Thursday, 05 Dec 2013
Overseas Business Risk - Kuwait
See below for information on key security and political risks which UK businesses may face when operating in Kuwait.
Political and Economic
Kuwait’s political system is a hybrid of hereditary monarchy and democracy. The Head of State is HH the Amir, Sheikh Sabah Al Ahmed Al Jaber Al Sabah. The Amir appoints a Prime Minister, currently Sheikh Jaber Al Mubarak Al Sabah, who in turn appoints a cabinet.
Kuwait’s fifty-member unicameral legislature, the National Assembly, is elected by universal suffrage (women gained the franchise in 2006). The National Assembly has the power to propose laws, to interpolate ministers and even to remove them from office.
Tensions between the executive and the legislature have long been a feature of Kuwaiti politics; neither can effectively govern without reference to the other, but relations between the two have not always been smooth. Political parties have not been legalised in Kuwait, although informal political ‘blocs’ (liberal, Islamist, populist/tribal and Salafist) do exist.
Much of Kuwait’s fast-moving and chaotic political scene has little impact on doing business in Kuwait. However the frequent interregnums between governments and/or parliaments can slow decisions and the passing of budgets, and political disputes can affect big ticket contracts and commercial agreements. Political bickering has also slowed the implementation of Kuwait’s multi-billion dollar National Development Plan
The most famous example is Dow Chemicals’ multi-billion dollar agreement to partner with Kuwait on petrochemicals; which the government scrapped shortly after it was signed under intense pressure from parliamentarians. In May the International Chamber of Commerce found in favour of Dow, whom Kuwait now need to pay $2.16bn in compensation.
The most recent parliamentary elections took place on 27 July. These were the third elections to have taken place in Kuwait in under 18 months. The previous two elections (February 2012 and December 2012) were dissolved by Kuwait’s constitutional court. Following the first dissolution The Amir decreed a change in the electoral law, which was deemed by many to be aimed at undermining gains made by opposition (in particular Islamist and tribal) politicians during the previous elections. As a result opposition figures boycotted both subsequent elections.
However the boycott was less widely observed in July, with liberal oppositionists and some of the large tribes returning to the political scene. However Islamists in particular remain underrepresented. The current parliament is therefore both broadly based, with representation from most of the main groups, and more naturally pro- rather than anti- government. However opposition remains, both inside and outside parliament, and a minority of parliamentarians are looking to challenge the government at every opportunity.
There is some hope that the current parliament and government will be better able to work together to address Kuwait’s key challenges, most notably the slow progress on the country’s flagship National Development Plan, which includes massive infrastructural development, economic reform, and combating corruption. However recent history of political infighting, stagnation and multiple elections mean that many Kuwaitis are still cautious.
Economic overview and opportunity
In relative terms, Kuwait has remained well protected from the global economic crisis. The conservative investment policies it has pursued since the 1990 invasion have protected it from major losses, as has the Sovereign Wealth Fund’s diverse investment portfolio. In the short-term Kuwait’s economic outlook is rosy, with recently released figures revealing steady growth and a 14th annual budget surplus (at a level of 25% of GDP for 2012/13) – the result of increasing oil production and a sustained high oil price. However Kuwait’s economic development since liberation in 1991 has lagged behind others in the region making it harder for it to regain its position as a regional financial, business and transport centre within the GCC.
Despite these strong macroeconomic indicators, Kuwait still faces challenges to improve its infrastructure, implement social welfare reform and diversify its economic base. Over 90% of Kuwait’s revenue is generated by the state-owned oil sector, and the private sector is largely dependent on government spending and expatriate labour. The state’s dominant economic role has led to a large public sector (which employs about 80% of the Kuwaiti labour force), and contributed to a relatively weak business environment, numerous subsidies and a dependence on oil revenues and government expenditure.
In 2010 the Government adopted a four year public/private funded c.£67bn National Development Plan (NDP) as the first step towards its Vision 2035 – to transform Kuwait into a regional financial and business hub. The NDP’s five key objectives are: to increase national production and living standards of citizens through growth in the non-oil sectors; to support the private sector to become the catalyst for development, gradually reducing the role of the public sector; to support human and societal development; to develop housing policies that support a growing population; and to build effective governance through transparency in society and the economy. However progress has been slow, with significant delays and bureaucratic processes befalling many of the planned major infrastructure projects, and some social indicators moving backwards.
