Business in Kuwait

Aired June 2005

Located in the northern part of the Arab Peninsula, the state of Kuwait commands a strategic location at the head of the Arabian Gulf. It lies between the Kingdom of Saudi Arabia and Iraq, and covers a total area of approximately 17,800 square kilometers. Its territory includes 9 offshore islands.

Having gained independence only in 1961, the state of Kuwait has existed for less than 50 years. However, the modern name of “Kuwait” is traced back to the early 18th century. Archaeological evidence further indicates that a Bronze Age settlement was already in existence during the 3rd century BC.

In the early 19th century, Kuwait was a bustling trading port. The rough desert weather did not provide for agriculture, and so Kuwaitis turned to the sea for their living. Seafaring and boat building, coupled with gold and pearl trading, earned Kuwait the name “the Pearl of the Gulf”.

Natural merchants, the Kuwaitis have always recognized that the key to being the “Pearl of the Gulf” is commerce.

Today, Kuwait has a good system of roads and expressways linking all the major urban areas, and boasts a mix of architectural styles.

Behind the glitz of open opulence, lies a deep sense of traditional values and warm Arabian hospitality.

With modern conveniences and numerous opportunities for leisure – both indoors and outdoors – Kuwait is home to a cosmopolitan crowd.

In the early 1900s, Kuwait was discovered to be floating on oil. This led to the soaring of the country’s economy, and the growth of a lucrative oil and petroleum industry.

The current head of the government, His Highness Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, is a descendant of the powerful Al-Sabah family, who have ruled Kuwait since the 18th century. His vision for Kuwait includes turning the country into a service, commercial and financial hub.

Both the government and the private sector have been working together towards this effect. These include providing the state with a solid infrastructure, an excellent social service programme and a sound international investment and monetary policy.

The government has also recently started privatising certain civil projects. One such example is the Sulaibiya Wastewater Treatment Plant, which is a joint-venture between a local Kuwaiti company and a foreign company.

US-KUWAITI RELATIONS

In mid-1990, Kuwait was invaded by Iraq under allegations of stolen oil. The country fell to the invading Iraqi forces in less than a week. Early the following year, a UN coalition led by the US succeeded in driving out the invaders.

Following the liberation, Kuwait went about rebuilding its city exactly as it had been before the invasion, and spent more than 5 billion dollars to repair damaged oil infrastructure.

US-Kuwaiti relations have now grown into a true alliance – both military and commercial.

In 2004, Kuwait signed the Trade and Investment Framework Agreement (TIFA) with the US creating a framework for increased trade and investment between the 2 countries.

TRADE & INDUSTRY, ENERGY AND FOREIGN AID

This small, rich, OPEC-member country today boasts an average budget surplus of nearly 9 billion dollars. With proven crude oil reserves of about 94 billion barrels, or 10 per cent of the world’s reserves, petroleum accounts for nearly half of the country’s GDP, 95 per cent of export revenues, and 80 per cent of government income.

Oil was first discovered in Kuwait in 1938 by the Kuwait Oil Company, a US-British joint venture based in London.

Over the next 3 decades, extensive developments occurred both in the upstream and downstream activities of the oil industry.

Kuwait began exporting crude oil in 1946, and oil-refining operations started at the Mina Al-Ahmadi Refinery in 1949, one of 3 refineries in Kuwait.

Today, the country’s oil industry is controlled by Kuwait Petroleum Corporation (KPC), which is one of the world’s top 10 oil energy conglomerates, and has numerous foreign interests.

Due to soaring oil prices, Kuwait experienced a budget surplus in excess of 10 billion dollars in 2004.

While its oil reserves are expected to last more than 100 years, the state has had the foresight to realize that the reserves, which are the strength of its present economy, will not last forever. In addition to transferring 10 per cent of state revenues into a fund for future generations, the government has also taken steps to diversify and create new industries.

Grateful for its good fortune, Kuwait has undertaken to share its wealth with other developing countries. Established in the early 1960s, the Kuwait Fund for Arab Economic Development is an aid agency that has been offering assistance to foreign countries for over 40 years.

FINANCE

Another sector with great potential for growth in Kuwait is the financial sector. With advances in banking technology, Kuwait is looking to become the next financial hub in the Middle East.

In line with this, Bayan Investment Company, a leading investment house in Kuwait, helped to organize the Kuwait Economic Forum in May – the first of its kind to be held in Kuwait.

With the theme “A Strategy for Transforming Kuwait into the Region’s Leading Financial, Trading and Services Centre”, the forum was attended by both foreign and local business professionals, as well as Kuwait’s top brass. Held over 2 days, the forum discussed current obstacles to becoming an economic powerhouse, and strategies to overcome those obstacles.

Kuwait currently has 8 local commercial banks.

The Kuwaiti dinar was officially pegged to the US dollar in 2003, and is allowed to fluctuate by a controlled margin of 3.5 per cent.

The Kuwaiti banking system is supervised by the Central Bank of Kuwait, whose supervisory authority covers all banks operating in Kuwait, as well as investment and exchange companies. It also undertakes traditional central banking functions by acting as lender of last resort to the banking system, as banker for the government, and by printing and issuing the currency as well as directing relations with international financial institutions.

With strict laws and regulations against money-laundering and terrorist-financing, Kuwait’s banks are an excellent and dependable source of credit for foreign investors.

The Kuwaiti banking system is extremely professional and fully capable of handling short and medium-term financing for all types of transactions in the major currencies. Banks are able to provide financing directly to foreign companies based on their financial soundness.

There are no restrictions on the transfer of funds in and out of Kuwait.

Apart from assisting foreigners by providing them with finance, local banks can also offer assistance to the foreign investor in many other ways.

In 2005, a law was passed which allowed 100 per cent foreign ownership of banks in Kuwait. Some of the foreign banks which will set up branches include Citibank, HSBC, and BNP Paribas.

Banking in Kuwait is taking an electronic and innovative turn.

One of the top banks in Kuwait, Burgan Bank has a mobile service that allows you to check your account information via your mobile phone. The procedure is simple and fast.

The bank has also teamed up with a telecommunications operator to introduce a mobile payment service across Kuwait that will allow customers to pay in various shops and restaurants by mobile phone.

INVESTMENT OPPORTUNITIES

In the middle of its second major economic boom thanks to high oil prices and output, Kuwait has announced plans for mega projects worth several billion dollars which need foreign expertise and funds.

The Northern Oil Field Project aims to modernize the emirate’s lifeline industry and boost production capacity to four million barrels per day by 2020, a figure that is nearly twice as much as the current 2.6 million barrels per day. The plan of this government-sponsored project is to develop 4 oilfields in the north of the country with the help of international oil firms. This endeavour is expected to cost 40 billion dollars.

Kuwait has been working hard to become the main gateway for Iraq’s reconstruction.

The logistical choice of the US military, Kuwait not only supports the US troops stationed there, but also the troops based in Iraq, Afghanistan and Djibouti.

Business opportunities exist in many fields, including transportation, water and sanitation, infrastructure-related services and facilities as well as healthcare, leisure and financial services.

Determined to live up to its nickname as “the pearl of the Gulf”, modern-day Kuwait offers a well-established democracy, governing institutions that meet international standards, a sound financial and economic system, the second strongest stock exchange in the region, and a geographical location that is both strategic and advantageous.