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Open for business: How Kuwait is transforming itself to attract FDI

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By Emile Boulos, Local Partner at BonelliErede’s Dubai office and Celine Bsaibes, Senior Associate at BonelliErede’s Beirut office
MONDAY 28, JANUARY 2019

Last year, the Kuwait Investment Forum 2018 (KIF 2018) brought together participants from more than 55 countries to highlight recent developments in Kuwait’s business environment and evolving investment trends.

The event focused on new investor-friendly regulations, the overall business climate and discussed specific investment initiatives that are currently underway, building on the positive momentum gained after HH the Prime Minister Sheikh Jaber Mubarak Al-Hamad Al-Sabah’s announcement of Kuwait’s long-term national development plan, Vision 2035.

The success of KIF 2018 marks an important milestone in Kuwait’s efforts to revamp its legal framework with the aim of transforming the nation into a leading business hub that is attractive to foreign investors. With the introduction of Law No. 116 of 2013 (Law No. 116), which concerns the Promotion of Direct Investment in Kuwait, the country took a major step forward in achieving its goal to stimulate the country’s investment landscape by attracting more foreign direct investment (FDI).

The legislation brought forth a series of reforms specifically designed to diversify Kuwait’s economy while paving the way for foreign investors to penetrate the Kuwaiti market. One of the main outcomes of Law No. 116 was the establishment of the Kuwait Direct Investment Promotion Authority (KDIPA), an independent and specialised public authority tasked with attracting and promoting FDI in the country.

Centralising all decision-making at the KDIPA shall help to dispel much of the bureaucratic layers that generally hinder FDI in a business environment. Under its mandate, the KDIPA was afforded the autonomy to issue all regulations necessary for achieving its objectives, most notably Decision No. 313 of 2016, which provides a framework for evaluating investment licences under a point-based scoring mechanism whereby an applicant licence would earn points by satisfying the following criteria: transferring advanced technologies into Kuwait; providing jobs and accredited training programmes for Kuwaiti nationals; supporting small and medium business enterprises; and contributing to the overall diversification of the country’s economy.

Applications receiving a score below 60 per cent per cent are automatically rejected, whereas higher scores are granted licence approval alongside certain incentives. A score of 70 per cent per cent allows for a choice of only one incentive, while a score above 80 per cent grants an investment licence and all incentives stipulated under the law, including 100 per cent per cent foreign ownership, 10-year tax exemption, as well as the ability to recruit skilled foreign labour.

Although the final percentage score remains at the discretion of KDIPA officials, it offers investors better visibility into the factors that will ultimately decide whether they receive a licence or not. Further clarity is provided by Ministerial Decision No. 75 of 2015, which sets out a list of sectors that are ineligible for an investment licence, including oil and gas extraction, security and investigation activities as well as public defence. The introduction of Law No. 116 and the ensuing KDIPA regulations are some of many indicators of Kuwait’s efforts to attract more FDI.

Several other recent legislative reforms have contributed towards the country’s goal to promote an investor-friendly business environment. For instance, Law No. 1 of 2016 on Companies Law (as amended by Law No. 15 of 2017) provides that a company’s minimum capital shall be determined by executive regulations based on the activity, thus eliminating officials’ discretion on that front and allowing equal treatment to companies with the same activity.

Furthermore, Law No. 13 of 2016 regulating Commercial Agencies allows foreign principals carrying out business in Kuwait to resolve disputes with local agents via foreign arbitration under foreign governing law; this gives foreign investors the legal certainty they require in order to enter into transactions with more confidence. Additionally, based on Law No. 49 of 2016 regarding Public Tenders, foreign investors can bid on public tenders without a local agent and refer to the Committee of Grievance to report any violations during the bidding process.

Finally, Law No. 116 of 2014 concerning Public Private Partnerships (PPP) makes it easier for investors to acquire project financing and allows for increased foreign ownership in PPP projects. As the Government is seeking private sector partners on key initiatives, the scope of projects planned will likely fuel a number of vital sectors, such as financial services, education as well as health, information technology, communications and transportation.

The energy sector in particular, is expected to witness increased activity; the Ministry of Electricity and Water is resolved to have 15 per cent per cent of the country’s power generated from renewable sources by 2030, as reported by the Kuwait News Agency. This is evidenced by the large power plant construction projects in Al Zour and Al Khairan, which are currently open to tenders from foreign investors.

Largescale infrastructure construction is also underway, such as the multibilliondollar development project planned for five islands off Kuwait’s northern coast. Nicknamed Silk City, the area will serve as an economic free zone comprising a major port, airport, hotels, sports facilities, residences, offices and national parks. It becomes evident that international investors can expect Kuwait to offer ample opportunities for investment through ongoing projects and even more in the pipeline.

With such a committed effort to execute this long-term national vision to increase foreign investment, it comes as no surprise that Kuwait has reported growth of $2.5 billion in FDI over the last two years. The reforms’ positive effects have become increasingly apparent with the World Bank moving Kuwait up six ranks in its Doing Business 2018 report. Similarly, index operator MSCI is considering promoting the country’s stock exchange, Boursa Kuwait, from frontier to emerging market status, a move which will make the country even more suited for FDI.

The road towards economic liberalisation is not entirely without pitfalls, however. Although the improvement in ease of doing business score shows serious commitment to enhance the business climate, further efforts are required to ensure the economy remains diversified enough to withstand oil price fluctuations. Battling bureaucratic delays in getting projects off the ground as well as promoting private sector participation in the economy will also be key in boosting the country’s appeal to investors. As investor confidence grows in a business-friendly legal framework, it is safe to conclude that Kuwait is wellpositioned to develop into a trade and financial hub.

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