Doing Business In The State of Kuwait
Introduction
The State of Kuwait is a constitutional monarchy on the coast of the Persian Gulf, enclosed by Saudi Arabia to the south and Iraq to the north and west. The name is a diminutive of an Arabic word meaning "fortress built near water." The history of Kuwait goes back to the year 1613 CE. The country was formed when several clans from different Middle Eastern tribes settled near the area now known as the "Kuwait Bay". The current rulers of the country (the Al-Sabah family) are descended from Sabah I, who was chosen by the community, which was composed mainly of traders. The duties of the rulers include administering the affairs of the State, including foreign affairs and taxation/duties. However, the ruler/Emir has little political role in modern governments due to the influence of State Prime Ministers.
Economy
Kuwait is a highly industrialized country with a GDP (PPP) of US$ 88.7 billion and a per capita income of US$ 29,566. Kuwait's human development index (HDI) stands at 0.871, the second highest in Middle East and the highest in the Arab world. Kuwait has a proven crude oil reserves of 96 billion barrels (15 km³), estimated to be 10% of the world's reserves. Petroleum and petrochemicals accounts for nearly half of GDP, 95% of export revenues, and 80% of government income. Other major industries include shipping, construction and financial services. Kuwait's climate limits agricultural development. Consequently, with the exception of fish, it depends almost wholly on food imports. About 75% of potable water must be distilled or imported. Higher oil prices put the FY99/00 budget into a €1.7 billion ($2 billion) surplus. The FY00/01 budget covers only nine months because of a change in the fiscal year. The budget for FY01/02 envisioned higher expenditures for salaries, construction, and other general categories. Kuwait continues its discussions with foreign oil companies to develop fields in the northern part of the country. By 1990, the country earned more from foreign investment than from oil exports. The expenses of the Iraqi invasion and post-war reconstruction placed a heavy economic burden on the country, but by the mid-1990s Kuwait had resumed its pre-invasion prosperity. The Central Bank of Kuwait issues Kuwait’s currency, the Kuwaiti dinar. The dinar is currently the highest valued currency unit in the world.[citation needed] Major trading partners include Japan, United States, People's Republic of China, United Kingdom, Saudi Arabia, Singapore and India.
Market Overview
The State of Kuwait lies at the northern end of the Arabian Gulf (Persian Gulf) and is situated between the Gulf Cooperation Council countries (Oman, Saudi Arabia, the UAE, Qatar, and Bahrain) and the State of Iraq. The Kuwait economy is dominated by petroleum, which accounts for over 90 percent of its export earnings and over 80 percent of its budget revenues. Given its single natural resource, Kuwait manufacturing is dominated by oil refining and down stream petrochemical processing. The non-oil manufacturing and agriculture sectors are statistically less significant given Kuwait’s oil and oil reserves position. The majority of non-oil manufacturing companies are engaged in food processing and packaging and light industry including the manufacturing of building materials and residential furniture.
The Kuwait economy grew significantly in 2006 due to increased market prices for Kuwait Export Crude. National Bank of Kuwait (NBK) GDP estimates appear to be USD 80 billion for the year 2006 with Standard Chartered Bank reporting the country’s nominal GDP at nearly USD 90 billion. Kuwait’s primary export is oil, however it imports almost all capital equipment, agricultural commodities, processed foods, manufacturing equipment and consumer goods. Kuwait two-way trade is not very diversified with Kuwait exports to the United States, Japan and Korea accounting for over 40% of all Kuwait export earnings. Likewise, the United States, Germany and Japan account for approximately 35 percent of all foreign imports to Kuwait. The United States continues to remain a leading trading partner with the State of Kuwait in total bilateral trade. Automobiles and automotive parts account for approximately one third of the USD 2.13 billion the United States exported to Kuwait in 2006. Oil and gas field equipment, telecommunications and IT equipment, electric generator sets, medical equipment, building materials and supplies, and electronics were also leading export sectors for U.S. firms.
Analysts from the U.S. Energy Information Authority report that Kuwait should expect to generate another USD 51 billion from its oil revenues next fiscal year while other economists are also forecasting a federal surplus of USD 20 billion this year. With 90 percent of private sector employment taken up by non-Kuwaiti citizens and the Government of Kuwait’s interest in moving towards privatization (wages account for 28 percent of the country’s overall expenditure), the current health of the Kuwait economy and the USD billions in surplus being seen in the public accounts makes 2007 a critical juncture for the State of Kuwait to move forward on its ambitious infrastructure and development programs.
Market Challenges
The State of Kuwait is a complex and challenging market requiring adaptability and persistence. Many U.S. exporters and investors face many of the same challenges that exist in other Gulf Cooperation Council countries, such as inconsistent, sometimes contradictory policies, lack of transparency in decision-making, and an inconsistent judiciary. Careful planning and patience are the keys to success in Kuwait. Keeping in mind that Kuwait is strategically located at the northern end of the Arabian Gulf, and given the ambitious major civil and infrastructure construction work being proposed over the next decade, U.S. companies should also plan to eventually use Kuwait to expand business opportunities to Iraq and the other Gulf Cooperation Council member states. Ongoing matters of concern for U.S. business include Kuwait tax regulations, less than transparent regulations pertaining to industrial standards, highly bureaucratic application procedures, intellectual property rights protection, and less than transparent public contracting and procurement procedures. As noted above, these market challenges are not unique to Kuwait or the Gulf Cooperation Council member states, however for an improved business and investment climate, expeditious resolution of these ongoing trade irritants would show Kuwait’s commitment to developing into a more open business center.
Market Opportunities
The State of Kuwait is undergoing significant expansion in the building and construction industry. The Government of Kuwait is currently involved in an ambitious building program that includes the construction of three new urban centers, major highways, a new container terminal and transportation support infrastructure. Private construction and project development, like in other GCC urban centers, is also moving forward. With the traditional export sector of automotive, oil and gas, computers/ITC, telecommunications equipment and construction equipment remaining strong and given the new pace of urbanization and construction occurring in Kuwait, export opportunities should increase in the near to mid term.
The Commercial Service in Kuwait has identified other significant opportunities on projects being spaced out over a multi-year period. These projects include a multi-billion dollar investment in homeland security infrastructure, a proposed up to USD 10 billion expansion in needed electricity generation capacity, investing in environment clean up projects and continued expansion in the lucrative logistics market serving U.S. military forces in the Middle East theatre of operations.
