms to have a minimum 51% Kuwaiti or GCC shareholding.
Privatisation
The Supreme Council for Privatisation (SCP) was founded in 2010 in alignment with the Privatisation Law, which was rolled out simultaneously. The council is central to driving progress towards the realisation of New Kuwait 2035 goals, with the objective of privatising 38 public sector entities and assets within two decades.
The country’s privatisation drive predates the council, however, with the privatisation of the former Mobile Telecommunications Company, now named Zain, taking place in 1999. Meanwhile, under the guidance of the council, 2019 saw Boursa Kuwait, the operator of the Kuwait Stock Exchange, privatised. More recently, in January 2023 the SCP announced that it had prepared preliminary studies for 12 privatisation projects related to power, utilities, transport and logistics, petrochemicals, media and aviation activities and entities.
The Kuwait Authority for Private Partnerships (KAPP) was established in 2014, replacing the former Partnerships Technical Bureau, with an updated Public-Private Partnerships (PPP) Law introduced in the same year. Since KAPP’s inception it has facilitated PPPs in areas such as affordable housing transport and power. Notably, PPPs related to power and water desalination activities are governed by the Independent Water and Power Plant Law of 2010.
The Sovereign Wealth Fund Institute lists the Kuwait Investment Authority (KIA) as the fifth-largest sovereign wealth fund in the world, with $803bn in assets in December 2023. The KIA is designed to both protect and strengthen Kuwait’s economic interests, overseeing the $700bn Future Generations Fund (FGF), the country’s flagship sovereign investment fund, and the multibillion-dollar General Reserve Fund, which is the repository for national oil revenue and income derived from FGF investment.
Strategic Investment
In July 2023 the government announced plans to launch a new sovereign investment fund, named Ciyada – which means “sovereign” in Arabic. The study and proposal for Ciyada was jointly formulated by the Ministry of Finance and KIA. The new entity is to operate as a strategic investment arm, with its mandate and eventual portfolio to reflect the areas of the economy targeted in the country’s overarching development plans.
A similar approach has been taken in Abu Dhabi, with its Mubadala Investment Company and state holding firm ADQ having been launched with a similar remit in 2017 and 2018, respectively. Both entities have since made sizeable contributions to Abu Dhabi’s robust economic expansion in recent years. The document detailing the Ciyada venture was submitted to Kuwait’s national assembly in July 2023 to outline the strategic direction the company would take, with a core focus on driving investment in high-value industries and advanced technology localisation. The feasibility study for the venture is expected to be finalised in July 2024.
Performance & Size
According to the IMF’s October 2023 World Economic Outlook Database, Kuwait’s real GDP displayed growth of 8.9% in 2022, representing the highest growth rate in the GCC that year. While the economy contracted by 0.61% in 2023, a positive growth rate is projected for 2024, at an estimated 3.6%. The country’s population of some 4.9m equated to a GDP per capita of approximately $32,200 in 2023. While the economy has grown considerably since the year 2000, it remains largely dependent on oil activities, with its growth pattern since 2008 reflecting the volatility of global oil prices. Notably, Kuwait has a robust current account balance, which in October 2023 was equal to 30.3% of GDP, according to IMF data.
The most recent GDP data offered by Kuwait’s Central Statistical Bureau (CSB) covers the year 2020. In the fourth quarter of that year the country’s top-five non-oil sectors in terms of GDP distribution were public administration and defence, contributing 14.6%; financial services (12.4%); other services (12.1%); manufacturing, wholesale and retail (6.9%); and accounting (5.6%). Meanwhile, on the back of elevated oil prices and rising post-pandemic demand, the country returned a trade surplus of KD19.6bn ($63.8bn) in 2022, nearly doubling the 2021 surplus, while the KDIPA approved KD106m ($345m) of foreign investment in 2022. In 2023 that figure rose to KD195m ($635m), bringing the cumulative volume of investment since the body’s founding to KD1.4bn ($4.5bn).
Budget
In 2022 Kuwait announced that its budget deficit had been reduced by 72.2% to just below KD3bn ($9.6bn) – the first time since FY2018/19 that the country had managed to narrow its deficit. The announcement was a significant boon for the government, considering its forecast that the country would that year run a deficit of about KD12.1bn ($39.4bn) that year. An 84.5% increase in oil revenue helped fuel the upswing. Kuwait built on that by recording a KD6.4bn ($20.8bn) surplus for FY2022/23 – the first time the country had finished a year in positive territory in nine years. Spikes in global oil prices were again the primary cause.