Whilst severely delayed the Government is focused on pushing ahead with progress. In the last year of the plan there is now a renewed drive for delivery of the NDP and the recent releasing of new tenders and awards of initial contracts give cause for cautious optimism. UK consultants are involved in several areas of the plan, and British companies are well placed to benefit. To support the NDP several key pieces of economic legislation have also now been passed, which require Kuwait’s public enterprises to meet international governance standards, enable the privatisation process to start, and provide new support to SME development. These steps are helping to put Kuwait’s long-term economy on a firmer footing.
Kuwait has a long history of democratic institutions, a proud tradition of freedom of speech, an independent judiciary and a free press. However concerns have been raised by human rights NGOs in the past about Kuwait’s record on labour rights (e.g. domestic workers), human trafficking, and its treatment of the Bidoon (stateless) minority.
Whilst Kuwaitis benefit from generous public subsidy, are unionised and have the right to strike, this right is not fully extended to expatriate workers – who comprise the majority of the labour force in Kuwait, but can only become non-voting union members after working for five years. The ILO have publicly criticised Kuwait for this stance. Kuwait’s latest labour law, passed in 2010, limits the work week to 48 hours, provides for a minimum of 15 days of leave per year (21 days after five years service), and establishes a compensation scheme for industrial accidents. This is not always enforced however, particularly for unskilled workers (primarily from the Indian Subcontinent).
Domestic workers (who are primarily from the Philippines and South Asia) are formally excluded from this law, and can face real problems. Trafficking of domestic workers is an issue (the US State Department lists Kuwait as a Tier 3 country of concern), and the oversight and regulation of the controversial sponsorship (Kefala) system is weak. The government has committed to changing the system, which places sole responsibility for domestic servants with their employers, but new legislation is yet to issue. The Embassies of these labour-exporting countries operate shelters for maids running away from abusive employers – thousands do so each year. Kuwait is due to shortly open the first government-operated shelter for these vulnerable women,
Kuwait has a large minority of stateless Bidoon (c110,000). These individuals claim Kuwaiti citizenship, but have not been granted it by the authorities. They are banned from protesting, and struggle to access employment, healthcare and education. Concerns about their situation are frequently raised by a number of human rights NGOs.
NGOs have also raised concerns about Kuwait’s record on freedom of expression. Whilst Kuwait has a strong culture of freedom and democracy, lese majestie and blasphemy laws remain on the statute book. Recent years have seen prosecutions against both, in particular for comments made on social media, which can carry onerous jail terms.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
There are current cases in Kuwait of British companies under investigation for irregularities in relation to gaining contracts in Kuwait.
Businessman working at a computer
Most companies will come across cases of bribery and corruption or what appears to be so. The Kuwait government has committed to eradicate such activity especially in relation to government contracts. The situation is not helped by the large amount of bureaucracy and red tape that exists in Kuwait. Patience is always advised when dealing with these matters and as much as possible left to the Kuwaiti business partners to deal with. The Minister of commerce and Industry appointed in May 2011 has made the tackling of red tape and ease of doing business a top priority, although political infighting has delayed progress. There is also acknowledgement that corruption has to be tackled especially in the awarding of government contracts. The government has established a new capital markets authority to regulate the financial markets and the central tendering committee for government contracts continues to modify its practices in line with better international standards. This is evidenced in the beginnings of a move towards awarding more contracts on quality of bid rather than simply lowest cost. Kuwait has also recently formed a central anti-corruption authority with a wide remit around investigation, whistle-blowing and asset declarations, though it is yet to be fully operational.
Visit the portal page providing advice and guidance about corruption in Kuwait and some basic effective procedures you can establish to protect your company from them.
There remains a general threat from terrorism. Attacks cannot be ruled out and could be indiscriminate, including in places frequented by expatriates and foreign travelers. Attacks could be directed against Western, including British, interests.
Terrorists continue to issue statements threatening to carry out attacks in the Gulf region. These include references to attacks on Western interests, including residential compounds, military, and oil, transport and aviation interests. You should be aware of the global risk of indiscriminate terrorist attacks, which could be against civilian targets, including places frequented by foreigners. For more general information see our page.
Protective Security Advice
Violent crime is not a major problem in Kuwait but extreme care should be taken when driving as Kuwait has one of the highest road accident rates in the world.