Liberal Investment Climate to Boost FDI
Reduced Income Tax for Foreign Companies to Stimulate Investment

Kuwait’s economy, dominated by the oil industry is doing well. Thanks to rising oil prices, the economy is registering impressive growth rates; it showed a real growth rate of 6.5 percent to 7.0 percent in 2006, preceded by 8.1 percent growth rate in 2005. The economy grew in the last few years due to high oil prices and increased oil production capacity.

The current account surplus is also set to expand in 2008-09. Kuwait had been recording big value in crude oil export, which averaged from US$48.7 per barrel in 2005 to US$58.9 per barrel in 2006, a rise of 21 percent. Besides the oil industry, the country has two other major sources of revenue—payment of war damages by Iraq and overseas financial investment.

Foreign trade contributes around 95 percent to the GDP. Besides mineral fuels and oils, which represent 90 percent of the total exports; plastics, fertilizers, vehicles, and electrical and electronic equipment are also picking up volumes.

According to Business Monitor International, Kuwaiti real GDP growth for year 2007 was 6 percent. The forecast indicates a spurt in oil demand from 280,000 barrels per day (b/d) posted last year to 309,000 b/d in 2010; lagging the underlying rate of economic expansion. State owned oil company Kuwait Petroleum Co (KPC) is the main player responsible for all domestic oil and gas operations.

Project Kuwait

However, the energy sector is set to see a liberalised environment in the coming months; international oil companies will see greater involvement following the Project Kuwait initiative that aims to bring many foreign companies into Kuwait as sub-contractors. In spite of the absence of near-term international oil companies (IOC) investment, crude production is to increase from 2.64 million b/d in 2005 to 2.85 million b/d in 2010, subject to OPEC quotas.

The gas production is supposed to reach 15 billion cu m by 2010, up from 9.7 billion cu m last year. The consumption is expected to rise from 9.7 billion cu m to 21 billion cu m by the end of the forecast period, requiring imports of 6 billion cu m.

More FDI Expected

Of late, the Kuwait Government is on a new drive to augment foreign investment. The government’s decision to cut income tax to 15 percent from the erstwhile 55 percent is considered as a big step to attract FDI in Kuwait. Exuding optimism, Omar Al Quqa, Executive Vice President Global Investment House said, “The proposed law will attract investments of around US$100 billion in the oil and other sectors over the next 10 years. The country’s oil and gas sectors dominated the GDP with a record CAGR of 29.3 percent during the period 2001-05.”

Non-oil Sectors

The non-oil sectors also have started playing a fairly substantial role in boosting the country’s growing economy. Though agriculture has only a nominal contribution to the GDP due to the lack of arable land and irrigation infrastructure, the country can boast of large scale commercial fisheries. Among the non-oil sectors, food processing, desalination, building and construction, manufacturing of electronic products, cement, textiles, and fertilizers are emerging as prominent contributors.

In the country’s non-oil sector, there is a recorded earning of KD12024.1 million (US$43.93 billion) in 2006, an increase of 14.5 percent from the figure KD10501.2 million (US$38.47 billion) in 2005. The growth in the total value added in non-oil sectors in 2006 encompassed all sectors of economic activity.

Financial institutes contribute the highest share (68.1%) of the growth in the total value added in the non-oil sector. It grew by KD1036.8 million (US$3.79 billion) at 37.3 percent in 2006. Community, social and personal services come second to financial institutes in terms of its elative contribution of 16.4 percent to the growth in non-oil sectors. This segment recorded a growth of KD250.4 million (US$917.216 million) at 7.8 percent in 2006 compared to a growth of 9.4 percent in the previous year.

In addition, the growth rates are up in sectors such as transport, storage and communication, manufacturing industries excluding the refined petroleum products industry, real estate, other business services and insurance. Between 2005 and 2006, the growth was recorded in other areas like electricity, gas and water activity (4%-5.5%), construction (8.8%-9.7%), and agriculture, livestock and fishery (0.3% to 4.6%).

