2012 Investment Climate Statement - Kuwait

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Openness to Foreign Investment

The State of Kuwait controls nine percent of the world's proven petroleum reserves, earning approximately KD 17.7 billion (USD 64.4 billion) from energy exports in the first eight months of the 2011/2012 fiscal year (Kuwait’s fiscal year runs from April 1 to March 30). Kuwait has a population of approximately 3.63 million, including approximately 2.46 million expatriate workers, and a nominal 2010 Gross Domestic Product (GDP) of KD 38 billion (USD 138 billion), representing a 13% increase compared to the previous year. Kuwait's national budget overwhelmingly relies on petroleum revenues (approximately 50% of nominal GDP comes from oil revenues). Low levels of Foreign Direct Investment (FDI) limit efforts to diversify the economy away from the petroleum sector. In 2010, Kuwait attracted only $81 million of FDI, the second lowest level of all countries in the Middle East and North Africa region after Yemen (according to UNCTAD statistics). According to the World Bank’s 2012 Doing Business Report, Kuwait ranked 67 out of 183 countries in terms of ease of doing business, which is last among the Gulf nations, and 142 with respect to starting a business. In the Heritage Foundation’s 2011 Index of Economic Freedom, Kuwait ranked 61 out of 179 countries, with its economy considered "moderately free."

Regulations Governing Foreign Investments

Major barriers to foreign investment remain, including regulations barring direct involvement of foreign entities from the petroleum and real estate sectors, long bureaucratic delays in starting new enterprises, and a local business culture heavily based on clan and family relationships that often preclude foreign participation. 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.

The Direct Foreign Capital Investment Law is designed to promote foreign investment in Kuwait. It 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, and the law does not appear to have changed the investment climate in any significant way.

Kuwait Foreign Investment Bureau

The Direct Foreign Capital Investment Law created the Kuwait Foreign Investment Bureau (KFIB) to promote and screen all proposals for FDI in Kuwait. After reviewing an FDI proposal, KFIB submits its recommendations to the Foreign Capital Investment Committee (FCIC), which includes representatives from the Ministry of Finance, the Chamber of Commerce and Industry, the Public Authority for Industry, the Kuwait Investment Authority (KIA), and the Central Bank, and meets monthly to review applications for foreign investment. Foreign companies have reported numerous delays in gaining authorization from the committee, including delays of up to 18 months for approval.

Although KFIB has land to allocate to new foreign investors, most of this land is undeveloped and lacks infrastructure to support new companies. Any request for land under a Build Operate Transfer (BOT) program must be approved by Kuwait’s BOT committee. In addition, once KFIB approves a project, foreign investors must still obtain necessary permits from other GoK entities to implement their projects.

Government Funded Projects

Under the 1964 Public Tenders Law, all bids for government-funded projects (excluding military and security programs) in excess of KD 5,000 (USD 17,500) must be submitted to the Central Tenders Committee (CTC). Foreign companies may not bid on these contracts unless they partner with a Kuwaiti agent, who is responsible for submitting the tender documentation to the CTC. The Parliament’s Financial Committee passed a new CTC bill to the Cabinet Council in October 2011. Two main changes proposed by the new bill include increasing the existing ceiling for direct contracts that do not require CTC approval from KD 5,000 to KD 20,000 (USD 72,000) and mandating that a single tender not be allowed to be redistributed as sub-tenders.

Foreign firms are excluded from investing in the upstream petroleum sector (based on constitutional provisions that make all natural resources the property of the Kuwaiti state), although they are permitted to participate in some downstream activities. Dow Chemical Company of Michigan and Petrochemical Industries Company (PIC), a subsidiary of Kuwait Petroleum Corporation (KPC), each own 42.5% of the Equate Petrochemical Company joint venture, established in 1995. Dow and PIC also agreed in November 2008 to establish a 50-50, USD 17.4 billion plastics joint venture, called K-Dow Petrochemicals. On December 28, 2008, however, the GoK instructed Kuwait’s Supreme Petroleum Council to cancel the joint venture in light of the 2008 economic downturn. The deal had attracted sharp criticism by some members of Parliament and Dow filed a USD 2.5 billion lawsuit against PIC, which is pending in UK courts. The deal has since served as a negative example for foreign companies seeking to do business in Kuwait.

