Kuwait Country Profile
General Information
Political Climate
Kuwait is a small country in the Persian Gulf region, with about 9% of the world's known oil reserves. The country's economy has been dominated by oil, which is responsible for almost 50% of Kuwait's GPD and 95% of export revenues. The country is a constitutional hereditary monarchy, in which political power is concentrated in the hands of the Emir and the ruling Al-Sabah family. A unicameral National Assembly is popularly elected every four years. Although political parties are not explicitly forbidden by the constitution, they have been illegal in Kuwait since 1961. Nevertheless, several Sunni, Shi'ite and liberal pro-government and opposition political groups form de facto political parties. According to the Bertelsmann Foundation 2010, the Emir has the power to dissolve the Parliament at will, but he will need to announce elections within 60 days. Kuwait's Parliament has increased its role in politics, but power remains concentrated in the executive branch of government. Tensions between the executive branch and the legislature have grown significantly in the past few years, which have caused the Emir to dissolve the Parliament three times since 2006, as reported by Freedom House 2010. In March 2009, political tension emerged again after Members of the Parliament (MPs) demanded to question Prime Minister Nasser Mohammed Al-Ahmed Al-Sabah (the nephew to the Emir) over allegations of corruption, resulting in the Parliament dissolving. Subsequent elections were held in May 2009, and for the first time in Kuwait’s history, four women won Parliamentary seats. In December 2009, Prime Minister Nasser Mohammed Al-Ahmed Al-Sabah, appeared before the Parliament, being questioned over corruption allegations. This is the first time a prime minister has been questioned by the legislature in Kuwait. Nevertheless, Prime Minister Nasser Mohammed Al-Ahmed Al-Sabah kept his position, despite the opposition trying to remove him. Tensions within the royal family are reportedly fuelling broader political unrest in the country.
Corruption is considered a serious problem in Kuwait and has been a part of the political debate in the recent years; however, the government is often criticised for its hesitance to fight corruption and according to the Bertelsmann Foundation 2010, the executive does not seem to go beyond its rhetoric. On the other hand, the National Assembly plays a much more active role in the fight against corruption, and has often questioned key ministers on public spending and contracting. In 2005, a group of MPs launched a local chapter of the Global Organization of Parliamentarians against Corruption (GOPAC) to combat corruption and educate the public about its societal dangers. Nevertheless, many corruption scandals involving MPs have come out, for example, according to Global Integrity 2008, some MPs have offered services and bribes to obtain constituents' votes, and MPs are also known to send their relatives abroad at the expense of the state and to exploit their positions and private connections to obtain loans and bank guarantees with banks and investment companies. The same source also reports that MPs have written off loans for their constituents. In what may be seen as a reaction to such cases as well as the general public dissatisfaction with corruption that have been sweeping the region since the beginning of 2011, the government accepted in late March 2011 draft laws for setting up a national anti-corruption authority under the Ministry of Justice to investigate graft and illegal profiteering in the public sector, according to a March 2011 article by Kuwait Times. The government also announced that a law for the disclosure of politicians' and public officials' assets will be submitted in the future.
According to the Kuwait Economic Society Kuwait Public Opinion Survey Report 2007, one-third of the households surveyed believe that corruption is widespread in Kuwait, and more than half of the respondents feel that the problem is not being addressed. Furthermore, according to Transparency International Global Corruption Barometer 2009, households perceive public officials and civil servants to be the most corrupt entity in Kuwait, while the judiciary and the Parliament are perceived as the two least corrupt institutions. Petty corruption appears to be common, with 20% of respondents reporting that they or a member of their household have paid a bribe in 2008. However, Kuwaitis appear to be supportive of the government's anti-corruption efforts, with 68% of the household respondents perceiving the government’s efforts in the fight against corruption as ‘effective’, versus 23% perceiving it as ‘ineffective’. However, according to the US Department of State 2009, some experts believe that corruption is more prevalent in Kuwait than what the surveyed households perceived it to be in the Transparency International Global Corruption Barometer 2009.
Business and Corruption
Over the past several years, Kuwait has opened its economy and adopted a more positive attitude towards foreign investment. According to the US Department of State 2011, however, the government can interfere at times, mostly to benefit Kuwait citizens and domestic companies. Business executives surveyed in the World Economic Forum Global Competitiveness Report 2010-2011 identify corruption as the sixth most problematic factor for doing business in Kuwait after issues related to insufficient government bureaucracy, access to financing, restrictive labour regulations, inadequately educated workforce and infrastructures. According to the Bertelsmann Foundation 2010, the ruling family and a few long-established merchant families control key economic activities and sectors. Informal monopolies and oligopolies exist, and connections between the administration and private companies result in uneven market competition. Administrative decisions related to market activity can be arbitrary and sometimes involve corruption.
