THE TIMES KUWAIT REPORT
Amid relief at reassuring news on the health front and growing angst over the smoldering political scene, news about Kuwait Direct Investment Promotion Authority (KDIPA) presenting its sixth annual report on foreign direct investments (FDI) garnered very little media attention. Despite the laxness from most mainstream media, the report is of concern to everyone who has a stake in the continued welfare and sustainability of Kuwait and its economy, even if its import appears to be lost on those elected and selected to run the country.
The Sixth Annual KDIPA report for the fiscal year 2020 /2021 was submitted to His Highness the Crown Prince, Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah, and to His Highness the Prime Minister, Sheikh Sabah Khaled Al-Hamad Al-Sabah by the Foreign Minister and Minister of State for Cabinet Affairs and Chairman of the Board of Directors of KDIPA, Sheikh Dr. Ahmed Nasser Al-Mohammed Al-Ahmed Al-Jaber Al-Sabah. Also in attendance at the report launch held at Bayan Palace on 15 February, were the Director General of KDIPA, Sheikh Dr. Meshaal Jaber Al-Ahmad Al-Sabah, and the Deputy Chairman of the Board of Directors of KDIPA Wafaa AlQatami.
The executive summary to the report notes that despite the unprecedented COVID-19 health crisis and the resulting overall dire situation in the country and globally, KDIPA maintained its resilience and acted in a concerted and agile manner that enabled it to accomplish several milestone achievements during the report period. The report shows that despite the pandemic, FDI into the Kuwait market increased, with KDIPA attracting KD163,298,898 of new approved direct investments during the review period.
Together with the new investments, the cumulative approved direct investments from the start of operations by KDIPA in 2015 to the end of March 2021 totalled KD1,203,680,745. The cumulative investments were made by 59 different entities from 23 countries, with investments from Europe taking a lead with a share of (67.17%), followed by Asia (22.25%), North America (10.41%), and the remaining (0.17%) from Oceania.
The report also reveals that sector-wise the cumulative approved direct investments comprised 99.6 percent in the services sector, with the remaining investments being in the industrial sector. Information technology services represented the leading share (33.3%) in the services sector, followed by oil & gas services (27.05%), construction (18.09%), and health services (5.02%). Health services assumed an important part for the first time attracting inward direct investments as a response to the repercussions brought on by the pandemic, which necessitated placing priority on health and food security.
Sadly, though the KDIPA has received loud vocal endorsement from repeated governments, its activities have for the most part been conferred with only cursory attention and support from different governments. Since 2015, when KDIPA began its operations; and even after 2017, when the revised New Kuwait development plan was outlined, supportive measures from the authorities were largely absent. For most of the past decade, various government iterations in office have been engrossed with, and entangled in, political wheeling-dealings to survive and stay afloat.
Given the circumstances, increasing investments or developing a sustainable growth-oriented economy has been of little concern to most governments. Last week witnessed more of the same political drama in parliament, with the Foreign Minister and Minister of State for Cabinet Affairs, Dr. Sheikh Dr. Ahmed Nasser Al-Mohammad surviving by a narrow margin, a vote of confidence motion brought against him by the opposition on Wednesday. And, on Thursday, both the Defense Minister Sheikh Hamad Jaber al-Ali and the Interior Minister Sheikh Ahmed Mansour al-Ahmed tendered their resignation from the cabinet to the prime mInister, citing inability to perform their assigned duties due to the turbulent political atmosphere prevailing in parliament.
In a scathing joint statement reflecting the ongoing simmering relations between the executive and some opposition members in parliament, the two former ministers said, “The abuse of constitutional tools [by lawmakers] is what prompted our resignations… “. Noting that their attempts to implement effective and sustainable policies and reforms were repeatedly hindered in the National Assembly, they stressed, “Achieving reform has become almost impossible… [even though] the state’s executive apparatuses require us to make drastic reforms… “ They added, “Interrogations are a constitutional right… but parliamentary practices are hindering us from fulfilling the aspirations of the Kuwaiti people.”
Kuwait is the only Gulf Cooperation Council (GCC) state with an elected parliament, which enjoys wide legislative powers and can vote ministers out of office. Over the last decade the country has been rattled by repeated disputes between elected lawmakers and appointed governments that have resulted in several cabinet resignations and parliament dissolutions. A new cabinet, the fourth in less than two years, took office only in December 2021, after the last government resigned in November following political gridlock in parliament. Amid these frequent political upheavals, the government has very little time or inclination to bring about meaningful reforms, or engage in efforts to move the economy forward.
However, despite government indifference, the economy has been on a passive growth trend in recent months on the back of higher global oil prices. With oil now poised to flow over the US$100 per barrel mark, this economic upswing will lead to an increase in revenues and the estimated budget deficit in the current fiscal year is expected to evaporate before the financial year draws to a close on 31 March. This is certainly good news for the country, and for a government that had been struggling with a liquidity crunch ever since oil prices tumbled with the onset of the global pandemic.
There was also good news on the health front, with the government announcing the scrapping of restrictions that it had introduced in the wake of the COVID-19 crisis. The decision followed reports from health authorities of marked improvements in the country’s epidemiological situation, including a fall in the number of daily infections, hospitalizations and fatalities, as well as an increase in uptake of vaccination among the public. The decision was also arguably prompted by an overwhelming need among people, and from the market to return the country to normalcy at the earliest.
With the health situation stabilized and the economy beginning to look up, the focus of the government appears to have blurred, and the priority it needs to accord to reforms will likely be once again shelved in acquiescence to political pressures. This shift in focus — from what is important and urgent for the long-term sustainable growth and development of the country, to political matters that appear to be urgent but are unimportant in the long run — is inexplicable and inexcusable. The shift also comes much to the chagrin of all those who have long advocated for implementing much-needed economic, financial and administrative reforms in a country that is overwhelmingly dependent on hydrocarbon revenues.
