Kuwait’s government is actively seeking sizeable private and international investment in its economic diversification and privatisation drive. Therefore, it has made significant amendments to the country’s investment laws, a process which gathered pace around 2010. A strong hydrocarbons sector feeds downstream industry, providing readily available feedstock and significant incentives for private investors to enter the country’s industrial markets.
In recent years, a political impasse has impeded progress, a trend most recently exemplified in February 2024 by the emir’s dissolution of Parliament. This in turn has resulted in a subsequent slowdown in investment inflows. The development of a more business-friendly political environment could significantly benefit the country. In such a scenario, the aforementioned regulatory changes are poised to contribute positively, fostering increased investment inflows and supporting a robust balance of trade.
Key Authorities
The Ministry of Commerce and Industry (MoCI) was originally established in 1963 as the Ministry of Commerce and has since played a prominent role in trade and investment activities in Kuwait. The MoCI’s duties include the organisation and promotion of internal and external commercial activities, supervision of those activities in accordance with Kuwaiti and international trade and investment laws and regulations, development of domestic production, export facilitation and promotion, supervision of import-related companies and issuing and monitoring commercial licences. A significant development came in June 2023 when the MoCI issued the country’s first business licences for activities that do not require ownership or rental of commercial premises.
The Kuwait Investment Authority (KIA) is the fifth-largest sovereign wealth fund in the world and the second-largest in the Middle East – behind the UAE’s Abu Dhabi Investment Authority – with an asset sheet that expanded in value from $750bn to $803bn between April 2022 and July 2023. Since its foundation in 1953 the KIA’s role in Kuwait’s economic activities has evolved, with the entity now instrumental in diversifying national revenue streams, and stabilising and preserving the country’s wealth.
The KIA’s strategy sees it investing in high-performing, high-value companies to deliver long-term, risk-adjusted returns to aid the nation’s financial prosperity. Its strategically developed global footprint sees its portfolio extend into multiple emerging markets, in addition to more traditional investment destinations across the Americas, Europe and the Middle East.
The KIA holds significant stakes in US-based asset management giant BlackRock, the UK’s Associated British Ports and Wall Street banks Citigroup and Merrill Lynch. Meanwhile, Kuwait plans to launch a new sovereign investment fund, Ciyada Development Fund, which is designed to drive infrastructure development and economic diversification.
Regulation Updates
Laws and regulations pertaining to foreign direct investment (FDI) were updated in 2013, with the Kuwait Direct Investment Promotion Authority (KDIPA) launched simultaneously to oversee and manage inward investment activities. The aforementioned law brought a significant easing of FDI regulations, opening a number of sectors for 100% foreign business ownership, provided certain conditions and criteria are fulfilled (see Economy chapter). The following activities were restricted from foreign investment: crude oil extraction; natural gas extraction; manufacture of coke oven products; manufacture of fertilisers and nitrogen compounds; manufacture of gas or distribution of gas-based fuels through mains systems; real estate (with the exception of privately operated building developments); security and investigation activities; public administration and defence, or compulsory social security; membership organisations; and activities related to labour recruitment. In addition to processing incoming investment proposals, the KDIPA targets investors whose presence in Kuwait would be of benefit to overarching development agendas.
Other laws and authorities involved with investment activities in Kuwait include the Kuwait Authority for Partnership Projects (KAPP) and the Supreme Council for Privatisation (SCP). The former was launched in 2014 alongside an updated law to govern public-private partnerships (PPPs), while the latter was established in 2010 with the remit of overseeing the expansion of the private sector and the privatisation of a host of public services and government-dominated activities.
Since the formation of KAPP and SCP, they have facilitated significant developments in accordance with their remits, with areas such as infrastructure, power and water treatment seeing notable investment. Furthermore, the SCP was the key entity in organising and overseeing the 2019 privatisation of the Kuwait Stock Exchange, known as Boursa Kuwait, and in 2021 announced its intention to privatise up to 38 public services and entities within two decades, with feasibility studies for 12 of those projects released in 2023.
