Kuwait’s complex business environment requires flexibility, patience, and persistence on the part of businesses attempting to enter and succeed in the country, says a recent report that assesses the business climate in Kuwait.
The report prepared by the Commercial Services section of the US Department of Commerce adds that inconsistent and sometimes contradictory policies, lack of transparency in decision-making, reversal of tenders once awarded, and a judiciary that heavily favors the local population, are some of the obstacles that US firms looking to do business in Kuwait, could face.
Careful planning and personal relationships are crucial for success in Kuwait said the report, adding that matters of special concern to US businesses include less than transparent regulations pertaining to industrial standards, highly bureaucratic time-consuming procedures, insufficient intellectual property rights protection, and cumbersome public contracting and procurement procedures.
Kuwait, the report points out, is an expensive place in which to do business. Reasons include a requirement for most business entities to have a Kuwaiti agent, as well as widespread aversion to risk. In the past, uncertainty about taxes owed has been a major deterrent to exporters, and hidden costs of delayed contracts and prolonged negotiations have added to the cost of doing business. Terms and conditions on tenders can also be onerous. Kuwait’s laws stipulate that Kuwaiti courts alone are responsible for adjudicating any disputes involving a foreign investor and other parties, although arbitration is permitted.
While many of these challenges to business growth are not unique to Kuwait and exists to a certain extent in other Gulf Cooperation Council (GCC) states, what makes them particularly insidious in Kuwait is that there seems to be no meaningful attempt to remedy the situation by implementing necessary structural and policy changes.
Kuwait has consistently ranked the lowest among GCC states in providing a business-friendly environment. In its latest annual rating of ease of doing business, the World Bank gave Kuwait a rank of 97 among 190 economies the bank surveyed in 2018.
It is true that the government has taken steps to raise this ranking and improve the ease of doing business in the country, especially the current administration under the Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah and the First Deputy Prime Minister and Defense Minister Sheikh Nasser Al-Sabah Al-Ahmad Al-Sabah, which has made tackling bureaucracy and improving ease of doing business a priority.
The government has in recent years introduced reforms to the awarding of contracts by the Central Tenders Committee to make them more transparent and in line with international standards. As a result more tenders are now being awarded on the basis of quality rather than simply on the lowest-priced bid.
The government has also established a new capital markets authority to regulate the financial markets, and a central anti-corruption authority that has a wide remit to investigate and refer to the prosecution any corruption it encounters in public administration. The authority also monitors asset declarations and encourages whistle-blowing to protect public monies and resources.
In addition, Kuwait has now made the protection of intellectual property a priority. As a member of the World Trade Organization (WTO) and a signatory to the Agreement on Trade Related Aspects of Intellectual Property Rights, Kuwait has stipulated that patents must be registered with the Patents Office at the Trademark Control Department of the Ministry of Commerce and Industry (MOCI) to ensure protection. Industrial designs must also be similarly registered in the Industrial Designs and Models Register in order to be protected. An application for registration must then be submitted to the Trademark Control Department at the MInistry of Commerce and Industry.
Registration of patents are valid for five years and can be renewed for two additional consecutive terms. However, the validity period of copyright protection is still governed by Article (17) of Law Number 64/1999 and the Commercial Code Law Number 68/1980, which governs trademark registration and penalties for infringement. Trademark registration is for an initial ten-year period that can be renewed for a similar term. Intellectual property experts say that both these laws in dire need of review and upgrading to bring them in line with modern copyright requirements.
A recent survey revealed that protection of digital property rights were important to digital adoption and cyber security, which were identified as top challenges for businesses in the region. In addition to these, many company executives cited lower oil prices and slower economic growth as two of the major challenges that led them to have a subdued economic outlook for this year relative to last year. Their sentiments were in line with their global counterparts who also reported lower optimism on outlook across Europe, North America, South America and Asia.
It is against this prevailing dampened global economic sentiment that one needs to see the importance of Kuwait’s ambitious ‘New Kuwait 2035’ plan. Deputy Prime Minister Sheikh Nasser, who is the eldest son of HIs Highness the Amir Sheikh Sabah Al-Ahmad Al Jaber Al-Sabah, is also the one in charge of realizing this strategic vision of His Highness the Amir to transform Kuwait into a financial, commercial and cultural hub in the region by 2035.
However, the government attempts at improving business climate, increasing economic diversification and enhancing the role of the private sector in the economy are stymied by the fact that the driving force behind Kuwait’s economic strength and growth still continues to come from its substantial oil revenues. According to the Central Statistical Bureau, nearly 60 percent of the country’s GDP and over 90 percent of exports still comes from oil revenues.
The preponderant role that oil revenues play in the economy has ensured strong public finances that enable the government to lavish on welfare spending for citizens. But this profligacy, which has led to cradle to grave welfare for nationals, has also created a citizenry with a sense of entitlement. Many citizens feel they are entitled to high-paying public sector jobs with all its added privileges, a generous pension-plan, and occasionally government bail-outs for their financial frailties.
The other downside to this reliance on government dole-outs by citizens is that it has led to a stagnant private sector that plays only a limited role in economic expansion of the country. Authorities are hoping that the New Kuwait plan will jump-start economic diversification and lead to higher growth in the market with better private sector engagement and enhanced public-private partnerships in major infrastructure projects and other developments.
Approved by Parliament in February 2015 and revived in 2017, the New Kuwait Development Plan is the government’s strategic blueprint to enhance the country’s role as a banking, trade and cultural center within the region by 2035. The plan calls for upgrading or building new infrastructure, expanding utilities and housing development, increasing direct foreign investments and increasing the use of renewable energy sources.
Nearly 500 projects have been identified for development under the New Kuwait plan with the hope that it could catalyze economic growth, diversify the economy, improve the country’s competitiveness, attract more foreign investment and bring about a better balance between the public and private sectors so as to meet the demands of a growing population and ensure a sustainable future for Kuwait.
The Times Report
