Kuwait: A new chapter

Iraq and Kuwait appear to be laying the foundations to rekindle economic relations, with businesspeople and political leaders from both countries recently meeting to discuss opportunities for bilateral trade and investment.

On April 27 a seminar was held in Kuwait City to discuss strengthening commercial ties between the two nations. The event, organised by the Gulf Studies Centre of the American University of Kuwait, was entitled “Kuwait and Iraq Together Towards a Bright Future”. Attendees included business leaders, academics and public officials from both countries.

The seminar focused on the role of the private sector in enhancing Kuwaiti-Iraqi economic cooperation. According to Mansour Aboukhamseen, the chairman and managing director of Kuwait Energy Company, the participants “shared views on how Kuwaiti and Iraqi companies can work together on building Iraq, especially in the areas of project finance, technical expertise, logistical support, tourism and social ties”.

The energy sector may well be an area in which Kuwait could offer financial and technical support to Iraq. As Paul Landers, the group chief executive of AGG International, an oilfield services company, told OBG, “Iraq is pivotal for the future of exploration and production of oil and gas. It has immense reserves comparable to those in Saudi Arabia, but they are underdeveloped. Kuwait has the potential to be the entrance point for this development.”

A recent visit to Kuwait by an Iraqi trade delegation underscored the importance of the country as a possible source of investment capital. On April 13 the Kuwait Chamber of Commerce and Industry (KCCI) hosted a group from Iraq that included the governor of Basra, the head of Basra Investment Commission (BIC) and the Iraqi ambassador to Kuwait. A number of Kuwaiti businesspeople also attended the meeting.

Haidar Fadhel, the head of BIC, spoke at the event, highlighting some of the ways in which Iraq’s legal framework provides economic incentives for foreign investment. According to Iraq’s National Investment Law, foreign investors who apply for and receive an investment licence from either the national or a regional investment commission are eligible for benefits. Incentives include an exemption from certain taxes, as well as the right to import equipment and machinery for a period of three years without paying duty.

Kuwaiti businessman Jawak Bukhamseen, who attended the KCCI meeting, told Kuwait Times that Iraq is a good destination for investment because it allows 100% foreign ownership, unlike Egypt, Syria and Lebanon. Another participant, Mazin Abdulzahra, the acting head of Basra Chamber of Commerce, pointed out that investment was possible in sectors other than hydrocarbons. “The real resource for development lies in industries, not oil alone,” he said, noting that there is “a good opportunity to establish new factories in Iraq”.

Strengthening economic ties is not necessarily limited to direct foreign investment – it could very well also involve boosting bilateral trade. Kuwait currently imports liquefied natural gas (LNG) during the summer months to generate electricity during this period of peak demand. In January, Abdullatif Al Houti, the managing director of international marketing for the state-run Kuwait Petroleum Corporation (KPC), announced that the Ministry of Electricity and Water had asked KPC to begin LNG imports in mid-March and continue them up to mid-November, an extension over last year’s period of April to October.

Iraq could, at least in theory, sell natural gas to Kuwait. Iraq currently flares much of the gas produced at its oilfields, but in April 2011 Shell, Mitsubishi and South Gas Company of Iraq announced that they had received approval to establish a joint venture to capture the natural gas that would otherwise have been burned off. Revenues generated by the deal could also help Iraq upgrade its infrastructure for the processing and distribution of natural gas. According to market research firm Datamonitor Group, Iraq has proven gas reserves of 3.15trn cu metres.

Although some Kuwaiti businesspeople may be sanguine about investment opportunities in Iraq, barriers to revitalising economic relations remain, including long-term disputes over reparation payments and territorial borders. However, with significant upside potential, both countries may be able to put aside their differences. As Mohammad Akbar, the director of the Gulf Studies Centre of the American University of Kuwait, said, “Kuwait and Iraq have started a new chapter in political and economic relations.”