Investment Inflows & Incentives
The KDIPA approved direct investment with a value of KD193m ($628m) in FY 2022/23. Between January 2015 and March 2023 the total investment processed by the KDIPA carried a cumulative value of nearly KD1.5bn ($4.9bn). This influx of capital has seen companies involved in areas such as ICT, oil and gas, construction, health care, environment, aviation and insurance establish operations in the country, demonstrating the KDIPA’s importance to the government’s diversification efforts. Meanwhile, the aforementioned investment for the period 2015-23 was made by 69 separate entities across 26 countries.
Demonstrating the broader economic benefits of FDI, spending from licensed investment entities operating in Kuwait rose by 15.2% between 2015 and 2021 to KD795m ($2.6bn). As is the case with the government more broadly, the KDIPA is working to digitalise its services and procedures in order to create a more fluid and efficient business environment, ultimately making the country a more attractive investment destination.
Indeed, requests for investment applications are to be made through the KDIPA’s online portal, with the authority stating that it will respond within three days. Potential investors then have 30 days to submit a proposal, with the KDIPA’s response time dependent on the scale and nature of both investment and investor. The KDIPA’s website provides details of a range of guarantees and incentives regarding business establishment and operation, including but not limited to: capital repatriation permission, exemption from income tax and all other forms of tax for a period of up to 10 years, Customs, tax and fee exemption on a range of items and products, permissions to hire foreign staff and the KDIPA land usage approvals.
Requirements & Obstacles
Barriers to trade in Kuwait generally centre on complex bureaucratic procedures, such as those undertaken during tendering processes or when completing sales to the government or related entities. The intricate nature of legal documents pertaining to shipping activities also presents a potential obstacle given that incorrect submission necessitates a repeat of formalities, although Kuwait’s Customs service has made significant strides in streamlining trade by digitalising operations.
Other issues cited involve the cost of doing business, and occasionally contradictory laws and regulations. There is also a preference shown to domestic entities – an issue cited in relation to other GCC economies as well. Insufficient intellectual property (IP) protection has been raised as a deterrent, although the government periodically revisits IP regulations and the current law offers protection for original works. The KDIPA also offers assistance during the investment process and is seeking to attract private finance into the economy.
With the drive to diversify economies and grow the private sector a key theme across the GCC, significant recent developments IP and investment regulation in markets like Saudi Arabia and the UAE may spur further action from Kuwaiti authorities, in light of strong regional competition across the areas of the economy targeted by the government for private investment.
Trade Balance
Driven by oil exports, Kuwait historically runs a trade surplus. Indeed, when viewed over a 10-year period, the country’s balance of trade clearly demonstrates the importance of oil prices, with the surplus lurching from close to KD20bn ($70.5bn) in 2014 to under KD7bn ($24.7bn) in 2015. While remaining in positive territory, the balance did not exceed the KD10bn ($35.2bn) mark again until 2018, when it was close to KD11bn ($38.8bn), before it again dipped to KD9.4bn ($33.1bn) in 2019. The effects of the Covid-19 pandemic then brought the most significant drop in recent years as the trade surplus dropped to approximately KD3.7bn ($13bn) in 2020.
The years following the pandemic brought a healthy recovery driven by hikes in global oil prices, with the balance of trade touching KD11bn ($38.8bn) in 2021 before nearly doubling to KD19.6bn ($69.1bn) in 2022.
In 2022 the total export value rose by around 49% from 2021 to reach a value of KD30.7bn ($108.2bn), with re-exports accounting for around KD670m ($2.4bn) and products of national origin valued at KD30bn ($105.7bn). Oil and its by-products accounted for KD28.7bn ($101.1bn) – or 93% of total export value – an increase of 51% from the previous year. Imports have also risen post-pandemic, growing from KD8.5bn ($30bn) in 2020 to KD11bn ($38.8bn) in 2022, with the latter figure surpassing the pre-pandemic 2019 total of just over KD10bn ($35.2bn). The total value of trade in 2022 came to approximately KD42bn ($148bn), a rise of 39% from the previous year.
