2009 Investment Climate Statement - Kuwait

2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009

Openness To Foreign Investment

The State of Kuwait controls nine percent of the world's proven petroleum reserves, earning approximately KD 13.9 billion (USD 51 billion) from energy exports in the first half of the 2008/2009 fiscal year (September 30, 2008). Kuwait, which has a population of approximately three million, including approximately two million expatriate workers, has a nominal 2008 gross domestic product of KD 41.8 billion (USD 156.0 billion). Kuwait's national budget is overwhelmingly reliant on petroleum revenues. Efforts to diversify the economy have been impacted by paltry foreign direct investment (FDI): in 2007, Kuwait attracted only USD 123 million in FDI, the lowest of all the nations in the Middle East and North Africa (according to UNCTAD). According to the World Bank report, Doing Business 2009, Kuwait is ranked 52 (out of 181 countries) in terms of ease of doing business and 134 with respect to starting a business.

Despite FDI-friendly legislation, major barriers to foreign investment remain, including regulations limiting foreign entities from participating in the petroleum and real estate sectors, long bureaucratic delays in starting new enterprises, and a local business culture based on clan and family relationships that often precludes foreign participation. More importantly, Government unwillingness to challenge a populist parliament, suspicious of major deals involving foreign companies, serves as a significant barrier to investment, as does the ability of a few parliamentarians to significantly delay (or kill) major projects.

Under Kuwait's Direct Foreign Capital Investment Law of 2001, foreign firms are permitted 100 percent foreign ownership in certain industries including: infrastructure projects (water, power, waste water treatment and communications); investment and exchange companies approved by the Central Bank; insurance companies; information technology and software development; hospitals and pharmaceuticals; air, land and sea freight; tourism, hotels, and entertainment; and housing projects and urban development. Projects involving oil and gas exploration and production are not authorized for foreign investment and must be approved by a separate law.

The Direct Foreign Capital Investment Law, designed to promote foreign investment in Kuwait, authorizes tax holidays of up to ten years for new foreign investors; facilitates the entry of expatriate labor; authorizes land grants and duty-free import of equipment; provides guarantees against expropriation without compensation; ensures the right to repatriate profits; and protects the confidentiality of proprietary information in investment applications, with penalties for Government officials who reveal such data to unauthorized persons. New investors are protected against any future changes to the law. Full benefit of these incentives, however, is linked to the percentage of Kuwaiti labor employed by the new venture. The investor is also obliged to preserve the safety of the environment, uphold public order and morals, and comply with instructions regarding security and public health. Although the Direct Foreign Capital Investment Law is on the books, foreign companies still report numerous delays in getting approval to operate in Kuwait. The law does not appear to have changed the investment climate in any significant way.

Foreign firms still may not invest in the upstream petroleum sector, although they are permitted to participate in some downstream activities. Dow Chemical Co. of Michigan and Petrochemical Industries Co, (PIC), a subsidiary of Kuwait Petroleum Corporation (KPC), each own 42.5% of the EQUATE Petrochemical Co. joint venture. Dow and PIC signed a joint venture agreement on December 1 2008 to establish a 50-50, USD 17.4 billion plastics joint venture, called K-Dow Petrochemicals which was to begin operations on January 1 2009. However on December 28 2008, after three weeks of relentless criticism by a handful of MPs, the Kuwaiti cabinet reversed the decision, instructing the Supreme Petroleum Council (SPC) to cancel the JV, citing fears that the global economic crisis had made the project too risky.

Kuwait's economy has been dominated by the state and the nationalized oil industry since the early 1970s despite some efforts by the Government to diversify. The Government acquired major holdings in private Kuwaiti firms --particularly banks and insurance companies -- following stock market crashes in 1979 and 1982. After liberation from Iraq (in 1991), the Kuwaiti Government passed a debt settlement law and purchased outstanding debts arising from the stock market crashes and the Gulf War. Between 1995 and 1998, the Government successfully divested over 50 percent of its equity holdings in private firms by selling off its full holdings in 28 firms and portions of holdings in 17 other firms, earning some USD 3.2 billion. The program was suspended in 1998 because of the weakness of the Kuwait Stock Exchange, but resumed in May 2001 when Kuwait’s Sovereign Wealth Fund, the Kuwait Investment Authority (KIA) sold 113 million shares (about 24 percent) of the Mobile Telecommunications Company (MTC, now doing business as Zain).