The nationalized oil industry continues to dominate Kuwait's economy, despite some diversification efforts by the government. The government acquired major holdings in private Kuwaiti firms, particularly banks and insurance companies, following stock market crashes in 1979 and 1982. After Kuwait’s liberation from Iraq in 1991, the government passed a debt settlement law, and purchased outstanding debt 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 its holdings in 17 other firms, earning around USD 3.2 billion.

Kuwait Stock Exchange

Established in 1962, the KSE is the oldest and third largest stock exchange in the GCC, with a market capitalization of USD 109.8 billion as of December 31, 2011. Currently, 201 Kuwaiti companies and 13 companies from other Arab countries are listed on the KSE. In February 2010, the Kuwaiti Parliament passed legislation to establish the first ever Capital Markets Authority (CMA) to oversee the KSE's operations and procedures. Five commissioners were appointed to the CMA's Board of Directors in September 2010 and the bylaws are expected to go into effect beginning in March 2012.

Banking Sector

The banking sector was opened to foreign investment under the Direct Foreign Capital Investment Law. The Central Bank has granted licenses to ten 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; Doha Bank, which opened an office in 2008; Dubai-based Mashreq Bank, which commenced operations in 2009; and the Bank of Muscat and the Riyadh-based Al Rajhi Bank (the largest Sharia-compliant bank in the world) in 2010. The Bank of Bahrain and Kuwait (BBK) has operated in Kuwait since 1977.

While foreign banks operate in Kuwait, they are restricted to opening only one branch, offering only investment banking services, and are prohibited from competing in the retail banking sector. Foreign banks are also subject to a maximum credit concentration equivalent to less than half the limit of the largest local bank, and are expressly prohibited from directing clients to borrow from external branches of their banks or taking any other measures to facilitate such borrowing.

Kuwait Airways Privatization

A law to privatize Kuwait Airways, which continues to operate at a significant loss and faces increasing competition from regional rivals, was approved by the Parliament in January 2008. Under the law, the company was scheduled to be transformed into a private company within two years, after two independent international auditors valued the company's assets. Under the law, thirty-five percent of Kuwait Airways will be sold to a core investor, either local or foreign, with the highest bid. Forty percent will be sold to Kuwaiti citizens through an initial public offering, while government institutions will retain twenty percent of the company. Five percent will be distributed to existing Kuwaiti employees. As part of the privatization, forty-two percent of the new company's employees must be Kuwaiti, whose minimum salaries will be set by the government. The government-owned corporation will be re-organized as a company owned by the KIA. This privatization had not taken place as of the end of 2011.

In 2004, the Kuwaiti Government ended Kuwait Airways' de facto air transportation monopoly with the passage of an Amiri Decree, and granted a license to Jazeera Airways, a low-cost airline that began operations in late 2005 and now owns eleven aircraft. In October 2011, Jazeera Airways obtained USD 200 million in financing to purchase four additional aircraft over the next three years. Another private airline, Wataniya, was licensed and formed in 2005, and began operations as a premium class, regional airline in January 2009 with seven aircraft. However, Wataniya declared bankruptcy and halted operations in March 2011. A third license was granted to LoadAir Company, a Kuwaiti-based international cargo airline company, which is not yet operational due to lack of financing.

Telecom Sector

Three private mobile telephone companies now operate in Kuwait, with the government maintaining significant minority interests in all, while foreign companies own major stakes in two. The three companies are Mobile Telecommunications Company (known internationally as Zain), National Telecommunications Company (known as Wataniya), and VIVA, which launched operations in December 2008 after an initial public offering to the Kuwaiti public raised KD 25.6 million (USD 89.6 million). Wataniya's majority owner is foreign-owned Qatar Telecommunications Company, while 26 percent of VIVA is foreign-owned by Saudi Telecom. Zain had been in talks to sell a controlling stake of the company, worth USD 12 billion, to UAE’s Etisalat, but negotiations were terminated in March 2011 when a deal could not be reached. None of the other communication services are privatized, though privatizing landlines has been discussed for several years.

Energy Sector

The energy and power sector has seen limited progress in privatization. Eighty of the 120 government-owned gas stations were privatized between 2004 and 2005. There are now one public and two private competing gas station companies, even though the government still subsidizes gas and sets a price range. The government-owned lubrication plant was privatized in 2004, as were coke smelter operations.

