Striking a balance: Creating benefits for foreign investors and the local economy alike

set swapping. The NOC offers contractors three main investment options: an NOC pre-approved offset project; a project proposed by the contractor with NOC post-approval; or participation in offset funds developed or approved by the NOC. There is variation in the type of offset projects that the NOC can accept as proposals or propose itself, including joint ventures, greenfield FDI projects, brownfield investments, direct contributions, procurement of national goods and services, the acquisition of existing offset business ventures, offshore projects and third-party arrangements. A number of contract classes are also exempt from offset requirements, namely contacts for non-industry-related construction works, all public-private partnerships signed with any Kuwaiti governmental entity, and foreign suppliers of goods on a free-on-board basis, whereby the seller pays the transportation and loading costs and the buyer is liable for the unloading and insurance costs.

PROJECTS: As of 2012, the NOC had a number of preapproved projects available for foreign contractors to take part in. These included the provision of a carbon dioxide capture and recovery system for the EQUATE petrochemicals plant producing and marketing carbon dioxide to the domestic and regional markets, like Turkey and Egypt; a consultancy body to address the problem of marine life damage as a result of pollution and to provide other commercial services, such as offshore and onshore inspections; construction of a manufacturing facility for the production of the patented pre-cast construction material Locrete, including research and development at a training and technology transfer centre to localise the system to the Kuwait market and training Kuwaitis in its use; and, finally, a project designed for a laptop manufacturing company providing students with lightweight laptops.

“Before, companies saw offset as something that they had to do. Now we say to them, look there are benefits for you as well. We want it to be win-win for the contractors and Kuwait,” Reem Al Khader, deputy general manager for operations at the NOC, told OBG. Offset programmes are a method by which developing nations can add value to their economies by encouraging foreign contractors to invest locally. Over the years, offset programmes have evolved as governments have balanced their desire to leverage the capital and expertise of foreign firms to the benefit of the local economy against the need to encourage foreign direct investment (FDI) in the first place: too onerous a burden threatens to subdue interest from international companies, while too light a regulatory touch leads to missed opportunities for local businesses.

BACKGROUND: The programme dates back to 1992, when it was established as a unit within the Ministry of Finance, and continued until 2004, when it was temporarily suspended. The National Offset Company (NOC) was set up as a state-owned enterprise in 2006. A contract was signed with the MOF by which it took over the programme’s management and adopted the new Offset Programme Guidelines No. 9-2007. The NOC was thus free to develop its business plan and operating policies, which it carried out with the assistance of Ernst & Young and finalised in 2007. Under the new guidelines, defence contracts worth more than KD3m ($10.7m) and civil contracts of more than KD10m ($35.7m) are obliged to take part in the programme, by which they are liable for an offset obligation equal to 35% of the monetary value of the supply contract. Contractors can, however, reduce this requirement in a number of ways. Deductions are made to the offset obligation to the value of subcontracts assigned to Kuwaiti companies, for example, while further deductions are made for expenses incurred in attaining a bank guarantee, assessing the value of technology transferred to local business ventures created by the contractor, and off-contract purchases of goods and services of Kuwaiti origin.

FLEXIBILITY: Offset activity may be either direct – which includes co-production, subcontracts, technology transfer, training, licensed production or FDI – or indirect, such as export assistance, purchases and