Established after the 1982 stock market crash, the Kuwait Stock Exchange (KSE) is the second largest bourse in the Arab world after Saudi Arabia's NCFEI. The KSE lists 187 Kuwaiti companies and 20 companies from other Arab States and has a market capitalization of KD 39.5 billion (USD 144.1 billion) as of December 15, 2008. The Kuwaiti bourse was affected by the global financial crisis in 2008, losing close to 30% of its value during the year. In response to these losses, the Ministry of Finance announced in December that the Kuwait Investment Authority would set up a KD 1.5 billion (USD 5.4 billion) fund to invest in Kuwaiti equities listed on the bourse, though the mechanisms for that investment are unclear. Also in December 2008, the Council of Ministers submitted legislation to Parliament concerning the establishment of an independent Capital Markets Authority to oversee the KSE's operations and procedures (Kuwait's bourse is the only GCC stock market without such an authority). Given the current confrontation between the executive and legislative branches, it is not clear when Parliament will consider this draft legislation.

The banking sector was opened to foreign investment under the Direct Foreign Capital Investment Law and the Central Bank has granted licenses to nine foreign banks thus far: BNP Paribas and HSBC, both of which began operations in 2005; Citibank and the National Bank of Abu Dhabi, which commenced operations in 2006; Qatar National Bank, which began operations in 2007; and Doha Bank, which opened an office during 2008. Dubai-based Mashreq Bank, the Bank of Muscat and Riyadh-based Al Rajhi Bank (the largest Sharia-compliant bank in the world) will all open branches in Kuwait during the course of 2009. However, while foreign banks may now operate in Kuwait, they are restricted to opening only one branch and are prohibited from competing in the retail banking sector. Kuwait's third largest bank, Gulf Bank, was hit by large trading losses in October 2008, necessitating a Central Bank orchestrated bailout, involving KIA as a buyer of last resort.

Kuwait has made tentative progress toward privatization in recent years. A law to privatize Kuwait Airways -- which continues to operate at a significant loss and faces increasing competition from regional rivals and two new, private Kuwaiti airlines -- was finally approved by the Parliament in January 2008. Under the law, KAC will be transformed into a private company within two years after two independent international auditors have valued the company's assets. Thirty-five percent will be sold to a core investor, which will be the local or foreign company making the highest bid. Forty percent will be sold to Kuwaiti citizens through an initial public offering, Government institutions will retain 20 percent and five percent will be distributed equally among KAC employees. Forty-two percent of the new company's employees must be Kuwaitis whose minimum salaries will be set by the Government.

In 2004, the Kuwaiti Government ended Kuwait Airways' de facto air transportation monopoly with the passage of Amiri Decree 89, which granted a license to Jazeera Airways, a low-cost airline that began operations in late 2005 and now operates eight aircraft on routes throughout the Middle East. Another private airline, Al-Wataniya, was licensed and formed in 2005, and is slated to begin operations as a premium class, regional airline in January 2009.

Three private mobile telephone companies now operate in Kuwait, with the Government holding significant minority interests in all, and foreign telcos owning major stakes in two. The three companies are Mobile Telecommunications Co. (doing business as Zain), National Telecommunications Co. (Wataniya) and VIVA which launched operations in December 2008, following an initial public offering targeting Kuwaiti citizens which raised KD 25.6 million (USD 93.6 million). Wataniya's majority owner is Qatar Telecommunications Co. (Qtel), while VIVA is owned 26 percent by Saudi Telecom, which was the highest bidder in a Government auction. None of the other communication services has yet been privatized, though privatizing landlines has been discussed for several years.

The energy and power sector has seen relative progress in privatization. Eighty of the 120 Government-owned gasoline stations have been privatized, with plans to privatize the remaining forty. Gasoline is still subsidized by the Government and set within a price range. The Government-owned lubrication plant was privatized in 2004 as were the coke smelter operations.

In May 2008, Kuwait Petroleum Corporation (KPC) announced that it had awarded contracts worth USD 10.2 billion to one Japanese-South Korean consortium and three South Korean engineering and construction firms and one U.S. company to build a new oil refinery, known as the Fourth Refinery (the project was first proposed in the 1990s). However, in late 2008 the continued viability of the project is in doubt. The implementation of the project was delayed by opposition from some Parliamentarians and a State Audit Bureau report that raised concerns about costs.

