What Kuwait needs to do to boost FDI

Key obstacles

Kuwait's complicated business environment remains a key obstacle for investors, with its own nationals often opting to invest in GCC countries and abroad rather than at home

Politics also plays a key role in obstructing reforms. Before the KDIPA, there were attempts to attract foreign companies to develop the northern oil fields.  But political squabbling between the country's legislative and executive branches has meant that major development projects in the country are often delayed, slowed down or even scuppered.

A major setback occurred after a high-profile deal in the petrochemical industry between the government and Dow Chemical of the United States was cancelled due to obstruction by the National Assembly. As a result, Kuwait had to pay $2.16bn in punitive damages, as stipulated in the contract.

Kuwait's real estate sector has been an industry almost completely cut off from Foreign Direct Investment (FDI), as foreigners are only authorised to buy property of 1,000 square meters or less, with further regulations and conditions also applying. Registering properties owned by Kuwaiti companies listed on the stock exchange with foreign investor partners is also extremely complicated, disincentivising foreigners to invest in the real estate market.

Promising sectors

The oil sector remains an attractive investment opportunity, particularly in exploration and refining. However, since the nationalisation of oil in the 1970s, the role of foreign companies has been limited to providing services and technical support, without participating directly in production or ownership of refineries or petrochemical companies.

Kuwait Petroleum Corporation (KPC) has an opportunity to strengthen its partnerships with international companies. This would enable it to increase production capacity, improve efficiency, and address the technical difficulties local companies face in production operations.

For its part, the downstream sector, which includes crude oil refineries and oil- and gas-dependent manufacturing industries, should be opened up more to foreign investment. Given the growing demand for petrochemical products, this sector promises high opportunities for reward.

Meanwhile, Kuwait's tourism industry also shows promise, but the local population base lacks the necessary experience and knowledge to lead such projects, and foreign expertise and investment will be required to develop this sector, at least in the short and medium terms. Other non-related factors also need to be improved to help attract FDI to the tourism sector, such as easing entry procedures for visitors, and organising diverse events that attract visitors from neighbouring countries, including sports activities, exhibitions, and festivals, as well as marketing consumer products.

Notable progress

Although the road ahead is long and arduous, there has been some notable progress in the past year in peeling back the red tape that has been holding the country back, such as adopting modern technology to issue licenses and register companies. The government has also helped companies recruit skilled labour needed to promote growth, enhance productivity, and increase competitiveness.

But these efforts must be complemented by comprehensive structural reforms that wean the country off its reliance on government spending. Instead, efforts need to be channelled into promoting human development and creating a robust and skilled workforce capable of leading and growing vital sectors.