New Institutions and Legislations in Kuwait

October 29, 2014

This article was published in The October 2014 issue of The Gulf
 

Over the past three years, Kuwait has witnessed a raft of new regulations and legislations aimed at making doing business in the country easier and transparent. Some of the recent key legislations are recorded in the table below –

A scan of the above list will tell us that the focus of Kuwait has been to improve business governance within the country and strengthen regulations and laws that would boost investor confidence. The 2009-2014 five year development plan of Kuwait has seen only limited success, at best, with many of the projects being transferred to the new five year plan of 2015-2020[1]. However, despite the push ahead with multiple legislations and new bodies, there is evidence that implementing change will not be easy. Media reports indicate that the CMA is facing lot of pushback against its efforts to encourage corporate information disclosure and in enforcing rules against excessively speculative trading[2]. There has been opposition to some of CMA policies that is causing delay in implementation. For instance, the reforms deadline on the corporate governance agenda has been pushed to June 2016[3].

 

The case of Kuwait Airways is considered a good example of difficulties of privatization in Kuwait. The Airline has been making losses for quite some time and is taking steps such as retrenchment in order to cut down costs[4]. Yet, privatization plans to modernize the airline and make it a more profitable venture has elicited resistance from various stakeholders, including company personnel and law makers[5]. Privatization is expected to be a matter that would require great acumen and strategic thinking in order to facilitate effective implementation across various projects in the country. Closely linked to the theme of privatization is the deeply felt need to making Kuwait a great place to do business, so that it can effectively challenge regional and global leaders. In that regard, the relatively new companies and licenses law are a great boost. However, these institutions will need to be tied with larger reforms in education and infrastructure in order for foreign companies and entities to feel enticed in order to benefit from the tremendous business advantages that Kuwait offers.

 

On the FDI front, the independent public authority, KDIPA, has complete control over its own budget and recruitment process[6]. Kuwait’s Ministry of Finance presides over KDIPA, which among other factors, is expected to streamline the process of decision making on FDI applications. There is already some indication of this. In September 2014, Kuwait suspended its offset obligations programme that compels foreign contractors, who win sizeable government contracts in Kuwait, to invest in some prescribed fashion in the Kuwaiti economy as part of a reciprocal gesture[7].

 

Even as some broad ranging developments are taking place on the FDI front, there is hope that Kuwait will see phased liberalization in the financial services sector, as well, allowing the industry to match regional peers such as Dubai and Doha . The decision of the CBK in March 2014 to allow multiple branches of foreign banks, approved on a case by case basis, rather than only one country branch allowed under the previous regulatory regime, should be seen in this light[8].

 

Kuwait passed an anti-corruption law in 2011, which included articles on money laundering and financial disclosure[9]. In June 2013, the anti-corruption body officially got its chief. Since then, Kuwait’s anti-corruption authority has been steadily expanding its capacity building and structural development activities[10]. Since the executive structures and administrative capacities of the authority is in the process of solidification, it would be premature to pass an opinion on the success of the body. However, the very fact that the body has been officially created means that the government and the law makers are taking the subject seriously, with more focus and effort expected in the years ahead in what will, essentially, be a difficult and persistent exercise.

The modification to the BOT law of 2008 means that local and foreign investors can now avail of a project ownership duration of 50 years in comparison with the 40 years under the previous BOT rules[11]. This is expected to encourage investments into mega projects due to the enhanced incentive of an increased timeframe to reap the investment benefits. As Kuwait attempts to develop a more favourable domestic energy mix in order to support its larger oil revenues strategy, such regulatory developments are likely to lend immense support. For instance, the Partnerships Technical Bureau (PTB) in collaboration with Kuwait’s Ministry of Electricity and Water (MEW), are in the process of developing an Integrated Solar Combined Cycle (ISCC) Plant to generate power with a capacity of 280 MW[12].  The solar component will be 60 MW of the total.

 

With respect to the National Fund for Small and Medium Enterprises (SMEs) Development, there is lot of promise in terms of the direction in which it is moving. The KD 2 billion fund will not only provide finance for eligible budding entrepreneurs, but will also offer support in terms of necessary training courses[13]. Also, unlike previous small scale business funding experiments in Kuwait that focused inordinately on low-risk projects, the new SMEs fund has the mandate to cater to a calculated risk percentage, which is expected to encourage entrepreneurs to innovate[14]. Regulatory support in terms of the labour and companies law is expected to instill greater confidence in the minds of aspirational entrepreneurs and the employees therein.

The new institutions and legislations in Kuwait are trying to work in two concurrent directions. While focusing on promoting the private sector and foreign investors for economic diversification; there are also efforts at boosting financial reforms, both in the private (e.g., banks) and the public domain (government revenues and spending). It is encouraging to note Kuwait buzzing with institutional building activities. This will surely form the bedrock for further investments.

 

 

 

[1] Business Intelligence Middle East

 

[2] Gulf-Times.com

 

[3] Ibid.

 

[4] Arabian Business Publishing Ltd

 

[5] Kuwait Times

 

[6] Kuwait Times

 

[7] Thomson Reuters

 

[8] Ibid.

 

[9] Arab Times Kuwait English Daily

 

[10] KUNA

 

[11] Kuwait Times

 

[12] PTB

 

[13] KUNA

 

[14] Ibid. 

 

 

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