Kuwait profile, Operating a business in Kuwait

Operating business in Kuwait

Kuwait is a very good choice to start your business in. Kuwait offers various investment opportunities to budding entrepreneurs because of its strong economy, supportive government, and ease of doing business because of certain laws and regulations.

Economic Indicators

Kuwait is a rich country and has developed a welfare state for its nationals, who enjoy a very high per capita income. After registering a negative growth in 2017 (-3.3% due to a drop in hydrocarbon prices), the economy recovered during 2018 and grew by 2.3%. Such trend is expected to continue in the upcoming years, with the IMF forecasting a 4.1% growth for both 2019 and 2020. Outside the oil industry (which represents around 50% of the country’s GDP), activity has remained supported by the implementation of the five-year Development Plan (2015-2020), which contains several large infrastructure, transport and refinery projects. Kuwait is trying to position itself as the entryway for investment in the area. The public sector dominates the economy and concentrates three-quarters of the country’s wealth.

Kuwait’s public finances are relatively healthy, with debt-to-GDP ratio falling to 18.8% in 2018, from 20.6% the previous year. The country’s primary balance has been negative in recent years, but should return positive in 2019-20. However, when taking into account the investment income of the sovereign wealth fund (the Kuwait Investment Authority), the current account was positive by 11.3% in 2018. Historically, oil revenues have helped fund a particularly generous welfare system (automatic access to public employment, artificial maintenance of public service fares, prices of basic products kept at a very low level, high subsidies for home-buyers, generous medical insurance, etc.). Inflation was low in 2018 (0.8%) thanks to the decision to postpone the introduction of VAT until 2021 and a fall in rental and food prices; however it is expected to pick up to 3% in 2019 (IMF).  In 2018, one third of government expenditure will again be destined to civil servant salaries. The Al Sabah royal family is at the head of Kuwait, which is formally a parliamentary monarchy. In recent years the relations between the 50-member parliament (elected in 2013) and the cabinet have been tense as the opposition supports a stronger parliamentary system. Concerning the country’s foreign policy, Kuwait is playing a mediator role in the diplomatic conflict between Qatar and Saudi Arabia, Bahrain and the UAE.

According to the IMF, Kuwait has the seventh GDP per capita (PPP) in the world, however most of this wealth is concentrated in the hands of local citizens, while the majority of workers (especially from Asia) live in poor conditions. That is why at the end of 2018 Kuwait signed an agreement with India on the situation of expatriate workers (Indians constitute the largest expat community, with workers often having poor working and living conditions). Unemployment rate is almost non-existent, and is estimated at 1.1%.

Foreign Trade in Figures

Kuwait is highly dependent on foreign trade, which represented 98% of the GDP (World Bank). Representing over 90% of export earnings and almost 60% of the GDP, Kuwait mainly exports oil (and to a lesser extent petroleum gases). On the other hand, the country depends particularly on imports of food products, consumer goods and semi-finished products. Imports have increased quickly in recent years due to the country’s undertaking of large projects and a high private consumption demand, and for 2017 they were led by motor cars, machinery, radio-telephony transmission tools, medicaments and jewellery.
Kuwait exports to a wide number of countries, the main ones being India (1.4%), Saudi Arabia (1.2%), the UAE (1.1%) and China (0.9%). Kuwait’s largest suppliers are the EU as a whole (23.3%), China (16.4%), the United States (10.3%), the UAE (8.7%) and Saudi Arabia (5.5%). Imports from other Gulf countries have increased since joining the GCC (Gulf Cooperation Council).
The county’s exports quadrupled since 2002. In 2017 export grew 21.2%, to reach USD 55.8 billion. However, this figure is still low compared to 2013-14, when the country exported more than double this value (in fact, Kuwait’s level of export depends heavily on the fluctuating commodity market). Imports rose at a slower pace (6.2%), totalling USD 33.4 billion.
Kuwait has a structurally positive trade balance, however the country is a net importer of services. In 2017, Kuwait’s trade balance was USD 25.648 billion. Hence, when computing both goods and services, the trade surplus stood at around 2.3% of the country’s GDP in 2017 (World Bank estimates).

Foreign Trade Indicators20132014201520162017
Imports of Goods (million USD)29,29931,48431,53931,45533,432
Exports of Goods (million USD)115,105104,31555,09246,03255,832
Imports of Services (million USD)19,87322,33822,99326,23927,559
Exports of Services (million USD)5,5945,6845,6765,5274,607
Imports of Goods and Services (Annual % Change)-0.18.06.81.1n/a
Exports of Goods and Services (Annual % Change)-4.01.4-0.91.8n/a
Imports of Goods and Services (in % of GDP)26.731.544.946.4n/a
Exports of Goods and Services (in % of GDP)70.968.553.848.2n/a
Trade Balance (million USD)90,16977,40727,99320,05425,648
Trade Balance (Including Service) (million USD)75,34459,88810,252-7652,937
Foreign Trade (in % of GDP)97.6100.098.794.7n/a

