Eastern Promises

International trade

In light of stagnating oil prices, Kuwait has strengthened its trade ties in the Eastern hemisphere, notably with Malaysia and Japan, to help boost the country's infrastructure sector.

With oil revenues roughly accounting for half of Kuwait’s GDP as well as almost 90% of governmental income, the country’s key export commodity remains at the forefront of bilateral trade negotiations and agreements in 2016. What has become noticeable over the course of the last year, however, has been Kuwait’s strategic focus on refining trade ties with its East Asian and Southeast Asian partners.

This should not come as a surprise, given that South Korea, China, India, and Japan account for more than half of Kuwait’s total exports of mainly oil and gas products and fertilizers. And yet, the country’s challenging entanglement with “black gold” principally manifested itself in 2016, when Kuwait’s Central Statistical Bureau recorded a decrease in balance of trade by 76.2% compared to the first fiscal quarter of 2015. At the same time, Kuwaiti imports of machinery, electrical, and transport equipment, as well as base metals from China, the US, Saudi Arabia, the UAE, and Japan largely remained unaltered. Particularly due to a huge drop in oil exports, however, Kuwait is not only set to launch short-term financial stimuli to help balance the oil prices, but to further ensure that the government’s revenues are gradually diverted away from the oil and gas segment. Instead, the 2016/17 economic reform plan encourages investments to be channeled into the country’s burgeoning infrastructural projects, the health segment, or the telecommunications industry. Although various authorities, including the likes of the Kuwait Direct Investment Promotion Authority (KDIPA), the Kuwait Authority for Partnership Projects (KAPP), and the Central Tenders Committee (CTC), have facilitated conditions for foreign companies to directly invest into vibrant market segments, MNCs remain primarily involved in public-private partnerships and are hence hindered from obtaining full stakes in lucrative businesses and projects.

Nevertheless, the government’s diversification efforts are perhaps best illustrated by how Kuwait invigorates its geopolitical trade ties in the East Asian and Southeast Asian region. Having signed a trade agreement with Malaysia in March 2016, the Kuwaiti government, under the leadership of Prime Minister HH Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah, went on to expand Kuwait’s “comprehensive partnership” with Japan in May 2016.

The trade negotiations were predominantly characterized by the PM assuring the facilitation of business and investment conditions for either Malaysian or Japanese companies in Kuwait, such as abolishing the national offset program, all while highlighting Kuwait’s commitment to securing a stable supply of oil and gas products in light of a global energy market in the doldrums. Moreover, the PM and his respective delegations invited Malaysian and Japanese companies to become involved in infrastructural megaprojects such as the metro project, the Az-Zour North Independent Water and Power Project, or the integrated solar combined cycle. In fact, Kuwait’s five-year development plan (2015-2020) highlights the government’s ambition to attract FDI by tendering contracts for nearly 30 infrastructure projects. In this regard, Japanese companies are primarily active in Kuwait’s industrial and transport sector, while Malaysian companies have claimed their stakes in the country’s electricity and power projects. At the same time, both governmental entities and key industry players such as the country’s largest sovereign wealth fund—the Kuwait Investment Authority (KIA), Kuwait Finance House (KFH), and Agility Logistics—have expanded their investment portfolio in Malaysia and Japan. On the other hand, bilateral consortia, such as the Malaysia-Kuwait Business Council (MKBC), as well as the Japan-Kuwait Businessmen Committee (JKBC), have become platforms to maintain a policy dialog and to mutually advance business interests. However, while Japan’s trade relationship with Kuwait has been boosted through the annual JKBC since 1995, it was not until 2015 that the MKBC was launched. With the global energy market in crisis, Kuwait corroborated its confidence in the East Asian and South East Asian market, inviting regional corporations to become part of the nation’s ambitious plan to swiftly diversify its economy through promising investments into Kuwait.