Build, Operate and Transfer (BOT) projects are gaining some acceptance in Kuwait, with BOT projects proposed in the power, water waste, real estate development and transport sectors. The largest BOT project to date is the Sulaibiya Waste Water Treatment contract, signed in May 2001. The winning consortium, which included U.S. firms, projected revenues of USD 390 million over 10 years. The project, which was commissioned in 2004, now processes 50 million gallons of wastewater daily which is used for irrigation.

A new BOT law was approved by the Parliament in January 2008 after BOT projects came under intense scrutiny by the State Audit Bureau in late 2006 for alleged violations, and several contracts were cancelled. The new law establishes a high commission for state properties and bans any Government institution from allocating state land to any project without the approval of the new commission. It also stipulates that new companies will be established to implement major projects on state land with a 40 percent share sold in an auction to an investor (presumably a local holding company), 50 percent sold to Kuwaiti citizens in an IPO, and the remaining 10 percent sold to the local or foreign company implementing the project. The law limits the term of BOT contracts to 30 years with the exception of "special" projects, which can continue for up to 40 years.

There have been a number of real estate BOT projects by privately owned Kuwaiti companies. The USD 132 million Sharq Mall, owned by the National Real Estate Company, contains retail outlets, restaurants, theaters, and entertainment concessions. More recently, the Fifth Waterfront Development Project constructed Marina Mall in 2002. This USD 162 million BOT is owned by the United Realty Company and features high-end retail, eating, and entertainment outlets. In September 2008, the Kuwaiti Government announced a major development plan comprising 1,100 projects totaling USD 131.5 billion, the cornerstone of which will be the Silk City, a planned financial and commercial hub and free trade zone, with 700,000 residents. The Silk City program (and other associated projects) is projected to cost USD 96 billion and will be undertaken on a BOT basis, according to the Minister of State for Housing and Development Affairs.

Foreign-owned firms and the foreign-owned portions of joint ventures are the only businesses subject to corporate income tax, which applies to both domestic and offshore income. In December 2007, Kuwait's Parliament approved a new tax law to reduce the tax rate on foreign companies from 55 percent to 15 percent to attract more foreign investment. The new 15 percent tax rate will be applied as a flat tax on the annual net profits of foreign companies, unlike the previous system which incorporated a series of tranches that progressively reached a maximum of 55 percent. Capital gains on stock market investments will be exempt as will the profits of Kuwaiti distributors of foreign goods. New foreign investors can be exempted from all taxes for up to 10 years under the new Direct Foreign Capital Investment Law.

Kuwaiti firms are not subject to the corporate income tax, but those registered on the Kuwait Stock Exchange (shareholding companies) are required to contribute 2.5 percent of their national earnings to the Kuwait Foundation for the Advancement of Science (KFAS). The National Employment Law levies an additional 2.5 percent tax that will fund a program granting Kuwaitis working in the private sector the same social and family allowances provided to Kuwait's Government workers. Kuwait levies no personal income tax.

Tax exclusions -- besides those offered under the new Direct Foreign Capital Investment Law -- for business expenses are limited, and Kuwait's tax code is often ambiguous. For example, deductions are only three percent for agent commissions and head office expenses (mainly for turnkey supply and installation-type contracts). The most significant tax ambiguity exists in terms of defining foreign companies' taxable presence in Kuwait, and several foreign firms are engaged in ongoing disputes over their tax liabilities.

Following the passage of the 2001 Direct Foreign Capital Investment Law, an Amiri Decree established the Kuwait Foreign Investment Bureau (FIB) within the Ministry of Commerce and Industry. The FIB promotes, and screens all proposals for, foreign direct investment in Kuwait. The FIB's recommendations are subsequently submitted to the Foreign Capital Investment Committee (FCIC), which was established by Ministerial Decree in 2002 and is chaired by the Minister of Commerce and Industry. The FCIC -- which also comprises representatives from the Ministry of Finance, the Chamber of Commerce and Industry, the Public Authority for Industry, the Kuwait Investment Authority and the Central Bank -- meets monthly to review applicants for foreign investments. Foreign companies have reported numerous delays in gaining authorization, some waiting up to 18 months for approval.

Under the 1964 Public Tenders Law, all bids for Government-funded projects (excluding military and security programs) in excess of KD 5,000 (USD 18,250) must be submitted to the Central Tenders Committee (CTC). Foreign companies may not bid on such contracts unless they work through a Kuwaiti agent or partner, which is responsible for submitting tender documentation to the CTC.