Source: WTO – World Trade Organisation ; World Bank, 2016

The close shareholding company
Number of partners: Minimum 5 partners, with no maximum.
Capital (max/min): KWD 250,000 minimum capital.
Shareholders and liability: Partners’ liability is limited to the amount contributed.
Limited Liability Company
Number of partners: Minimum 2 partners.
Capital (max/min): KWD 7,000 minimum capital.
Shareholders and liability: Partners’ liability is limited to the amount contributed.
Joint Venture (majority owned by a Kuwaiti)
Number of partners: Minimum 2 partners. Maximum 30 partners.
Capital (max/min): Minimum capital of KWD 7,000. 51% of the capital must be Kuwaiti.
Shareholders and liability: Partners’ liability is limited to the amount contributed.
General Partnership
Number of partners: Minimum 2 partners.
Capital (max/min): KWD 7,000 minimum capital.
Shareholders and liability: Partners’ liability is limited to the amount contributed.
Limited Partnership
Number of partners: Minimum 2 partners. Two types of partners: dormant partners and active partners.
Capital (max/min): KWD 7,000 minimum capital.
Shareholders and liability: Liability of active partners is unlimited. The liability of dormant partners is limited to the amount contributed.
The Competent Organisation
The Ministry of Commerce (in Arabic) issues the commercial license required to perform any commercial activity.  For certain activities, a license must be obtained from other ministry departments as well such as health, communications, etc.

FDI in Figures

Kuwait has always been a country open to foreign investment and is further opening to foreign capital, however, FDI is still underdeveloped in the country. According to UNCTAD’s World Investment Report 2019, the lack of diversity in the economy and the fall in oil prices since 2014 caused the decrease of inflows also registered in 2018. This decline began in 2012 and Kuwait’s investments did not achieve to recover. Inflows reached USD 346 million in 2018, staying relatively stable compared to 2017’s USD 348 million. The FDI stock decreased by 2.2% in 2018, totalling USD 14.7 billion (10.5% of the GDP). The bulk of investments are directed towards the oil & gas sector, followed by real estate/construction and financial services. The majority of foreign investments come from the United States and China.

With the decline in oil revenue, the government seeks increased foreign investments as it plans to diversify its oil-dependent economy, and has taken a number of steps towards achieving this goal. The current policy to promote FDI focuses on a number of sectors that can most benefit from foreign investment and expertise. A law on foreign investment, enacted in 2013, was implemented in 2015 and a series of other laws related to businesses and public-private partnerships were introduced as well. The law allowed 100% foreign ownership in a number of sectors and also made available a number of tax breaks and other benefits to attract new investors, who in return must guarantee a set of quotas regarding the employment of Kuwaiti nationals. Further steps have been taken: allowing the opening of the stock market to non-Kuwaitis, the presence of foreign operators in the petrochemical industry and the entry of foreign banks in the country. The industries covered by the FDI Law that allows 100% foreign ownership, include: infrastructure (water, power, wastewater treatment, and communications); insurance; information technology and software development; hospitals and pharmaceuticals; air, land, and sea freight; tourism, hotels, and entertainment; housing projects and urban development; and investment management.

Despite these efforts, Kuwait still ranks low in the 2019 Doing Business report established by the World Bank (97th out of 189 economies, losing one position compared to the previous year). In fact, the country is still dependent on the oil & gas sector; hence, sensitive to commodities prices fluctuation, and the degree of state intervention in the economy is considered too high. Furthermore, the local market is limited in size and the political situation is fragmented, with tensions between the parties.

 

Country Comparison For the Protection of Investors

Foreign Direct Investment201620172018
FDI Inward Flow (million USD)419348346
FDI Stock (million USD)14,96815,20714,742
Number of Greenfield Investments***311728
FDI Inwards (in % of GFCF****)1.0n/an/a
FDI Stock (in % of GDP)13.0n/an/a

Source: UNCTAD, 2019

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country’s Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

 

What to consider if you invest in Kuwait

Strong Points

Kuwait has several advantages for attracting FDI:

  •  Abundant oil reserves (the country has the 7th largest oil reserve in the world) which provide the country with considerable and stable revenues
  • A strategic role in the political sphere of the region (the country is considered a very good ally of the United States)
  • A young local population with a high average income and high domestic consumption
  • A well-managed financial market and a strong banking sector
  • Good quality infrastructure
  • A globally positive business environment: the Kuwaiti government, through its desire to diversify its economy, has embarked on a policy of economic openness to foreign investment.

Weak Points

Kuwait has some obstacles to its economic development. They include:

  • Necessary structural reforms that are hard to take hold because of a tormented political life and strong tensions between the parties
  • Extreme dependence of the economy on the performance of the oil sector and in particular on the price of a barrel of oil
  • A high degree of state intervention in the national economy (the civil service provides 90% of the jobs of nationals and the budget is 60% punctured by these current expenditures) which weakens the emancipation of a strong private sector
  • The geographical location makes the country particularly vulnerable to political tensions in the region
  • A  business environment with legislation that restricts the freedom of establishment of non-nationals and that does not sufficiently protect intellectual property

Government Measures to Motivate or Restrict FDI

In order to promote the diversification of its economy, Kuwait has set up the Kuwait Development Plan (KDP) for the 2015-2020 period. This plan is aimed primarily at transforming the country’s financial and commercial platforms. A significant investment in the country’s infrastructure and human resources and regulatory reform will create an environment conducive to attracting foreign investors and promoting Kuwait as a regional service centre. In addition to seeking to further involve the private sector in infrastructure projects, the government plans annual spending of $32 billion, half of which will be spent on investments in projects considered highly strategic:

  •     New refinery ($16 billion) and Clean Fuel Project ($13 billion), which will increase the refining capacity and quality of refined products in the country
  •     New Mubarak Port Al-Kabeer on the island of Boubyan ($7.9 billion), which will help solve the current problems of maritime traffic in the country
  •     Expansion of the international airport ($5.8 billion) and rail and metro projects that will help develop the country’s communication infrastructure

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