In May 2008, Kuwait Petroleum Corporation (KPC) announced that it had awarded contracts worth USD 8.3 billion to one Japanese and four South Korean engineering and construction companies to build a new oil refinery, known as the Fourth Refinery, following repeated delays over the past decade. However, this project was canceled in March 2009. Upon political pressure, the tendering process was reviewed and found illegitimate, as it was not awarded under the CTC bidding process. As of January 2012, the Fourth Refinery has not been retendered and is pending Cabinet approval.

In November 2010, KPC announced its intention to spend USD 90 billion over the next five years, as part of its strategy to boost oil production capacity to four million barrels a day by 2020. This also includes expenditure on oil investments abroad, including refineries in Vietnam and China, upgrading the current oil tanker fleet, and launching major petrochemical projects.

In 2011, Kuwait Oil Company (KOC), a KPC subsidiary, concluded USD 2.6 billion in contracts, which represented an 80 percent decrease from the 2010 total of USD 11 billion. KOC awarded three oilfield services contracts totaling USD 632 million to American companies in January 2011. These include: Schlumberger (USD 253 million), Western Atlas International (USD 201 million), and Dubai-based Halliburton Overseas (USD 178 million).

In 2010, KOC awarded more than USD 11 billion in contracts to foreign, non-U.S., companies (the largest contracts include Saipem-Italy, Hyundai-South Korea, and Sinopec-China). This included USD 1.5 billion for building early production facilities at Kuwait’s north oil fields, USD 1.4 billion for the installation of low sulphur fuel oil and gasoil pipelines, and USD 929 million to build a new booster station in the western part of Kuwait. The remaining contracts were for drilling and maintenance projects.

Opportunities for Investment in BOT Projects

Build, Operate and Transfer (BOT) projects are gaining some acceptance in Kuwait, with BOT projects proposed in the power, waste water, 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. firm General Electric, projected revenues of USD 390 million over 10 years. The project, which was commissioned in 2004, now processes 50 million gallons of wastewater per day for irrigation uses. In January 2012, the Cabinet Council approved a plan to expand the plant from current capacity of 425,000 to 600,000 cubic meters a day, in order to meet projected demand.

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, with several contracts being 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 a local or foreign company implementing the project. The law limits the term of BOT contracts to 30 years, with the exception of "special" projects that can continue for up to 40 years. Special projects may not exceed a value of USD 900 million, but are not specifically defined by category. Kuwaiti and foreign investors have commented that the time frame for BOT projects is too short for companies to recoup their investments, and have called for amendments to the law.

In February 2010, the GoK passed a major development plan comprising 1,100 projects totaling KD 30.8 billion (USD 107.8 billion), which includes the creation of a 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 expected to be undertaken on a BOT basis, according to the Minister of State for Housing and Development Affairs.

Corporate Taxation in Kuwait

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 February 2008, a new tax law to reduce the tax rate on foreign companies from 55 percent to 15 percent went into effect. This amendment created a flat tax on the annual profit of foreign companies. Capital gains on stock market investments are exempt from tax, as are the profits of Kuwaiti distributors of foreign goods. Under the new Direct Foreign Capital Investment Law, new foreign investors may be exempted from all taxes for up to 10 years.

Kuwaiti shareholding companies listed on the KSE are required to contribute 2.5% of annual profits to the National Labor Support Tax, which supports employment of Kuwaitis in the non-government sectors by closing the gap in benefits between the public and private sectors. In 2007, Kuwait passed a law requiring all listed and non-listed Kuwaiti shareholding companies to contribute one percent of profits to "zakat," (a religious tithe). In addition, Kuwaiti companies listed on the KSE are required to contribute one percent of their earnings directly to the Kuwait Foundation for the Advancement of Science (KFAS).

Tax exclusions for foreign business expenses, besides those offered under the Direct Foreign Capital Investment Law, are limited, and Kuwait's tax code is often ambiguous. For example, tax deductions are only three percent for agent commissions and head office expenses. 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.

There is no personal income, property, inheritance, or sales tax in Kuwait for Kuwaitis or non-Kuwaitis. As part of a region-wide GCC plan, the government is considering the introduction of a value-added-tax system (VAT) in Kuwait in 2013.

Kuwaiti Offset Program

In 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 KD 3 million (USD 11.0 million), civil/government contracts of a value equal to or above KD 10 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 varying offset multipliers to target investment into specific sectors of Kuwait’s economy. The National Offset Company is currently revising its guidelines on specific types of offset projects.




