Beneficial ventures: Offset projects promote the development of value-added industries

Since launching in 1992, the Kuwait Offset Programme (KOP) has played a key role in stimulating the growth of local industries and attracting foreign investment, particularly in the areas of defence and education. Under the National Development Plan (NDP), the KOP is expected to grow even further, as policymakers encourage new offset projects in the energy, transport and communications sectors. This bodes well for the country’s growth prospects and for foreign companies that have the technology and expertise Kuwait requires.

BASICS: The KOP requires foreign firms that win large government contracts to establish a separate business enterprise that promotes growth in value-added industries. This obligation extends to companies that sign contracts in any fiscal year worth KD3m ($10.8m) or more in the defence sector, or KD10m ($36.01m) and above in non-defence sectors. Although the offset investment must equal 30-35% of the contract value, official records indicate that offset spending usually amounts to 3% of contract value, as “credits” earned for expenditure are multiplied beyond a one-to-one ratio. Contractors that earn credits above the predetermined amount may apply these to future agreements.

Upon forming a deal, contractors must sign a memorandum of understanding acknowledging these requirements with the state-owned National Offset Company (NOC), and submit a series of business plans indicating how the venture will be implemented within eight years. Further, contractors must indicate how the venture will include the participation of Kuwaiti entrepreneurs or companies as equity partners.

Offset proposals are evaluated by the NOC in accordance with the programme’s objectives. These include promoting technology transfer, private sector growth, domestic capital accumulation and human resources development. From 1992 to 2010, the NOC approved a total of 112 offset projects, 60% of which were executed in the defence industry. Of the more than 100 firms involved in the KOP during that time, the majority hailed from the US, the UK, France and Germany.

GLOBAL PROMOTION: For many years the KOP was overseen by the Ministry of Finance. To make the programme more efficient, the government transferred oversight to the NOC, which streamlined operations.

Along with management responsibilities, the NOC’s remit includes making offset opportunities in Kuwait more globally recognised. To this end, the agency has launched a number of international advertising campaigns and public relations initiatives.

In early 2011 one such initiative was the KOP Workshop, organised by the NOC in cooperation with the Kuwait Diplomatic Institute and the Kuwait Foreign Investment Bureau. The event highlighted local offset opportunities, with an emphasis on ventures involving service-oriented industries and the import of cutting-edge technologies. Going forward, the NOC plans to host an even larger conference in December 2012.

FOREIGN INVOLVEMENT: While engaging investors, the NOC can point to a number of offset projects that have been successfully implemented already, many by leading international companies. Foreign firms that have participated in major offset ventures in Kuwait include multinationals from around the world, such as Airbus, BAE Systems, Boeing, Hyundai, Mitsubishi, Lockheed Martin, Raytheon, Siemens and Toshiba.

One emerging success story is the offset deal signed in 2010 between the NOC and Blenheim Capital, a UK-based consulting company specialising in procurement financing and skills training. Under the agreement, Blenheim will develop and provide operational support to the Essence Group, a newly established Kuwaiti aircraft leasing firm targeting customers in the GCC feeder aircraft market. In partnership with Raytheon, which will supply the Essence Group with four Beechcraft 1900C planes, Blenheim will help formulate the company’s business plan and offer an intensive 10-month training programme to 50 Kuwaiti employees. Upon completing the training module, participants will receive qualifications that will allow them to make a contribution to a promising niche in the national economy.