Nevertheless, the 2023/24 budget was announced with the anticipation of returning to deficit, with government spending forecast to reach KD26.3bn ($85.6bn), while revenue of KD19.5bn ($63.4bn) was anticipated, with oil accounting for KD17.2bn ($56bn) of that figure. Predicted expenditure is 11.7% higher than in the previous year’s budget. Salaries and subsidies account for 80% of outlay at KD14.9bn ($48.5bn), with that total representing another increase over the previous year when salaries cost KD13.3bn ($43.3bn). The downscaled forecast owes to an anticipated fall in oil prices that led the Organisation of the Petroleum Exporting Countries – of which Kuwait is a key member – to lower production quotas for the year.
In spite of the dampened outlook for the year, it was highlighted at the August 2023 announcement of the new budget that the government had not yet incurred a deficit for the current financial year, which began on April 1. Additionally, the government has stated that any deficit will be covered by public reserves. Notably, the government does not include the profit of its independent entities in budget forecasts. With those included, the projected deficit would close to KD5bn ($16.3bn). Overall, the budget for FY2023/24 is the largest budget ever issued by a Kuwaiti government.
Interest Rates & Inflation
The Central Bank of Kuwait (CBK) is working to facilitate and harness innovation throughout the banking system, with broad-based digitalisation key to that drive and central to its 2023-24 strategy for sustainable development. Bank lending has grown in Kuwait in recent years, with increases in 2021 followed up with expansion of 7.7% in 2022 and projected growth of 5% in 2023. The increase has been attributed to higher oil prices, the country’s young population and continued proliferation of employment opportunities in the public sector, with personal and real estate lending driving the trend. That is in spite of the fact that interest rates have steadily risen over the past two years, with the CBK raising its discount rate eight times between March 2022 and April 2023. The rate was again increased, to 4.25%, in July 2023, with the CBK stating that it would remain at that level until the close of 2023.
Diverging from the prevailing GCC trend of countries pegging their currency to the dollar, the Kuwaiti dinar is instead pegged to a basket of international currencies. That decision has come under scrutiny in recent years and has contributed to political impasse. According to the CSB, the producer price index (PPI) when measured across five key industrial activities displayed notable contractions between June 2022 and June 2023. The general index dropped by 28.9%, while the index for extractive industries contracted by 27.6%, oil extraction by 27.6%, manufacturing by 31.4% and refined petroleum products by 39.4%. Those decreases were attributed to the fall in global oil prices and the knock-on effect seen throughout Kuwaiti industry.
Overall consumer prices as recorded in August 2023 rose by 3.82% year-on-year, while the index rose by 0.15% between the months of July and August 2023. Those dynamics were influenced by the rise of various indices between August 2022 and August 2023, including the clothing and footwear indices, at 7.0%, food and beverages, at 5.7%, housing, at 3.2%, transport, at 3.1%, and health, at 2.6%.
Human Capital
Kuwait has a strong education sector that supports a skilled workforce, yet with a historical trend towards public sector jobs focused on administration and hydrocarbons activities, deepening and diversifying the local talent pool is a core component of overarching development agendas.
Kuwait’s labour force amounted to about 3m individuals in the first half of 2023 – a figure that included the 780,000 household workers employed in the country at that time. The non-household workforce expanded by 10% between 2022 and 2023. The average public sector salary for Kuwaiti employees was KD1538 ($5004) per month, while for non-Kuwaitis it was KD337 ($1096), not including household workers. Private sector salaries are generally much lower than public sector salaries, with the difference across certain metrics close to 40%.
At the close of 2022, the national workforce was composed of 83.8% public sector workers and 16.2% private sector workers, while Kuwaitis accounted for 79% of the public sector workforce. As the government aimed to increase Kuwaiti representation in the overall workforce in 2022, the addition of 12,000 Kuwaiti nationals was overshadowed by an 11% rise in the overall expatriate population. Consequently, the proportion of Kuwaitis in the workforce decreased from 18% in 2021 to 16.8% that year.