Scenario in Hydrocarbon Sector

Hydrocarbons extensively contribute to the growing economy of the country. About 10 percent of the world’s proven reserves, with crude oil reserves of around 94 billion barrels are located in Kuwait. Kuwait Petroleum Co (KPC), a state oil company, is the chief agency responsible for all domestic oil and gas operations.

The crude production is estimated to increase 2.85 million b/d in 2010 subject to Organisation of Petroleum Exporting Countries (OPEC) quotas. The country’s gas production is expected to reach 15 billion cu m by 2010.

Early Industrialisation

The first major push for industrialisation in Kuwait occurred with the establishment of the Ash Shuaybah Industrial Zone in 1964, which comprised electricity and water distillation plants, expanded port facilities, metal works, and plants manufacturing chlorine, asphalt, cement and pilings and prefabricated housing. The government provided necessary facilities as roads, gas, electricity, water, sewerage, port facilities, communications, and rented or leased industrial sites at nominal rates. Most of the larger industrial facilities were located in the zone. Other small manufacturing establishments were located in the populated parts of the country.

In 1974 the government created the Investment Bank of Kuwait to provide medium and long term industrial financing at low interest rates. The government also gave local industry preference in government purchases, protection from imports in some cases, and exemption from customs duties and taxes. In the 1970s, the government’s Industrial Development Committee and the Industrial Bank of Kuwait established a number of incentives for private-sector participation, such as technical aid and preferential guaranteed markets in state industry.

Expanding Infrastructure

Construction: Over the last few years, the construction industry in Kuwait has shown impressive growth rate. During 2006, it grew 7.5 percent year-on-year. According to Kuwait Infrastructure Report Q307, the construction industry is expected to grow at an average rate of 5 percent by 2011.

As the country boasts of owning around 10 percent of the total world oil reserves, the recent surge in oil prices has strengthened the country’s economy enabling the government to invest further in infrastructure development. In the next few years, the government is estimated to pump US$3 billion into the construction industry. In this context, a contribution of another US$8 billion is expected from the private sector.

Housing: The first phase of Boubyan Island Project is complete. The Public Authority of Housing has embarked on an ambitious welfare project of providing 69,000 new housing units to the citizens of Kuwait by 2014.

Other major projects in the country include establishment of new water desalination plants by 2012, the US$3.3 billion Failaka Island Development Project, the US$2 billion expansion of Kuwait International Airport (KIA), the Al-Zour refinery project, construction of a new campus for Kuwait University at Shadidiyah and an extensive road development programme including the construction of an eighth ring road.

Tourism: Despite the fact that the world’s perception of Kuwait is understandably focused on oil industry, the country has initiated its 20-year Tourism Master Plan in tandem with the World Tourism Organisation and the United Nations Development Programme. The big step was taken in 2004 and may mark Kuwait uniquely on the international tourist map.

An exotic tourist resort on Failaka Island is one of the ambitious facets of the Master Plan. Situated some 20 km off the coast of Kuwait City, in the Persian Gulf, Alexander the Great originally named Failaka Island as Ikarus, as he swept through the region on his way to India. Various unexplored archaeological sites on the island, including the Ikarus and Azuk temple sites, will be thrown open to visitors. There are remnants of a 4,000-year-old Bronze Age settlement and latter-day Portuguese and British battlements can be found. The island’s 24 miles of coastline and the US$3.3 billion development of hotels, shops, residences, a golf course and restaurants will offer visitors a plethora of leisure activities.

The future prospect of the country’s tourism sector was visualised by Talal Jassim Al-Bahar, Chairman of Kuwaiti-based and leading global resort developer, International Financial Advisors (IFA) Hotels & Resorts. According to him, Kuwaiti resorts will attract GCC residents—Saudis, Bahrainis, Omanis, Qataris, etc.

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