Meanwhile, export value for the first quarter of 2023 was KD6.6bn ($23.2bn), 8.3% lower than in the corresponding period of 2022. The overall trade balance for the first three months of 2023, although still strong, was KD9.6bn ($33.9bn), which was just over 1% lower than in the first quarter of 2022. Those dynamics Top-five export partners, 2022 Source: CSB 0 5 10 15 20 25 30 35 Saudi Arabia China Pakistan India UAE align with the government’s forecast for lower revenue during 2023 due to a drop in global oil prices.
Exports & Imports
In 2022 the top-five exports by broad category and value were: mineral products, at KD29bn ($102.2bn); products of the chemicals and allied industries, at KD750m ($2.6bn); vehicles, aircraft, vessels and associated transport equipment, at KD295m ($1bn); plastics and articles thereof, at KD181m ($637.8m); and machinery and mechanical appliances, parts and image and audio-related equipment, at KD149m ($525m).
In the first three months of 2023 the top itemised list of exports was dominated by oil and gas and their derivatives, whereas the most notable y-o-y growth between the first quarter of 2022 and the first quarter of 2023 was seen in the following categories: non-monetary, unwrought, semi-manufactured or powdered gold (311%); polyethylene with a specific gravity higher than 0.94 (172%); liquefied, unsweetened milk and cream (145%); polyethylene with a specific gravity lower than 0.94 (113%); and motor vehicles for the transport of 10 or more persons with compression ignition internal combustion engine (68%).
Meanwhile, in 2022 the top-five imports were machinery and mechanical appliances, electrical equipment and sound and image-related equipment, with a value of KD2bn ($7bn); vehicles, aircraft, vessels and associated transport equipment, with KD1.5bn ($5.3bn); products of the chemicals and allied industries, with KD1.2bn ($4.2bn); base metals and articles of base metals, with KD1bn ($3.5bn); and natural or cultured pearls, precious or semi-precious stones, and metals and related articles, with KD752m ($2.6bn).
Trade Partners & Alliances
As part of the GCC, Kuwait benefits from the bloc’s overarching Customs agreement, which allows people to move freely between the six member states, while goods entering the zone incur a one-off 5% duty at the point of entry with no subsequent charges applied – irrespective of how many borders are crossed before goods reach their final destination. GCC membership also includes Kuwait in the bloc’s free trade agreements (FTAs) with Singapore and the European Free Trade Association (which incorporates Iceland, Liechtenstein, Norway and Switzerland), signed in 2008 and 2009, respectively. Meanwhile, as of November 2023 there had been five rounds of discussions regarding a GCC-UK FTA, with the sixth scheduled for the first quarter of 2024. Both sides remain positive that an agreement will be reached. Furthermore, in 2004 Kuwait and the US entered into a trade and investment framework agreement, which has since seen periodic ratification and has contributed to the enhancement of commercial and diplomatic relations between the two nations.
In 2022 the UAE was Kuwait’s largest export market, with Saudi Arabia, India, China and Pakistan making up the top five. Meanwhile, China was the country’s primary supplier of imported goods, followed by the UAE, India, US and Saudi Arabia.
The strengthening of trade relations between Kuwait and the UAE has seen the value of bilateral trade between the two GCC economies rise by 87% over a decade, from Dh23.3bn ($82.1bn) in 2013 to Dh43bn ($151.5bn) in 2022. Total Kuwait-UAE trade during that period amounted to KD316bn ($1.1trn), while non-oil trade expanded by 13% between 2021 and 2022, reaching KD43.5bn ($153.3bn).