SMEs
The National Fund for SME Development was established in April 2013 as part of the government’s bid to expand the role of the private sector in fuelling economic growth. Its mandate aligns with efforts to reduce unemployment and enhance opportunities for the younger working-age population by encouraging entrepreneurship and innovation. The fund launched with KD2bn ($6.5bn) of financing and was mandated to provide up to 80% funding for qualifying enterprises. To qualify for funding, new companies must meet specific criteria, including employing between one and 50 Kuwaitis and ensuring that their start-up costs do not exceed KD500,000 ($1.63m).
According to reports published between 2020 and 2022, approximately 90% of private companies in Kuwait are SMEs, a figure comprising between 25,000 and 30,000 companies. The target in the post-pandemic era is to promote enterprise value creation among SMEs and enhance their contribution to the national economy. At present, the SME sector in Kuwait contributes about 3% to annual GDP, compared to 53% in the UAE. Those figures present a solid case for further development of Kuwait’s SME sector and vindicate the government’s intention to channel more funding into it.
In recent years Kuwait has seen a post-pandemic surge in start-up and SME creation, with significant improvements in business licensing implemented since 2017 that have cleared the path to establishing a company. Such developments offer cause for optimism, suggesting that the government’s drive to diversify revenue is bearing fruit, with a number of new SMEs set to mature around 2025.
Notable success stories in the SME sector in recent years include Kem, a digital payments platform established in 2021 that secured a pre-seed funding round of $1m in September 2023, an investment spearheaded by Kuwait-based investor Maqamees Holding and backed by various international financiers. Meanwhile, educational technology firm Baims, founded in 2017, raised $4m in a series A round in March 2023. Furthermore, it was announced in the same month that Indian molecular diagnostics start-up Mylab had entered into a joint venture with UAE-based AstraGene to establish a presence in both the UAE and Kuwait, demonstrating that the government’s drive to localise advanced technologies and biotechnology solutions was progressing.
Visas & Residency
The General Department of Residency, which works under the umbrella of the Ministry of Interior, handles visa and residency permit applications and processing. Residency visas are grouped into three main categories: work, domestic and dependent, or family. All three require sponsorship. Foreign nationals who have lived in Kuwait for an extended period are permitted to sponsor themselves, provided they can display evidence of sufficient finances. In order to obtain a work visa, a formal offer of employment must first have been accepted on the part of the applicant. Applicants intending to work for a private entity must provide clear criminal record documentation and various other details from their potential employer.
The government has taken various steps during 2023 to close loopholes in visa renewal processes. In March of that year over 5000 foreign residents were denied visa renewal due to having been out of the country for a time exceeding the specified limit of six months at the time of application.
New regulations were brought into force in September 2023 stating that residence permits will no longer be renewed while a foreign national has outstanding debts in the country. Furthermore, foreign nationals owing significant monies in the country will also not be allowed to leave Kuwait until their debt is cleared. Debts for government services can be settled online via the Sahel mobile application, which was launched in February 2022.
Northern Development
Central to Kuwait’s development agenda is the transformation of its northern territories. The flagship project proposed in that drive is the development of the Northern Economic Zone, also known as either Silk City or Madinat Al Hareer. Opposition to the development have contributed to Kuwait’s political stasis in recent years, given the new direction it would represent for the country’s economy, with some policymakers believing that the funding required to successfully implement the project would be better spent developing other areas of the economy. As a result, the project has faced significant delays.
The Northern Economic Zone is intended to run as a semi-autonomous special economic zone encompassing 250 sq metres and costing $132bn. The proposed site, located in the Subiyah district to the north of Kuwait City, is to be connected to Kuwait City by the Sheikh Jaber Al Ahmad Al Sabah Causeway, the construction of which was completed in 2019. It will be divided into four quarters – finance city, leisure city, ecological city and residential city – and will also contain new air and maritime ports. It is estimated that Silk City will create about 400,000 jobs for Kuwaitis upon completion.
Outlook
Prospects for Kuwait’s economic expansion and diversification look promising, with attractive foreign business ownership allowances and designated government authorities actively seeking private and international finance across a variety of investment models. The government’s focus on SME development provides significant opportunities for both investors and the local population to contribute to the development of the private sector and could yet prove to be the catalyst for broad-based, cross-sector economic modernisation in Kuwait.
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