TI Corruption Index


54 out of 182 countries

Heritage Economic Freedom


61 out of 179 countries

World Bank Doing Business


67 out of 183 (Ease of doing business)



142 out of 183 (Starting business)

Conversion and Transfer Policies

Since May 2007, the Kuwaiti dinar has been linked to an undisclosed basket of major world currencies. 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 Direct Foreign Capital Investment Law, investors are also permitted to transfer all or part of their investment to another foreign or domestic investor and there are no restrictions on cash transfers.

Expropriation and Compensation

There have been no recent cases of expropriation or nationalization involving foreign investments in Kuwait. 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, the law states that compensation will be provided without delay for the real economic value of the project at the time of expropriation. The last case of nationalization occurred in 1974, when Kuwait’s oil industry nationalized and the GoK negotiated with BP and American Gulf Oil Company to purchase the 40% share owned by the two companies.

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 U.S. firms in Kuwait in several years; commercial disputes are more common.

Kuwaiti Legal System

Kuwait has a developed legal system and a strong trading history that is influenced by Islamic law. As a traditional trading nation, Kuwait's judiciary is familiar with international commercial laws. Kuwait has been a member of GATT since 1963 and joined the World Trade Organization (WTO) in January 1995. Kuwait, however, is not a signatory to the WTO Government Procurement Code.

Kuwaitis and non-Kuwaitis, including U.S. citizens, who have been charged with criminal offenses, placed under investigation, or involved in unresolved financial disputes with local business partners, are subject to travel bans. These bans, which are rigidly enforced, prevent the individual from leaving Kuwait for any reason until the matter is resolved. Travel bans can be initiated by any person for almost any reason and may remain in place for a substantial period of time while the case is being investigated. A person who has influence with the Kuwaiti government can ensure that a travel ban remains in place even if a judge or government official states the ban should be lifted. In case of purely financial disputes, it may be possible to depart the country if a local sponsor pledges funds equal to the amount in dispute.

In order to protect their interests, U.S. 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 take years depending on the complexities and parties involved.

Performance Requirements and 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, public or private, in government-financed or subsidized research and development. The Kuwait Institute for Scientific Research (KISR) has expressed interest in working with foreign firms and national laboratories in establishing new programs and buildings for renewable energy and energy efficiency programs. Currently, various U.S. governmental and non-governmental entities are engaged in scientific cooperation in Kuwait.

Visa requirements for citizens of thirty-four nations, including the U.S., were relaxed in 2004, allowing for visa applications upon arrival at the airport. However, since 2006, persons entering on tourist visas will no longer be able to convert to work permits without first leaving the country. Any problems experienced by potential U.S. visitors should be referred to the U.S. Embassy in Kuwait or to the Bureau of Consular Affairs, U.S. Department of State.

In 1993, along with other GCC states, 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 establishment are respected in Kuwait, although foreigners face selected restrictions. Licenses from the Ministry of Commerce and Industry and appropriate municipality 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 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 Intellectual 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 WTO (1995) 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 Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement since 1995, though Kuwait's 1999 and 2001 IPR laws and associate amendments did not bring Kuwait into full compliance with TRIPS.

The U.S. Government continues to be concerned by the lack of IPR protection in Kuwait, particularly due to Kuwaiti failure to amend outdated legislation. Kuwait was re-listed on the "Special 301" Watch List issued by the Office of the U.S. Trade Representative (USTR) in April 2011. The draft law is currently under review. The United States provided comments on the most recent version of the draft law in September 2011 and continues to encourage Kuwait to pass the necessary IPR-related legislation and improve its enforcement efforts.

Transparency of the Regulatory System

While Kuwait's open economy has generally promoted a competitive market, Kuwait has not developed effective antitrust laws to foster competition, and its bureaucracy often resembles that of a developing country. 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 and terms are determined by the foreign investor’s collateral level and the intended use of the financing. With the help of government subsidies, Kuwaiti banks operated throughout the 1980s primarily to collect funds to re-lend to favored customers. 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 January 2010, the National Assembly passed a law requiring banks to write off interest on personal and consumer loans for Kuwaiti citizens, and to reschedule the principal debt over a minimum of 10 years, in exchange for government deposits. The government vetoed the law because of its technical, constitutional and procedural shortcomings, and it has not been reintroduced.