Additional developments have seen trade between Vietnam and Kuwait grow to a value of around $5.5bn annually, with Kuwait exporting $5bn worth of oil to the South-east Asian nation and around $500m of goods travelling the opposite direction into Kuwait. Those strong trade relations are a result of healthy diplomatic ties, which came to fruition in 1976 and have since been maintained and reinforced by highlevel diplomatic visits between the two countries.
Bilateral trade between Kuwait and India is also on an upward trajectory, with the total reaching KD872m ($3.1bn) in 2022. The Kuwait-India trade profile is currently characterised by Kuwaiti oil exports and imported Indian food products, yet officials on both sides of the partnership feel that there is the potential for expansion and diversification – particularly in the area of direct Kuwaiti investment into India.
Trade & Investment Zones
Kuwait’s drive to attract $200bn in FDI inflows between 2020 and 2035 includes a strong focus on both physical and digital infrastructure development. The underdeveloped northern regions are at the heart of those plans, as is the development of a number of special economic and trade zones, strategically positioned throughout the country. Two of those zones – Al Wafra Economic Zone and Al Naayem Economic Zone – are still in early stages of planning, with tendering for the former expected to begin in 2024 or 2025, while the latter was still in the preliminary phases as of the time of writing.
The Al Wafra Economic Zone will be the largest of the KDIPA’s planned zones, at 7 sq km. It will be situated 65 km south-west of Kuwait City in the Ahmad Economic Governorate. The zone will be a centre for so-called clean industry development, providing a platform from which innovative companies can help develop emerging, lucrative value chains, featuring a range of support mechanisms for start-ups and small and medium-sized enterprises. Al Naayem Economic Zone will have a footprint of around 6 sq km, some 70 km to the west of Kuwait City. It will support core industries and land-intensive activities, such as renewable energy generation, and will benefit from close proximity to the GCC rail network, plans for which appear to be progressing following years of stagnation.
Al Abdali Economic Zone
Of the three zones currently in the planning phases, Al Abdali Economic Zone (AEZ) is at the most advanced stage, with plans and structural frameworks approved in March 2022. The AEZ is a core component of the aforementioned northern development and will be constructed on a 5-sq-km expanse, some 90 km north of Kuwait City and Kuwait International Airport. Set to house 35,000 residents, it will be the country’s first smart, sustainable city, offering a modern commercial centre and various business, industry and investment clusters, designed to draw private finance into the country. The AEZ’s location provides access to the broader GCC region and will be supported by both the GCC rail network and Mubarak Al Kabeer Port – another key element of the country’s northern development plans. That connectivity sees the government looking to harness the AEZ as a strategic export centre.
Indeed, the zone’s proximity to Kuwait’s main oil fields will support petrochemicals and broader manufacturing activities as well as waste management, logistics and retail operations, with advanced digital infrastructure designed to underpin e-commerce development. As previously mentioned, the KDIPA is discussing financing options, and using the AEZ in its investment promotion and targeting activities.
The government is also updating regulations regarding the dimensions of storage and industrial facilities, with facilities that stand 16 metres tall permitted in the AEZ, while 13 separate land usage allowances afford investors flexibility regarding business operation and revenue diversification. The government is pursuing diversification in the AEZ to broaden industrial output. The zone is expected to create 23,600 jobs in the industrial, logistics and supporting sectors, and 3340 jobs in the commercial and residential sectors.
Outlook
Kuwait’s economic diversification aspirations hinge on its ability to draw sizeable private investment from the international business community. Development plans and allowance for full foreign business ownership could prove attractive to international investors looking to establish operations in the Middle East. To realise its potential in that respect, it will be important that the country has political cohesion and is open to engagement with the private sector. With those pieces in place, Kuwait should be able to build on its already strong trade performance to diversify exports and industry and create new revenue streams, further harnessing its strong sovereign mechanisms to expand its global investment portfolio and footprint.
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