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Government keen to push ahead business reforms
June 17, 2015, 3:59 pm

With a commitment to reduce its dependence on oil as the main source of revenue, the Kuwaiti government is ushering in urgently needed reforms to improve the overall business environment.

In recent months, the government has introduced new company laws to overhaul business practices and revamped existing laws to invigorate Public-Private Partnerships (PPP), attract Foreign Direct Investment (FDI), encourage Small and Medium Enterprises (SME) and lure more Kuwaitis into the private sector.

In line with its ambitious strategy of remaking Kuwait as a regional hub for commercial and financial, the government recently passed its second five-year development plan (2015 -2020). The plan envisages three major economic goals: increase the contribution of the non-oil sector to GDP from its current 37 percent to 55 percent by 2020; raise private sector contribution to overall GDP from its current average of 25 percent to 34 percent, and finally to increase the number of Kuwaitis employed in the private sector above the current 21 percent.

A permanent government committee set up for reinvigorating the economy has introduced key reforms related to PPPs, FDIs and SMEs. The government has also benefitted from closer links with the World Bank and the International Monetary Fund (IMF) whose advisors have been looking at ways to improve Kuwait’s business environment, to diversify its economy and to reduce its traditional reliance on the oil sector.

Since a new company’s law came into effect in 2012, replacing the long outdated law of 1960, the ministry of commerce has been mandated with establishing a ‘one-stop shop’ unit for all government agencies related to starting a business. The new law also introduced the ability to set up professional, non-profit and single-owned companies as well as Special Purpose Vehicles (SPV). A major aspect of the new law is the protection of minority investors in companies, who now have the right to view all corporate documents and appoint outside auditors to review company activities.

Also, with the view to making Kuwait more attractive to FDIs the government unveiled in 2013 new draft regulations to supersede the previous laws dating back to 2001. A fully autonomous entity, the Kuwait Direct Investment Promotion Authority (KDIPA), was set up to oversee the entire process of approving and licensing foreign investments in the country. To speed up and streamline the FDI process, the KDIPA has been mandated to respond to investor’s requests for licenses within 30 days, against the more than 240 days which was the previous norm.

While opening up more sectors of the economy to foreign investment, the government has clearly drawn up a ‘negative list’ of sectors in which foreign investment is not permitted. The negative list, which is primarily related to the oil and gas sector, excludes investment in the: Extraction of    crude petroleum and natural gas, manufacture of gas, fertilizers and nitrogen compounds. Also prohibited are investments in real estate, excluding privately operated building development projects; in security and investigation activities and in activities of membership organizations, as well as activities related to hiring labor, including domestic labor.

Unlike other countries that look to FDI for bringing in capital, Kuwait is looking to stimulate FDI as a means of drawing in advanced technologies and innovative approaches to its economy. According to a report by the United Nations Conference on Trade and development (UNCTAD) Kuwait ranked as the top exporter of FDI among GCC nations, investing over $8.4 billion abroad in 2013. On the contrary, over the last ten years, Kuwait has managed to attract only 3.3 percent of all FDI to GCC countries. The government has now mandated KDIPA to reverse this trend by attracting more FDI towards Kuwait and keeping domestic capital inside the country.

A separate agency, the Kuwait Authority for Partnership Projects (KAPP), has been established to ensure increased participation of the private sector in the economic development of the country, especially through PPPs. Following the success of the first PPP in 2013, the launch of the KD2.4 billion Al-Zour North Independent Water and Power Producer (IWPP) project, the KAPP has announced 22 more PPP projects, including Kuwait Metro and Railroad projects.

In 2013 the government also passed a law establishing a KD2 billion SME fund to help small businesses secure financing by closing the lending gap between banks and SMEs. According to the IMF, in Kuwait SMEs account for 50 percent of licenses granted to new businesses but receive only about 2.3 percent of total corporate loans. In addition to supporting SMEs through funding the government has assured Kuwaiti entrepreneurs who leave the public sector of their old jobs should their private sector ventures fail to take off.

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