According to the World Economic Forum Global Competitiveness Report 2010-2011, business executives report that public funds are sometimes diverted to companies, individuals or groups due to corruption, and that government officials are sometimes favouring well-connected companies and individuals when deciding on policies and contracts. This is further illustrated in GOPAC Kuwait’s National Anti-Corruption Strategy 2009, in which it is reported that government officials distribute grants and benefits and assign funds to certain companies, based on tribal or regional considerations for political gain. According to the US Department of State 2011, companies bidding in the public procurement process in Kuwait have at times been accused of attempted bribery or the offering of other inducement. Since 1996, companies securing contracts with the government valued at KWD 100,000 or more are required to report all payment made to agents or advisors during the public procurement process. Furthermore, GOPAC Kuwait’s National Anti Corruption Strategy 2009 also reports that criteria and standards for the government bidding system are unclear, which do not encourage real competitions and the equality of opportunities. Foreign investors considering bidding on public tenders are therefore advised to use a specialised public procurement due diligence tool on public procurement, in order to help mitigate the corruption risks associated with public procurement in Kuwait.
According to Transparency International Global Corruption Barometer 2009, Kuwaiti households give the business and private sector a score of 3 on a 5-point scale (1 being 'not and all corrupt' and 5 'extremely corrupt'). Expatriate workers account for 90% of the work force in the private sector in Kuwait and corruption in the issuance and renewal of work permits is well known. According to Global Integrity 2008, employees of the Ministry of Social Affairs & Labour (MOSAL) are known for forging documents to allow the importation of foreign workers. In 2007, MOSAL closed two companies and fined other companies that were importing illegal workers. According to the US Department of State 2011, companies should also be aware that individuals having a civil or criminal case against them might be prevented from leaving the country until the case is settled or a guarantee is offered. Furthermore, it is reported that travel bans have been imposed on foreigners for allegedly violating Kuwaiti civil law, although it is rather infrequent. Companies are strongly advised to develop, implement and strengthen integrity systems and to conduct extensive due diligence when planning to invest and when already doing business in Kuwait.
Regulatory Environment
Kuwait has a friendly legislation to foreign direct investment; however, some significant restrictions and high oil prices have allowed the government to delay economic reforms and market diversification. The Kuwait Commercial Code provides that foreign companies may not engage in commercial activities in Kuwait, unless the Kuwaiti share of the business or joint venture equals or exceeds 51% of the total capital of the company. According to the US Department of State 2011, in 2001, the National Assembly passed the Direct Foreign Capital Investment Law (DFCI Law) to promote investment in Kuwait. The law authorises foreign-majority ownership in joint ventures and 100% ownership in certain industries, such as information technology, tourism and infrastructure projects; however foreign investment in the upstream petroleum and downstream gas and petroleum sectors remains restricted. Other initiatives taken by the government to attract foreign investment is the reduction of the tax rate from 55% to 15% for foreign companies, and new foreign investors can be exempted from all taxes for up to 10 years under the new DFCI Law. Furthermore, in 2009, the Kuwaiti government announced a five-year Economic Development Plan (2009-2014), which includes different reforms and incentives to attract private investment. According to Arab Times 2011, the 2009- 2014 Development Plan is the first phase of the six consecutive development plans, with the aim of turning Kuwait into the region’s financial and trade centre by 2035. The Foreign Investment Bureau (FIB) within the Ministry of Commerce and Industry promotes and screens all proposals for foreign direct investment in Kuwait. The DFCI Law also provided long-term protection to foreign investors against nationalisation or confiscation, and eliminated the requirement for foreign companies to have a Kuwaiti sponsor or partner. It also exempts foreign-majority owned companies from local agent requirements and authorised ten-year tax holidays for new foreign investors as well as land grants and duty-free import of equipment. However, according to the US Department of State 2011, the DFCI Law does not seem to have changed the investment climate in any significant way and foreign companies still experience delays in getting authorisation, some waiting up to 18 months for approval.
Inconsistent and sometimes contradictory policies and lack of transparency in the decision-making process can be a problem for foreign investors in Kuwait. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2010-2011 indicate inefficient government bureaucracy as the most problematic factor for doing business in Kuwait and that the level of government regulation is quite burdensome, scoring 2.7 on a 7-point scale (1 being 'burdensome' and 7 'not burdensome'). Moreover, business executives surveyed indicate that it is quite challenging to obtain information about changes to government policies and regulations affecting their industries. This is supported by the Heritage Foundation 2010, which reports that Kuwait's bureaucracy is often inefficient, non-transparent, and can be biased in favour of domestic interests, while the US Department of State 2011 reports that the country's bureaucracy is frequently like that of a developing country. Starting a company in Kuwait is a long and bureaucratic process, which, according to the World Bank & IFC Doing Business 2011, takes an average of 35 days and 13 procedures at a cost of 82.7% of the GNI per capita, which is more time consuming compared to the regional average.
Property rights are reasonably well defined, but there are restrictions on non–Gulf Cooperation Council citizens’ right to own land in Kuwait. This restriction is cited by some foreign investors as a major deterrent to foreign direct investment and starting businesses in Kuwait, as reported by the US Department of State 2011. Intellectual property rights are protected by a number of different laws; however Kuwait's IP laws are not fully in compliance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. In 2008, the US listed Kuwait in its Special 301 Watch List for failing to update its IP legislation. The Kuwaiti judicial system is well developed and familiar with international commercial laws. Nevertheless, dispute resolution in the Kuwait courts can be very time consuming and enforcement of court rulings is still a problem. Arbitration is also a possible form for dispute resolution; however few contracts contain an arbitration clause. Kuwait is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and has ratified the New York Convention 1958. Access the Lexadin World Law Guide for a collection of laws in Kuwait.
