Kuwait looks to boost foreign investment

While Kuwait’s FDI figures were up in 2012, far more capital still leaves the country each year than enters it. However, the government is working to reverse this, in part by improving the legal framework for foreign investment.

According to a report issued by the UN Conference on Trade and Development (UNCTAD) at the end of June, Kuwait attracted almost $1.9bn of FDI in 2012, a 117% increase on the previous year. In its World Investment Report 2013, the UN organisation said the Gulf country had not only more than doubled its own FDI total but had outstripped several of its neighbours, including Oman, Bahrain and Qatar. The regional leaders were Saudi Arabia, with $12.2bn, and the UAE, at $9.6bn.

Kuwait’s improved performance was also well above the global average, with worldwide FDI declining by around 18% in 2012, mainly due to “continued macroeconomic fragility and policy uncertainty for investors”, UNCTAD said. The agency added it was expected that there would be only a moderate rise in foreign investment flows around the world over the next two years.

However, the positive result for Kuwait in 2012 was mainly the product of a one-off investment, as Qatar Telecom nearly doubled its stake in the mobile telecoms provider Wataniya. In October the Qatari firm increased its holding in the Kuwaiti operator from 52.5% to 92.1%, also giving it majority rights in two profitable North African subsidiaries, Nedjma and Tunisiana. To do this, Qatar Telecom committed $1.8bn, representing almost all of Kuwait’s FDI in 2012.

Moreover, funds continue to flow out of Kuwait at a more rapid pace than they enter, with outward FDI totalling $7.5bn in 2012. This was by far the highest of any of the GCC states, with only Saudi Arabia coming close, at around $4.5bn.

Another recently issued report – by Kuwait-based business consultancy Leaders Group – noted that Kuwaitis appear more inclined to look abroad for opportunities rather than invest at home. According to their analysis, the GCC state attracts 1% of investments coming into the Arab world, while at the same time accounting for 35% of Arab FDI within the region.

The consultancy attributed Kuwait’s relatively weak FDI inflows in part to the difficulties in obtaining approval for projects and the more competitive incentives offered to investors by the UAE, Saudi Arabia and Qatar.

This conclusion was in line with the findings published in the World Bank’s latest Ease of Doing Business Report, which ranked Kuwait 82nd globally, down from its 77th placing in 2012. The slow pace of establishing a business, difficulties in trading across borders and dealing with construction permits all weighed down on the ranking.

However, Kuwait is moving to boost its investment credentials and improve its FDI profile. At the end of May, the Ministry of Commerce and Industry announced it would press ahead with long-mooted plans to establish a new agency tasked with attracting foreign investments. The new authority will replace the existing Foreign Investment Office and be a part of the ministry. Among its roles will be to assist in drafting improved legal and economic conditions to promote foreign investment. Under legislation put before the Kuwaiti parliament before the general election on July 27, the time to process business licences will be cut to 30 days, while incentives – yet to be defined – will be provided to eligible foreign investors.

It will take time for these measures to be refined and implemented, possibly too long to impact this year’s FDI results. Perhaps a better balanced gauge of whether Kuwait has opened the taps for foreign investment flow will come in 2014, when the proposed reforms have had a chance to take hold.