On July 26, 1992, the Council of Ministers established the Counter-Trade Offset Program, whereby foreign contractors receiving large Government contracts are required to undertake investments in the local economy. In April 2006, Kuwait established the National Offset Company to manage, enforce and review all offset proposals. Offset obligations are applied to military contracts of a value equal to or above KD3 million (USD 11.0 million), civil/Government contracts of a value equal to or above KD10 million (USD 36.5 million) and downstream oil/gas contracts. Oil and gas exploration and production (upstream) contracts are excluded from the offset program. Offset obligations amount to 35 percent of contract value with offset multipliers being established to target investment into specified sectors of the Kuwaiti economy.

Conversion And Transfer Policies

From 1976 – 2003 and again from May 2007 to the present, the Kuwaiti dinar has been linked to a basket of major world currencies "reflecting the foreign trade and financial relations of the State of Kuwait." The May 2007 shift followed four years during which the dinar was pegged to the U.S. dollar in compliance with a 2003 GCC decision to create a unified currency by 2010. However inflationary pressure in Kuwait in 2005-07 prompted the Kuwaiti Government to revert to a basket of currencies in 2007.

There are no restrictions on current or capital account transactions in Kuwait beyond the requirement that all foreign exchange purchases be made through a bank or licensed foreign exchange dealer. Equity, loan capital, interest, dividends, profits, royalties, fees and personal savings can all be transferred in or out of Kuwait without hindrance. Under the current Direct Foreign Capital Investment Law, investors are also permitted to transfer all or part of their investment to another foreign or domestic investor.

Expropriation And Compensation

There have been no recent cases of expropriation or nationalization involving foreign investments in Kuwait. Nevertheless, as a safeguard, the Direct Foreign Capital Investment Law guarantees against expropriation or nationalization except for the public benefit in accordance with existing laws; in this case, compensation will be provided without delay for the "real economic value of the project at the time of expropriation." When foreign companies were nationalized in the past, as with Kuwait's oil industry in the 1970s, foreign interests were compensated promptly and effectively.

Dispute Settlement

The Direct Foreign Capital Investment Law stipulates that Kuwaiti courts alone are responsible for adjudicating any disputes involving a foreign investor and other parties, although arbitration is permitted. Few contracts in Kuwait contain clauses specifying recourse to traditional commercial arbitration. According to the Central Bank of Kuwait, the Kuwaiti judicial system recognizes and enforces foreign judgments only when reciprocal arrangements are in place. Kuwait is a signatory to the International Center for the Settlement of Investment Disputes (ICSID, i.e., the Washington Convention) and to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

There have been no investment disputes involving American firms in Kuwait in several years; commercial disputes are more common. In both cases, the slow pace of Kuwait's legal system often frustrates American claimants. In early 2009, however, Dow Chemical said it would seek to enforce its rights under the terms of the JV agreement signed with PIC.

Kuwait has a developed legal system and a strong trading history. It has a civil code system based on the Napoleonic code but influenced by Islamic law. As a traditional trading nation, Kuwait's judiciary is familiar with international commercial laws. Kuwait has been a GATT member since 1963 and has signed the WTO agreement. Kuwait is not, however, a signatory to the WTO Government Procurement Code.

A feature of Kuwaiti law of which U.S. business should be aware is the application of travel bans which may be applied against individuals who have civil or criminal cases registered against them. The ban prevents individuals from departing Kuwait until the pending matter is settled or acceptable guarantees are offered. Former Kuwaiti business partners involved in disputes with U.S. businesses have managed to have travel bans imposed on U.S. partners for allegedly violating Kuwaiti civil law. Though very infrequent, such cases highlight the need to take extra care before entering into long-term business relationships in Kuwait.

In order to protect their interests, American firms are advised to consult with a Kuwaiti or locally based foreign law firm when executing contracts with local parties. Contracts between local and foreign parties serve as the basis for resolving any future commercial disputes. The process of resolving disputes in the Kuwaiti legal system can be very time consuming.

Performance Requirements/Incentives

Law No. 37 of 1964 (Articles 43 and 44) specifies the use of local products when available and prescribes a ten percent price advantage for local firms in Government tenders.

There are no specific restrictions on foreign participation in Government-financed or subsidized research and development, but little activity of this kind has occurred to date. The Kuwait Institute for Scientific Research (KISR) has expressed interest in working with foreign firms. The Government would welcome programs that provide expertise unavailable locally, but these are likely to be evaluated on a case-by-case basis.