Banking Sector

In November 2010, the Central Bank reported that the total assets for the banking sector equaled KD 47.3 billion (USD 170.3 billion). Twenty-one banks currently operate in Kuwait: five (conventional) banks, five Islamic banks, ten foreign banks, and one specialized bank. Conventional banks include: market leader National Bank of Kuwait (NBK), Commercial Bank of Kuwait (CBK), Gulf Bank, Al-Ahli Bank of Kuwait, and Burgan Bank. Sharia-compliant banks include Kuwait Finance House (KFH), Boubyan Bank, Kuwait International Bank (formerly Kuwait Real Estate Bank), Al-Ahli United Bank (formerly Bank of Kuwait Middle East), and the newly established Warba Bank. In addition, the Industrial Bank of Kuwait, a government-owned bank, provides medium and long-term financing to industrial companies and Kuwaiti citizens through customized financing packages.

Confidence in the local banking sector was affected by the global financial crisis and Gulf Bank's announcement in October 2008 that it had incurred large losses. Following this announcement, the Council of Ministers and Parliament promulgated legislation guaranteeing deposits at local banks in an effort to rebuild confidence in Kuwaiti banks. The Central Bank worked with Gulf Bank and key shareholders to orchestrate a $1.4 billion recapitalization subscription, with the KIA acting as the buyer of last resort. Since 2008, the banking sector, including Gulf Bank, has seen a steady recovery and regained liquidity.

The Kuwaiti banking sector first opened to foreign competition in 2001, under Kuwait’s Foreign Direct Investment Law. In January 2004, the National Assembly expanded the legislation to permit 100 percent foreign ownership of banks. Foreign-owned bank branches, however, are not allowed to compete in the retail banking sector and are restricted to having one branch office in Kuwait. The Central Bank has granted licenses to ten foreign banks, including BNP Paribas (2005), HSBC (2005), Citibank (2006), the National Bank of Abu Dhabi (2006), Qatar National Bank (2007), Doha Bank (2008), and Dubai-based Mashreq Bank (2009). The Bank of Muscat and Riyadh-based Al Rajhi Bank opened its branches in Kuwait in 2010. The Bank of Bahrain and Kuwait (BBK) has operated in Kuwait since 1977.

Regulatory Norms for Banking Sector

The quality of local banks varies from internationally recognized to weak. Some bank assets have been non-performing in the past. The balance sheets of some local banks are heavily weighted towards lower-yielding government bonds. Legal, regulatory, and accounting systems are opaque, but are generally 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 UK) 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.

2011 Financial Statements from the Banking Sector

Kuwait's banks have not yet released their 2011 annual reports. The profits and assets of Kuwait's conventional and Shariah-compliant banks as of September 30, 2011, were:



KD (millions)


KD (billions)







Gulf Bank












Al-Ahli United









(USD 1 equaled KD 0.2765 as of September 30, 2011)

Competition from State Owned Enterprises

Kuwait’s economic policy remains oil based and state dominated. There are few fully state owned enterprises outside the upstream oil sector, with the exception of Kuwait Airways. The government does own shares in Kuwaiti shareholding companies across the spectrum of the economy, either through KIA or Kuwait’s Public Institution for Social Security

In July 2001, the Kuwaiti government announced an ambitious five-year privatization program. However, the plan, which called for privatizing gas station outlets, part or all of Kuwait Airways, postal services, certain telecommunications services, the Ports Authority, the Public Transport Company, and the power and water sectors, was, for the most part, not implemented.

In May 2010, the Parliament passed a new privatization law, creating a higher privatization council to be headed by the Prime Minister. The law stipulates that a public shareholding company should be established before privatizing any public service. Under the law, forty percent of any such company’s shares will be sold to citizens in an initial public offering. Twenty percent of the shares will be held by the government, with five percent distributed to existing Kuwaiti employees, the remaining thirty five percent to be sold at an auction to a local or foreign investor. Kuwaiti employees will have the right to retain their jobs in the privatized service for at least five years with the same salary and benefits.

With the exception of the oil sector, where private ownership is prohibited, it does not appear that state-owned enterprises have material advantages in business operations. Arguably, the state-owned enterprises, which are subject to strict government tendering rules and the oversight of the State Audit Bureau and Kuwait’s Parliament, are far less nimble than their private sector competitors. With regard to the privatized petrol stations in Kuwait, they have equal access to subsidized gasoline as the remaining state-owned stations.

