22.12.15

In recent years, it’s fair to say that Kuwait has taken major strides in establishing itself as a leading destination for businesses to locate in the Middle East.

The government has placed great emphasis on growing the economy in a more dynamic way, above and beyond the oil sector, as well as creating an infrastructure that makes Kuwait an attractive place to do business.

What has resulted is a thriving financial services sector as well as strong players within construction, logistics, property, manufacturing, retail and education. As part of this plan, Kuwait is becoming increasingly accessible to foreign investors.

Recent laws have made the country even more attractive for businesses as we have witnessed a loosening of foreign ownership laws as well as the introduction of the Companies Law and the Foreign Direct Investment laws.

Setting up your business under the Foreign Direct Investment laws as a Foreign Direct Investment Company (rather than a Limited Liability Company, Kuwait Shareholding Company) means that there is no requirement for a Kuwaiti national to own 51 per cent of the business.

Approval is required from an investment committee to become an FDIC, but once a business secures this, there are a number of benefits to be reaped such as no tax for a period of ten years and the allocation of land or real estate.

From a business perspective, there is no better time than now to consider Kuwait as a place to locate. And whilst Kuwait is not quite the UAE when it comes to maturity in terms of creating an open-door policy for businesses, with a strong economy and an ever-improving legislative framework, Kuwait is certainly ripe for business and those who most first could grain real competitive advantages.

Are you thinking about expanding to Kuwait, get in touch with us now for more information and advice from our experts.

Kuwait is Beginning to Cut Subsides

The International Monetary Fund has revealed that the Kuwaiti government is in the process of cutting certain subsidy payments.

Discussions have been ongoing between the IMF and Kuwaiti authorities, in an attempt to determine how to handle the fact that Kuwait’s budget could be facing a deficit.

A report, released by the IMF, said: “Subsidies have been eliminated for diesel (with potential saving of 0.5 per cent of GDP), and the government is in advanced stages of sending a proposal to the cabinet for reducing subsidies for kerosene and electricity.”

The Potential for Deficit

It is estimated that around $17.7 billion is lost every year because of the subsidies offered to energy companies – and there are similar issues facing other countries in the Middle East.

Kuwait has posted a budget surplus every year since 1995, but that record has come under threat as the government has drastically increased spending ever since.

However, there is no immediate danger as a potential deficit would not occur until the end of the current decade. In 2014, the country is expected to post a surplus of 26.3 per cent of GDP.

The IMF’s report said: “Staff’s analysis shows that a $20 decline in oil prices relative to the baseline would result in reversing of the fiscal position – excluding investment income – from a surplus to a deficit in the medium term.

“Fiscal restraint in the medium term is … needed to help reduce fiscal vulnerabilities and bring the fiscal stance closer to benchmark sustainability level.”

The Economy

Oil-related GDP, which is a big factor in Middle Eastern countries, dropped by 1.8 per cent in 2013 as non-hydrocarbon grew to 2.8 per cent.

Because of this, the IMF believes Kuwait’s economy shrank by 0.2 per cent last year – its first contraction since 2010, despite previously predicting 0.8 per cent growth.

Now, forecasts for 2014 have also dropped from a 2.6 per cent rise to just 1.3 per cent, and from 3 per cent to 1.7 per cent for next year.

Expected Difficulties

However, despite these figures, it is still surprising to hear about the possibility of subsidy cuts in Kuwait – as it is normally a controversial issue amongst politicians.

Parliaments have been dissolved in the past as a result of challenging the cabinet, and it is not likely that influential figures within Kuwait will be keen on these reforms.

It is possible that the severity of this problem has caused a rethink among the cabinet, who could be open to change if it reduces the chances of a surplus reduction.

If reforms do come into effect, you can discuss your options with the experts at Aeon Gulf.