Kuwait has a stringent visa regime and most work permits require a local sponsor. Visa requirements for citizens of 34 nations, including the United States, were relaxed in 2004 allowing for application for a visa upon arrival at the airport. However, investors should be aware that since 2006, persons entering on tourist visas will no longer be able to convert to work permits without first leaving the country. Foreign-born U.S. citizens, especially those of Middle Eastern descent, sometimes experience difficulties with visa and residency applications. Any problems experienced by potential U.S. visitors should be referred to the American Embassy or to the Bureau of Consular Affairs, U.S. Department of State.

In June 1993, Kuwait publicly announced its decision to end enforcement of the secondary and tertiary Arab League boycotts of Israel. Although there are occasional reports that some tender requests contain boycott clauses reportable under U.S. anti-boycott laws, these usually result from clerical errors or the use of outdated forms. Kuwait maintains an open boycott office in its Customs Department, and has stated that it will wait for Arab League action before eliminating the primary boycott of Israeli-owned companies and goods produced in Israel.

Right To Private Ownership And Establishment

Rights to private ownership and estab1ishment are respected in Kuwait, although foreigners face selected restrictions. Licenses from the Ministry of Commerce and Industry are required for the establishment of all new companies, and Government authorization is required for any incentives offered by the Direct Foreign Capital Investment Law. As stated above, foreign ownership is restricted or prohibited in some sectors of the economy, and, critically, non-GCC citizens may not own land in Kuwait. Some foreign investors cite this latter restriction as a major disincentive to foreign direct investment and launching new businesses in Kuwait.

Kuwaiti law severely restricts the types of collateral to which creditors may have recourse in the event of default by a borrower. Banks may not foreclose on residential real estate property or personal possessions in the event of default, although they may sue the borrower for the balance due under the loan contract. Borrowers typically pledge a portion of their future severance benefits as collateral for a bank loan.

Protection Of Property Rights

Intellectual property rights in Kuwait are currently protected by a series of patent and trademark laws passed or updated in 1999 and 2001. Kuwait is a member of the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO), having become a signatory to the WIPO Convention in 1998. Kuwait has also been a member of, and signatory to, the TRIPS Agreement since 1995, although Kuwait's 1999 and 2001 IPR laws and associated amendments did not bring Kuwait into full compliance with TRIPS.

The U.S. Government continues to be concerned by the lack of IPR protections --Kuwait was re-listed on the "Special 301" Watch List issued by the Office of the U.S. Trade Representative (USTR) in April 2008, largely given its failure to amend outdated legislation. The Kuwaiti Council of Ministers is considering patent and copyright legislation, which will require parliamentary approval.
The Kuwaiti Government intends to implement proposed GCC- wide standards and trademark legislation; such laws would also require parliamentary approval.

Since late 2007, the Ministry of Commerce and Industry has held primary responsibility for implementing existing IPR legislation and regulations.

Transparency Of The Regulatory System

Kuwait has not developed effective antitrust laws to foster competition, and its bureaucracy often resembles that of a developing country. Kuwait's open economy has generally promoted a competitive market. When Government intervention occurs, however, it is usually to the benefit of Kuwaiti citizens and Kuwaiti-owned firms.

Efficient Capital Markets And Portfolio Investment

Kuwait has a free, but inefficient, capital market where credit is allocated on market terms. Foreign investors can obtain credit through local banks. With the help of Government subsidies, the financial markets -- and particularly the commercial banks -- operated throughout the 1980s primarily to collect funds for re-lending to favored customers. Payment discipline was lax and real economic losses common. Under a bank stabilization program introduced in 1992, the Central Bank of Kuwait purchased all of the outstanding domestic credits of Kuwait's commercial banks while eliminating all guarantees for profits, equity, and liabilities other than the banks' deposit liabilities. Henceforth, all losses would stay with the banks, which would be responsible for the management of all their assets and liabilities. In addition, the Central Bank improved bank supervision, resulting in a fairer and more efficient distribution of credit throughout the Kuwaiti banking system.

