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

Political Overview

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.

In general 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 effect big ticket contracts and commercial agreements.

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.

Latest Developments

Kuwait’s always difficult political environment has become even tenser in the last year. November 2011 saw the Prime Minister since 2005, Sheikh Nasser Al Mohammed Al Sabah, resign under pressure from parliament and youth activists who had taken to the street protesting against alleged corruption.

Elections in February 2012 then saw a new parliament elected, with a strong showing from the anti-government and anti-corruption MPs who had led the protest movement, primarily from tribal and Islamist backgrounds.

On 20 June however Kuwait’s Constitutional Court, ruling on a number of cases at once, annulled the result of February’s elections, claiming that the previous parliament (elected in 2009) has been dissolved unconstitutionally. The reinstated 2009 parliament however has been unable to attain quorum. New elections are expected for the autumn; although they may be delayed by political and legal disagreements between the government and opposition parliamentarians about the nature of the electoral system.

This long period of doubt in the system has begun to affect the Kuwaiti business climate, with the 2012-13 budget not yet passed, and some projects experiencing delays due to the lack of political progress.

Economic opportunity

There are substantive business and investment opportunities for the UK. Kuwait is the world’s sixth largest oil exporter, sits on 10% of known oil reserves and nominal GDP rose 16.9% last year. But there are issues that need addressing. The Finance Minister has warned that the oil-dominated economy (90% of revenue comes from the state-owned oil industry) is on an unsustainable trajectory. The budget has tripled since 2004, although it remains in credit, for now. The biggest concern is the growth of the non-productive public sector which accounts for 85% of Government expenditure.

The Government is addressing the problem through the public/private funded c.£90 billion Development Plan. This aims to privatise loss making state enterprises and diversify away from oil by creating a vibrant private sector. UK consultants are now involved in all areas of the Plan and British companies are well placed to take much of the subsequent work.  We are pressing the merits of the major UK construction companies who will be bidding for a range of infrastructural work over the next year.

Kuwait will enjoy a further large budget surplus in 2011/12, but its economic outlook may falter if oil prices threaten to fall. Spending on the Development Plan has stalled as domestic political wrangling threatens to delay further economic development. UK companies remain well positioned to gain very significant work under Kuwait’s Development Plan, when implementation eventually resumes.

Private sector growth is a key component of Kuwait’s Development Plan. It aims to diversify Kuwait’s economy, with investors expected to meet almost half the cost. However, while Government spending has increased significantly so far this financial year, it has done so almost entirely on the beck of increased public sector wages and allowances. Spending on the implementation of the Development Plan has stalled, especially private sector involvement. The growing public-sector raises serious questions about fiscal sustainability, as large public-sector wage increases and generous benefits continue to undermine incentives for Kuwaitis to move into the private sector. HSBC estimates that Kuwait will be the only member of the GCC to experience a slowdown in private-sector credit growth in 2012 - a concern shared by the Governor of the Central Bank, who warned recently that “without urgent and rapid capital spending on various state projects, there will be no growth and, without providing good investment opportunities to the private sector to expand its local financial activities, the future outlook will be limited”. 

Will things improve?

The growing seriousness of the problem means that an increasing number of senior politicians recognise the need to begin to educate the wider population about the requirement for reform, with a clear focus on diversification away from oil and the establishment of a private sector through rapid implementation of the Development Plan. These voices are likely to become louder once the new Parliament is in place.

Economic Overviewconomic Overviewconomic Overviewconomic Overview

Kuwait is gradually coming out of the shadow its own recent past. In relative terms, Kuwait has remained well protected from the global economic crisis. The conservative investment policies it has pursued since the 1990 invasion protect it from big losses, as does the Sovereign Wealth Fund’s diverse investment portfolio. Against that, 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 the government’s laudable aim of improving economic efficiency and guaranteeing social equality, the state’s dominant economic role has led to a bloated and inefficient bureaucracy, which has impeded the growth of the private sector and contributed to a relatively weak business environment, numerous subsidies and an overall dependence of economic activity on oil revenues and government expenditures. In 2012 the Parliament rejected the Government’s annual Development Plan budget and was then unexpectedly dissolved by a constitutional court ruling further delaying significant economic development.

The four year plan

On February 2, 2010 the National Assembly approved the Four Year Development plan (2010- 2014), the government's first plan since 1986 and part of the wider vision of Kuwait 2035. The 2035 vision states that Kuwait must be transformed into a regional financial and business hub, attracting investment. The economy should be led by the private sector supported by the government and it’s institutions to ensure balanced development with appropriate infrastructure, legislation and a positive business atmosphere. The four year plan – costing thirty billion Kuwaiti Dinars (c.£90 billion) aims to diversify the economy away from oil, attract more Foreign Direct Investment into the country, and boost the participation of the private sector in government projects.

The plan has five key objectives:

• Increase total national production and upgrade living standards of citizens through increasing growth in non-oil sectors (diversification into the financial, trade, services, and petrochemical sectors). Financial institutions should increase competitiveness (both in Islamic and conventional financing).

• The private sector should be a catalyst for development, gradually reducing the role of the public sector. Simplified investment procedures for the private sector, the completion of basic infrastructure projects and integration between the public and private sectors should be achieved.

• Support for human and societal development through developing education, training, scientific research, health services, environment and sustainable systems, encouraging female empowerment, youth projects, housing, culture, press and religious affairs.

• Developing housing policies to support a growing population (Kuwaitis and non- Kuwaitis).

• Effective governance through transparency in society and the economy. This should involve restructuring of the governmental sector institutionally, organisationally and electronically in order to improve public and business services. Planning, IT and statistical activities should be activated.

Information on political risk, including political demonstrations, is available in the FCO Travel Advice.

Human Rights

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 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.

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.

Most companies will come across cases of bribery and corruption or what appears to be so. The Kuwait government is working hard to eradicate such activity especially in relation to government contracts. The situation is not helped by the large amount of beau racy 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 new Minister of commerce and Industry appointed in May 2011 has made the tackling of red tape and ease of doing business a top priority. 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 move to awarding more contracts on quality of bid rather than simply lowest cost.

Most companies will come across cases of bribery and corruption or what appears to be so. The Kuwait government is working hard to eradicate such activity especially in relation to government contracts. The situation is not helped by the large amount of beau racy 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 new Minister of commerce and Industry appointed in May 2011 has made the tackling of red tape and ease of doing business a top priority. 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 move to awarding more contracts on quality of bid rather than simply lowest cost.

Visit the Business Anti-Corruption portalpage providing advice and guidance about corruption in Kuwait and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our  Bribery and corruption page.

Terrorism Threat

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 terrorism abroad page.

Read the information provided on our  Terrorism threat 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.

Read the information provided on our  Protective security advice page.

Intellectual Property

Read the information provided on our  Intellectual Property page .

Organised Crime

Read the information provided on our  Organised crime page .