The fallacy of relying on fickle global oil prices to plan budgets and policies, was once again brought home with the fall in global oil prices following the emergence of the pandemic in 2020. The slide in oil prices, which severely dented the State’s revenues, together with the restrictive precautionary measures introduced by the government in response to the health crisis, had an overwhelming negative impact on the country’s economy.
In response to the emergence of the global pandemic, the government and the health authorities had initiated several precautionary, preventive and preemptive health and safety measures. Among the steps were border closures, restraining mobility, limiting trade to the supply of essential food and medicines, and the shutting down of businesses, educational and social activities. The authorities also initiated partial or total curfews that were reportedly among the longest worldwide.
The impact of these repercussions on the economy locally and globally were also noted in the sixth annual report of KDIPA. The report, which highlights KDIPA’s annual statistics for the fiscal year that started on 1 April 2020 and ended on 31 March 2021, shows that despite the pandemic prevailing during much of the report period, the authority successfully carried out various activities, and initiated several measures to attract new investments and encourage continued investment activity.
The proactive steps taken to encourage investments included reducing fees by 50 percent on all services it offered till 31 December 2020, and granting exceptional tax and customs exemptions to existing and new investment entities. KDIPA also extended the expiry date for investment licenses of companies and branches that expired between 1 April and 23 December 2020, as well as extended the duration for all operations that were supposed to commence in 2020, till 1 January, 2021. The report also notes that cumulative economic impact from direct investments totaled KD458,180,513, including monies spent on salaries and training for national workers and spending on support for local goods and services.
The importance of efforts by KDIPA is reflected in the figures of its cumulative achievements over the years. This is especially underlined by its accomplishments during the constraining pandemic period, relative to a year earlier. The KDIPA report for the financial year ending 31 March 2019, shows that since it started operating in 2015, it had approved direct investments worth KD960 million, from 37 investment entities. The difference from less than a billion dinars in approved cumulative investments from 2015 to 2019, and the jump to 1.2 billion dinars by the close of fiscal year in March 2020, as well as the hike in investment entities from 37 to 59, is indeed praiseworthy.
Since its establishment in 2013, the KDIPA has been tasked with attracting value-added foreign direct investment (FDI), and promoting Kuwait as a lucrative destination for global investments, as well as streamlining and enhancing the country’s business environment and competitiveness. The report depicts the authority’s major achievements in performing the tasks assigned to it in pursuit of the aspirational development goals underscored by the country’s national development plan based on Vision 2035.
FDI is considered valuable to a country’s economy as it helps stimulate economic development and creates a more conducive environment for companies and the investor, while boosting activities in the local community and economy. FDI also provides new jobs and more opportunities for the local workforce. New companies engaging local workers leads to an increase in income and more purchasing power to locals that result in an overall boost to business activities and the economy.
Direct investments also enhance development of human capital resources, with the skills gained by the workforce through training increasing the overall education and human capital within a country. Foreign direct investment also brings about resource transfers of facilities and equipment as well as the exchanges of knowledge, technologies, and skills. These factors together lead to an increase in productivity of the workforce.
Foreign investments also ease international trade by lowering import tariffs and facilitating exports, while tax incentives provided to foreign investors attract new investments and spur growth and development of existing ventures. FDI also reduces the disparity between revenues and costs, bringing about lower production costs and thereby making products and services more competitive on global markets. Another advantage of foreign direct investment is the increase in the country’s income, with more jobs and higher wages resulting in a hike in national income and economic growth promotion.
Notwithstanding the diligent efforts of KDIPA, and its list of achievements in the sixth annual report, foreign direct investment has played only a relatively small role in Kuwait’s economy. According to the latest report from the United Nations Conference on Trade and Development (UNCTAD) total FDI stock in Kuwait amounted to about $15 billion in 2019, equivalent to 10.9 percent of the country’s GDP. In comparison, FDI stock represented 78 percent and nearly 30 percent of GDP in Bahrain and Saudi Arabia, respectively.
A recent survey carried out by Kuwait’s Central Administration of Statistics, shows businesses and investors want procedures and policies to be streamlined to stimulate and encourage investments in Kuwait, especially foreign direct investments. The survey also showed respondents calling for granting permanent residence for a certain segment of investors, and granting long-term residence to other investors, for a period of at least 10 years. The questionnaire also revealed wide support for abolishing the sponsorship system for the investors, and softening the rules and requirements on visitor visas for investors, and overhauling housing and real estate laws to enable foreigners to fully own real estate assets in Kuwait.
While most of the recommendations cannot be considered as innovative or imaginative, the fact that a large segment of respondents want significant changes to investment and real estate laws show that despite the successes notched by KDIPA, it is still a work in progress and much remains to be done to attract and sustain foreign direct investments in Kuwait.
An earlier white paper submitted to the cabinet had also suggested changing the budget structure from a cost budget to a program and performance budget. In a performance budget, the allocation of funds and resources is based on specific goals agreed upon by budget committees and agency heads of services. The input of resources based on output of services is expected to motivate employees and encourage them to produce positive results. Though there are difficulties in its implementation, it is certainly something that the government could pursue if it is serious about improving productivity in its public-sector undertakings.
Experts concur that notwithstanding the current upward trajectory of the economy on the back of higher oil revenues, in the absence of meaningful reforms, the economy could be in for more of the same roller-coaster ride that it has experienced in the past. It is obvious that the government’s exhortation of economic diversification away from an overreliance on oil revenue, greater private sector participation in the economy, and creating more job opportunities for national cadre, will continue to ring hollow, unless and until it is willinging and able to boldly initiate and implement policies, and undertake painful reforms that put the economy on a sustainable path of growth and development.
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