In addition to the six branches of foreign banks operating in Kuwait, the local banking sector comprises seven commercial banks, three Islamic (or Sharia-compliant) banks and one specialized bank. Kuwait Finance House (KFH) is the clear market leader in Islamic banking; the other Sharia-compliant banks are Boubyan Bank and Kuwait International Bank (KIB, formerly Kuwait Real Estate Bank), which converted to an Islamic bank in mid-2008. KIB's conversion leaves one remaining specialized bank, the Industrial Bank of Kuwait. The seven commercial banks include market leader National Bank of Kuwait (NBK), Commercial Bank of Kuwait (CBK), Gulf Bank, Al-Ahli Bank of Kuwait, the Bank of Kuwait and the Middle East (BKME), Burgan Bank and Bank of Bahrain and Kuwait (BBK). In 2008, BKME received Central Bank approval to convert to an Islamic bank in 2009. Confidence in the local banking sector was affected by Gulf Bank's announcement in October that it had incurred large losses (estimated at USD 1.4 billion) from one or more clients' bad currency trades. In the wake of the crisis, the Council of Ministers and Parliament promulgated legislation guaranteeing all bank deposits in Kuwait, and the Central Bank worked with Gulf Bank and key shareholders to orchestrate a $1.4 billion recapitalization subscription, with the Kuwait Investment Authority acting as buyer of last resort.

Kuwait's banks have not yet released their 2008 annual reports. The assets of Kuwait's commercial and Sharia-compliant banks as of December 31, 2007 were:

Bank KD (millions) USD (millions)
Gulf Bank5,00018,315

(USD 1 equaled KD 0.273 as of 12/31/2007)

The quality of local banks varies from blue chip to weak. Some bank assets have been non-performing in the past. The balance sheets of some local banks are heavily weighted toward lower-yielding Government bonds. Legal, regulatory, and accounting systems lack adequate transparency but are generally considered consistent with international norms. The Central Bank of Kuwait requires annual reports from local banks to meet international accounting standards. U.S. businesses are advised to seek local legal and financial advice for complicated investments and transactions.

There are few defensive measures to protect against hostile takeovers, which are rare in Kuwait. There is no evidence of private sector or Government efforts to restrict foreign participation in industry standards-setting consortia or organizations. U.S. suppliers often have trouble, however, complying with specifications that are technologically tailored to other (usually European, especially U.K.) suppliers. In addition, American suppliers' preference for turnkey projects often does not mesh with Kuwait's preference to split projects into a series of separately-tendered smaller projects.

Finally, U.S. investors should be aware that family, clan, and tribal ties throughout the business community and Government can serve to restrict foreign participation, investment, and control of domestic enterprises.

Political Violence

Despite ongoing, tense relations between the executive and legislative branches of Government in Kuwait, street protests are uncommon and very rarely violent. The summer of 2008 witnessed low-level rioting by striking Bangladeshi laborers. While the potential for terrorist actions throughout the Persian Gulf region remains high, there have been no terrorist incidences in Kuwait since early 2005 and the Government of Kuwait continues to strengthen domestic counterterrorism measures. Potential investors and U.S. citizens are encouraged to remain in contact with the Embassy for up-to-date information.


The often-lengthy procurement process in Kuwait occasionally results in accusations of attempted bribery or the offering of other inducements by bidders. This is a crime in Kuwait and there are currently several investigations and trials underway involving current or former Government officials accused of malfeasance. There have been no convictions for bribery, however, since the end of the Gulf War. In 1996, the Government passed Law No. 25, which requires all companies securing contracts with the Government valued at KD 100,000 (USD 364,931) or more to report all payments made to Kuwaiti agents or advisors while securing the contract. The law similarly requires entities and individuals in Kuwait to report any payments they received as compensation for securing Government contracts.

Transparency International's 2008 Corruption Perceptions Index (CPI) ranks Kuwait 65th out of 180 countries. Kuwait was ranked seventh in the MENA region (behind Qatar, UAE, Oman, Bahrain, Jordan and Tunisia with Qatar as the least corrupt). Kuwait's CPI score of 4.3 (out of 10) indicates a "serious corruption problem," according to Transparency International.

Bilateral Investment Agreements

Kuwait has signed bilateral investment agreements with the following nations (though not all have been implemented): Austria, Belarus, Belgium, Bosnia, Bulgaria, China, Croatia, the Czech Republic, Denmark, Egypt, Ethiopia, Finland, France, Germany, Hungary, India, Iran, Iraq, Italy, Jordan, Kazakhstan, South Korea, Latvia, Lebanon, Lithuania, Malaysia, Malta, Mauritania, Moldova, Mongolia, Morocco, Netherlands, Pakistan, Poland, Romania, Russia, Serbia, Slovenia, Spain, Sweden, Switzerland, Syria, Tajikistan, Tunisia, Turkey, the United Arab Emirates and Yemen. In December 2008, Singapore and the GCC signed a free trade agreement (FTA), the GCC's first FTA.

