Ahmed Barakat, Managing Partner, ASAR – Al Ruwayeh & Partners: Viewpoint

Viewpoint: Ahmed Barakat

Kuwait is undergoing a substantial overhaul of its legal framework to promote investment in the country, develop local business opportunities and help diversify its economy. This process has gained significant momentum during the last 10 years. To assist with this, antiquated laws are being replaced and updated, such as the Companies Law, the Labour Law, the Tenders Law and several laws related to the protection of intellectual property.

New laws are being promulgated to facilitate business-inclusive laws focused on public-private partnerships; the telecommunications industry, including those related to e-commerce; and the capital markets. The authorities are also looking at filling certain gaps; of particular significance, the legislature is currently considering laws relating to bankruptcy and insolvency (including a best practices approach) as well as laws concerning the provision of security for obligations, encompassing mortgages and the pledging of assets.

Arguably the most notable development related to foreign investment was the promulgation of the Foreign Direct Investment Law (FDI Law). A significant benefit under the law is that foreign investors can own up to 100% of a Kuwaiti company, up from the typical limit of 49%. Other benefits available to qualifying investors include special tax credits, assistance with employing foreign labourers and the possible allocation of land on which an investor can operate. While the FDI Law was first promulgated in 2013, the programme itself has been developed and enhanced over the years, most recently new regulations were issued clarifying how applications under the FDI Law will be scored.

The renewed focus on enhancing competition within Kuwait is also significant. Given the isolated environment within which corporations operated in past years, certain practices had evolved that stifled healthy competition. While the Kuwaiti Competition Law was put into effect in 2007, the Competition Protection Authority itself was not activated until much later, and has only recently started to ramp up its efforts to enhance fair and healthy competition in Kuwait. While the Competition Law expressly restricts certain behaviour deemed anticompetitive and requires that certain approvals be obtained in relation to sales, mergers and practices by dominant firms, given the novelty of the Competition Law and its relatively recent implementation, a number of challenges still have to be faced.

While assisting our clients with investigations regarding possible exclusionary practices, as well as with the reporting and approval of mergers and acquisitions, a significant issue that is being encountered is clarifying and establishing when a market participant is in a dominant position in a particular sector. Without getting into much detail on this issue, a party is deemed to be in a dominant position when it enjoys at least a 35% share of a relevant market. This issue becomes more complex when one considers that defining the relevant market itself poses its own issues.

There have been various opposing arguments made regarding the role and scope of the Competition Law in the context of Kuwaiti law as a whole and, in particular, how it impacts consumer protection laws. In this regard, we have seen how these issues are confused in practice by certain role players which may lead to negative consequences. Having said this, such challenges are not new in the global market, and consideration is being given to developments abroad.

On the whole, Kuwait has made significant strides towards facilitating business and promoting foreign investment in the last decade, which has been aided by changes to the legal framework. Nevertheless, the authorities have recognised that there is more to be done to attract potential investors to Kuwait.