The Kuwait Petroleum Corporation (KPC), the umbrella for all of Kuwait’s state-owned oil companies, is governed by a Board of Directors, with the Minister of Oil as the chairman. It also reports to a policymaking and oversight body, the Supreme Petroleum Council, headed by the Prime Minister, with participation from both private sector and government officials. The President of Kuwait’s Civil Aviation Authority is the Deputy Chairman of the Board of Kuwait Airlines. The operating budgets for each company are subject to parliamentary approval.

Kuwait Investment Authority

Kuwait’s Sovereign Wealth Fund (SWF), the Kuwait Investment Authority (KIA), manages the Kuwait General Reserve Fund and the Kuwait Future Generations Fund. Founded in 1953, KIA is the oldest SWF in the world. Its management reports to a Board of Directors, the members of which are appointed by the Council of Ministers. The Board is chaired by the Minister of Finance and includes seats allocated to the Minister of Oil, the Central Bank Governor, the Undersecretary of the Ministry of Finance, and five Kuwaitis who represent the private sector, three of whom cannot hold any other public office. The five-member Executive Committee, of whom at least three are private sector appointees, is formed by the Board. The Chairman of the Executive Committee is the Managing Director, who is appointed by the Board. The primary role of the Executive Committee is to assist the Board of Directors in setting strategic goals and objectives for KIA.

KIA maintains both an internal audit office (which reports directly to the Board of Directors) and an external audit team. Additionally, KIA is overseen by a Board Audit Committee comprising of two private sector Board members and chaired by the Minister of Finance. The Managing Director participates in Board Audit Committee meetings as an observer. The external auditor, the State Audit Bureau (SAB), audits KIA on a continuous basis and issues an annual report to the National Assembly. Various committees in the National Assembly, such as the Finance and Economic Committee, the Budget Committee, the Closing Accounts Committee, review the comments of the SAB audits.

KIA is prohibited by law from publicly discussing the size of its holdings and avoids any but the most general discussions of asset allocation. KIA does hold closed-door presentations on the full details of all funds under its management, including its strategic asset allocation, benchmarks and rates of return, for the Council of Ministers and the National Assembly.

Corporate Social Responsibility

Corporate social responsibility (CSR) in Kuwait is largely manifested through contributions to local charities. There is evidence that companies and the general public are aware of corporate responsibility as it pertains to contributions to local charities and that consumers do hold charitable giving in high regard. There is little evidence that corporate responsibility is practiced according to the OECD guidelines for multinational enterprises to encompass human rights, human capital formation, transparent regulatory framework, good governance, and combating discriminatory employment practices.

The GOK has given awards to companies who practice CSR. In 2011, the National Bank of Kuwait and Equate were awarded for its contributions in recruitment, healthcare, education, social support, sports, and environment activities.

Political Violence

Despite often contentious relations between the executive and legislative branches of government in Kuwait that resulted in numerous public rallies during the year, street protests rarely turn violent. However, security forces used non-lethal force to disperse Bidoon (stateless Arab) demonstrators who participated in unauthorized protests in February and December 2011.


The often lengthy procurement process in Kuwait occasionally results in accusations of attempted bribery or the offering of other inducements by bidders. These constitute crimes in Kuwait and there are currently several investigations and trials underway involving current or former government officials accused of malfeasance. 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 2011 Corruption Perceptions Index (CPI) ranked Kuwait 54 out of 180 countries. Kuwait was ranked fourth in the Arab region out of 18 countries, and second to last among the Gulf nations. Kuwait's CPI score of 4.6 (out of 10) indicates it has a "serious corruption problem," according to Transparency International.

Bilateral Investment Agreements

Kuwait has signed bilateral investment agreements with the following nations (although not all have been implemented): Austria, Belarus, Belgium, Bosnia, Bulgaria, Canada, 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. In June 2009, GCC countries concluded an FTA with the European Free Trade Association (EFTA), which includes the countries of Iceland, Liechtenstein, Norway, and Switzerland. A U.S.-GCC Trade and Investment Framework Agreement (TIFA) is currently under discussion and a meeting to discuss proposed TIFA text took place in January 2012.

Kuwait signed a TIFA with the U.S. 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. 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 were intellectual property rights, standards- related issues, taxation, and service and investment requirements. The last TIFA Council meeting took place in 2008. Technical experts on both sides continue to work on these areas.

OPIC and Other Investment Insurance Programs

In 1989, Kuwait concluded an agreement with the U.S. on investment guarantee 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 public 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 entering 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. The GoK currently employs the overwhelming majority of the Kuwaiti workforce.