Kuwait signed a Trade and Investment Framework Agreement (TIFA) with the United States in February 2004. The TIFA is the first step in developing economic reform and trade liberalization criteria to strengthen the U.S.-Kuwait economic relationship and to work toward an eventual FTA. At the first bilateral TIFA Council meeting, held in May 2004 in Washington, D.C., it was agreed that the TIFA process would provide for periodic technical discussions. Several areas in particular stood out as needing further attention: intellectual property rights (IPR), standards-related issues, taxation, and service and investment requirements. Technical experts on both sides continue to work on these areas. Technical discussions took place in February 2006, followed by a formal TIFA Council meeting in September 2006 in Washington, D.C. Further rounds of technical discussions took place June 2007 and February 2008. The U.S. Government continues to be concerned by the lack of IPR protections. As noted above, Kuwait was relisted on the Special 301 Watch list issued by the Office of the USTR in April 2008.

OPIC And Other Investment Insurance Programs

In 1989, Kuwait concluded an agreement with the U.S. on investment guaranty programs, which facilitated the extension of programs from the Overseas Private Investment Corporation (OPIC) to Kuwait. Kuwait is also a member of the Multilateral Investment Guarantee Agency (MIGA). Currently there are no OPIC programs in Kuwait.


Kuwait has a diverse labor force, with expatriate laborers accounting for approximately 65% of Kuwait's resident population and approximately 85% of all employees. Kuwaiti nationals occupy most of the top management positions in the private and Government sectors. Due to a welfare system that includes guarantees for Government jobs, unemployment among Kuwaitis is less than five percent, but it is rising as a result of a growing influx of young Kuwaitis into the labor force (20,000 to 25,000 annually). The new entrants are reluctant to enter the private sector and cannot be absorbed by the Government, where underemployment remains a serious problem.

While there are a number of white-collar workers from OECD countries in Kuwait, particularly in high-skilled positions, the vast majority of expatriate workers are low-paid laborers from other Middle Eastern countries, South Asia and the Philippines. Prior to the Gulf War (1991), Palestinians occupied many of the country's middle-management positions. Since the 1991 war, however workers of other nationalities, often Egyptians or South Asians, have filled most of these positions. Since liberation, the Government of Kuwait has adopted inconsistent policies intended to limit and discourage growth of the resident expatriate population. The Government has instituted a quota system on work permits designed to protect workers by preventing Kuwaitis from importing unnecessary workers and then leaving those workers on the street. Unskilled foreign workers are restricted from transferring from one sponsor to another within the private sector for a minimum of two years, but college graduates may transfer after one year. The Government has also levied new fees on expatriate workers and their families in order to raise the cost of employing foreign workers. At the same time, however, the Government has reduced the minimum salary required for expatriates (in some business categories) to be eligible to bring their family members to Kuwait, lowering it from KD 400 (USD 1,460) per month to KD 250 (USD 913) per month. However, these and other regulations have not stemmed widespread abuse of the sponsorship system; there are frequent reportsof Kuwaiti citizens deriving significant income from the sale and renewal of illegal residency permits. Some observers estimate that as many as 70,000 foreign laborers are in Kuwait on illicit residency permits.

Kuwaiti workers have the right to organize and bargain collectively, but Kuwaiti law prevents the establishment of more than one union per functional area or more than one general federation. Foreign workers, who constitute the vast majority of the work force, are permitted by law to join unions only as non-voting members after five years of work in the particular sector the union represents. The right to strike is also recognized for private sector workers, although provisions calling for compulsory negotiation and arbitration in the case of disputes limit that right. Kuwaiti labor law prohibits anti-union discrimination.

Separate Kuwaiti labor laws set work conditions in the public and private sectors, with the oil industry treated separately. Forced labor is prohibited and the minimum age for employment is 18 years in industrial or dangerous jobs. Youth as young as 14, however, may work part-time in some non-industrial positions, and are allocated more breaks than adults. A two-tiered labor market ensures high wages for Kuwaiti employees while foreign workers, particularly unskilled laborers, receive substantially lower wages. In the private sector, the minimum wage is KD 40 (USD 146) per month, while in the public sector the current effective minimum wage is KD 250 (USD 913) per month for Kuwaiti bachelors and KD 325 (USD 1,187) per month for married Kuwaitis, plus KD 50 (USD 183) for each child, compared to KD 90 (USD 329) for non-Kuwaitis. The basic labor law also limits the work week to 48 hours, provides for a minimum of 14 days of leave per year, which increases to 21 days after five years in the same job, and establishes a compensation schedule for industrial accidents. However, the law is inconsistently enforced and disputes over the payment of salaries and contract-switching are common, especially among unskilled workers. Current labor laws do not apply to domestic servants.

