New investor-friendly legislation, a fund for SMEs and the hint of infrastructure projects finally moving forward could spell out some good news for Kuwait’s sclerotic economy. However, some say they’ve heard it all before
Kuwait has long had a reputation for leaking billions of petrodollars like a sieve, handing out generous subsidies to citizens and expatriates alike and filling its government departments to the brim with locals accustomed to walking out of university and into a job, while delaying crucial infrastructure that has led the state to almost buckle under the pressure.
The roads teem with too many cars while the airport is constrained and severely outdated. Very few can afford the ridiculously bloated property prices due to the lack of supply and even local investors and businessmen are looking outside for opportunities.
It is a sad – and frustrating - picture of a country that boasts some of the largest oil revenues in the world. Almost 90 percent of Kuwait’s $115bn in government revenues comes from oil and gas, yet it has failed to make proper use of its spoils. Its gross domestic product (GDP) grew by a paltry 0.8 percent in 2013, and is expected to grow at a mere 2.6 percent this year – the lowest of the Gulf Cooperation Council states – according to the International Monetary Fund (IMF).
But there could be some good news on the horizon, with several significant legislative changes passed in recent months. Major amendments to the way businesses – including foreign firms - are incorporated, a relaxation on foreign banks and significant funding for small and medium sized enterprises (SMEs) are all designed to ramp up Kuwait’s appeal to investors.
The government and parliament – Kuwait is the Gulf’s only semi-democracy – also are reportedly close to agreement on a controversial reduction of subsidies for oil and diesel, while a review of public sector wages is under way. The state also seems keen to reduce demand by trimming the number of expatriates living in the country.
A new law governing corporations was introduced in December, replacing the original 1960 legislation.
Abdul Aziz Abdullah Al Yaqout, DLA Piper Middle East partner and head of the Kuwait practice, which has been closely involved in writing several new laws, says the changes are “quite significant” and introduce new concepts required to modernise the country’s business regulations, including creating classes of shares and the “radical” decision to force the government to incorporate a company within three days of application, a process that in the past has taken months.
The Kuwait Direct Investment Promotion Authority (KDIPA) has also been established, elevating the body’s status from a bureau and broadening the sectors in which foreigners can have 100 percent equity in their business.
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