Expatriate Workers

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 first Gulf War (1990-91), Palestinians occupied many of the country's middle-management positions. Since then, Egyptians, Lebanese, and South Asians have filled most of these positions. Since liberation, the GOK has adopted inconsistent policies intended to limit and discourage growth of the resident expatriate population. The government has instituted a quota system for work permits designed to protect workers by preventing Kuwaitis from importing unnecessary workers and then leaving those workers in 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, the government has reduced the minimum salary required for expatriates in some business categories to be eligible to bring their family members to Kuwait. The minimum salary was lowered from KD 400 (USD 1,400) per month to KD 250 (USD 875) per month. However, these and other regulations have not stemmed widespread abuse of the sponsorship system. Reportedly, a large number of Kuwaiti citizens derive significant income from the sale and renewal of illegal residency permits. The Ministry of Information estimates that as many as 70,000 foreign laborers are in Kuwait on illicit residency permits.

Kuwaiti Labor Laws

Kuwaiti workers have the right to organize and bargain collectively, but Kuwaiti law restricts the right of freedom of association to only one union per occupational trade and permits only one federation, the Kuwait Trade Union Federation (KTUF), which comprises 15 of the 47 licensed unions. 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 establish work conditions in the public and private sectors, with the exception of the oil sector. Forced labor is prohibited and the minimum age for employment is 18 years in industrial or dangerous jobs. Some youth under the age of 18 may be allowed to work part-time in some non-industrial positions. 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 60 (USD 210) per month, while in the public sector, the current minimum wage is KD 250 (USD 875) per month for Kuwaiti bachelors and KD 325 (USD 1137.5) per month for married Kuwaitis, plus KD 50 (USD 175) for each child, compared to KD 90 (USD 315) for non-Kuwaitis. Kuwaitis employed in both the private and public sectors also receive substantial government subsidies on top of their base salaries. The amended labor law did not change the previous work week limitation from 48 hours, but extended annual leave to 30 days after 6 months of joining the service. However, the law is not consistently enforced and disputes over the payment of salaries and contract-switching are common, especially in the case of 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 work hours and freedom of association. Areas criticized by the ILO include the prohibition of 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.

Human Rights and Trafficking

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 circumstances faced by domestic servants and other workers in Kuwait, the State Department's 2011 Trafficking in Persons Report listed Kuwait as a "Tier 3" country of concern. In February 2010, Parliament enacted a private sector labor law, updating the antiquated 1964 law. The new law provides private workers (but excluding domestic workers) with longer leave, higher severance pay, and maternity leave. It also contains a provision for the establishment of a state-owned recruitment company to oversee the importation of foreign labor, a move intended to eliminate visa trading and illicit recruitment of foreign workers. However, legislation related to anti-trafficking and protections for domestic workers has yet to be passed by Parliament.

In June 2007, Parliament ratified a law that bans all 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 all 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 (NREC) 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 and the majority of firms operating in the zone are Kuwaiti. However, both Kuwaiti and foreign businesses 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, due to accusations that the NREC was mismanaging the FTZ. The NREC appealed this decision in the Kuwaiti courts, but the matter has not been resolved.

Foreign Direct Investment Statistics

Kuwaiti public investment abroad consists of portfolio investment by KIA, direct investment by other government entities, as well as investment by private Kuwaitis. Media reports in 2011 speculated that KIA's holdings were approximately USD 250 billion. Details about the composition of both KIA and non-KIA investment portfolios, such as Kuwait Petroleum Corporation's reserve fund, are not publicly available due to Kuwaiti legal restrictions. Private Kuwaitis' overseas investments are significant, with billions of dollars invested in equities and real estate in North America, Europe, and East Asia.

According to the 2011 World Investment Report (published by the secretariat of the United Nations Conference on Trade and Development, UNCTAD), Kuwait attracted only $81 million of FDI in 2010, ranking Kuwait last in this category within the GCC. During the same period, Kuwait’s FDI outflows totaled USD 2.06 billion, making Kuwait the second highest overseas investor in the GCC.

Despite Kuwait’s ongoing efforts to improve the regulatory climate for FDI, Kuwait continues to experience major difficulties with shortage of land, a deficit of skilled labor, and rising labor costs. Restrictions remain for foreign investment opportunities in the real estate and energy sectors. There is a limited size of the market to absorb new projects, and clan and family businesses continue to dominate the business operating environment in Kuwait.