The International Labor Organization's (ILO) Committee of Experts has reiterated its longstanding criticisms of the discrepancies between the Kuwaiti Labor Code and ILO Conventions 1, 30 and 87 regarding hours of work and freedom of association. Areas criticized by the ILO include the prohibition to establish more than one trade union for a given field; the requirement that a new union have at least 100 workers; the regulation that workers must reside in Kuwait for five years before joining a trade union; the denial of the right to vote and to be elected for foreign trade unionists; the prohibition against trade unions engaging in any political or religious activity; and the reversion of trade union assets to the Ministry of Social Affairs and Labor in the event of dissolution.

The State Department's annual Human Rights Report and Trafficking in Persons Report highlight the vulnerability of domestic servants to exploitation. Partly on account of the plight of domestic servants and other workers in Kuwait, the State Department's 2008 Trafficking in Persons Report listed Kuwait as a "Tier 3" country of concern. Protest and riots by discontented Bangladeshi laborers during the summer of 2008 led to moves within Parliament to promulgate new legislation to shore up worker protections and punish abusers and "visa traders." However, ongoing tensions between the executive and legislative branches of Government have stalled efforts to enact new legislation by the end of 2008.

In June 2007, Parliament ratified a law that bans women from working during the hours from 8:00 p.m. to 7:00 a.m., except for those working in the medical sector and other sectors approved by the Minister of Social Affairs and Labor. The law also bans women from working in jobs that are hazardous, rough and damaging to health, as well as in "immoral jobs that abuse women's femininity" and in places that exclusively serve men.

Foreign Trade Zones/Free Trade Zones

In July 1995, Parliament passed Law No. 26 authorizing the Ministry of Commerce and Industry to establish free trade zones in Kuwait. In May 1998, the privately owned National Real Estate Company signed a contract with the Ministry to operate, manage, and market the 50 square-kilometer Kuwait Free Trade Zone (KFTZ) at Shuwaikh port, which was inaugurated in November 1999. Many restrictions faced by foreign firms, such as corporate taxes, technically do not apply to offices or plants within the KFTZ. Some 90 percent of space within the KFTZ has been leased; the majority of firms operating in the zone are Kuwaiti. However, both Kuwaiti and foreign business people report that the Shuwaikh free trade zone is subject to a wide array of regulations by both the central and municipal Governments.

In November 2006, the Cabinet Council issued Resolution No. 507/2006 terminating the NREC's contract and suspending all its activities at the FTZ area. The NREC appealed this decision in the Kuwaiti courts but the matter has still not been resolved.

Foreign Direct Investment Statistics

Kuwaiti public investments abroad consist of portfolio investments held by the Kuwait Investment Authority (KIA; the nation's sovereign wealth fund), direct investments of other Government entities, as well as those held by private Kuwaitis. Media reports in mid-2008 speculated that the KIA's holdings were approximately USD 250 billion (i.e., prior to the global financial crisis' impact on global bourses). Details about the composition of both KIA and non-KIA investment portfolios, such as Kuwait Petroleum Corporation's reserve fund, remain murky. Private Kuwaitis' overseas investments are significant, with tens of billions of dollars invested in equities and real estate in North America, Europe and East Asia.

According to the 2008 World Investment Report (published by the secretariat of the United Nations Conference on Trade and Development, UNCTAD), Kuwait attracted only USD 123 million of FDI in 2007, the lowest amount of all the countries in the Middle East and North Africa. Yemen attracted four times the volume of FDI, while Qatar, the second least popular destination for FOI in the GCC, attracted ten times the amount invested in Kuwait. UNCTAO ranks Kuwait 134 out of 141 on its Inward FDI Performance Index.

However, the same report ranks Kuwait 29th in terms of Inward FOI Potential, which is testimony to Kuwait's ongoing efforts to improve the regulatory climate for FDI. Nevertheless, significant challenges remain, particularly in terms of opening up the energy and real estate sectors, improving bureaucratic performance and eradicating a business culture that oftentimes precludes foreign firms' participation in many projects and ventures.