Go With The Flow

Attracting FDI

According to a decade’s worth of UNCTAD World Investment Reports, Kuwait has consistently been the GCC region’s largest international investor—an impressive distinction for a country that is itself characterized as […]

According to a decade’s worth of UNCTAD World Investment Reports, Kuwait has consistently been the GCC region’s largest international investor—an impressive distinction for a country that is itself characterized as a developing, transition economy. Kuwaiti capital moves through the Kuwait Investment Authority (KIA)—the first sovereign wealth fund in the world—and through Kuwaiti investment companies and individual investors that underpin investments, whether through acquiring prime commercial real estate in cosmopolitan cities like London or New York, or funding infrastructure projects in developing economies across the world.

As a result of Kuwait’s relatively small economy and high levels of foreign exchange reserves, Kuwait is expected to increase its direct investments abroad, but what of the investment potential that exists at home

Kuwait is characterized as an economy in transition. However, its transitioning can be better understood by analyzing the shifts that have occurred recently in local legislation over the past few years. International investors, corporations, SMEs, and entrepreneurs alike, can take advantage of opportunities in the country, due in part to shifts in regulations in the local business and investment environment, which are opening up new channels for commercial participation in Kuwait’s economy.

To compliment the already favorable tax environment in Kuwait, which stands as one of the most attractive in the world, Kuwait has taken major pro-business steps toward attracting and facilitating investment inflows.

The establishment of the Kuwait Direct Investment Promotion Authority (KDIPA) is one such step, acting as a one-stop-shop for international investors in Kuwait. Dr. Meshaal Jaber Al Ahmed Al Sabah, Director General of KDIPA, explained the implications of Kuwait’s revamped FDI regulations, stating that, “The new investment law has allowed for various legal entry points for foreign investors to establish a Kuwaiti company in accordance with the new commercial companies’ law in Kuwait, allowing for 100% foreign ownership for Limited Liability Companies, Shareholding Companies, and One Person Companies. Furthermore, Law No. 116 of 2013 allows for opening foreign branches and representative offices as other available alternatives, based on the needs of foreign companies.“

Kuwait is beginning to listen to international investors and working to balance the needs of foreign companies with its own. When asked how FDI can play a bigger role in Kuwait’s economic development, Director General of the Kuwait Chamber of Commerce & Industry (KCCI), Rabah A. Al Rabah, explained that, “One positive change in FDI law has been the suspension of the Offset Program, which has been a disincentive for foreign investors in Kuwait. The program mandated that any company doing anything for the Kuwait government for over $164.2 million had to reinvest the equivalent of 35% back into Kuwait over the next ten years. We thought this was a disincentive for FDI, as it was making projects around 6% more expensive. Based on the feedback we received from international investors—especially those coming into oil—we requested that the Offset Program be suspended. With the program stopped, we will see lower costs and we expect an increase in foreign interest as a result.“

The past few years have seen a huge legislative shift in attempts to make Kuwait more business and investor friendly. KDIPA is now positioned to issue licenses to foreign investors, allowing companies to be 100% foreign owned and receive a tax-free holiday for up to ten years. There have been significant improvements in the new PPP law in advance of the pipeline of government projects to come out of the five-year Kuwait Development Plan (2015-20). These improvements have opened up Kuwait, as companies no longer require a Kuwaiti agent or partner to operate in the country.

Other positive improvements towards attracting investor interest in Kuwait abound. While the general consensus seems to be that the bureaucracy and barriers to doing business still outweigh the improvements, Kuwait is moving in the right direction on the path toward becoming a more attractive investment destination on the global stage. The balancing act between foreign and local investment and the role each is set to play in Kuwait’s economic growth remains to be seen, but the stage is being set, with many taking advantage of the opportunities present in Kuwait.