Major Economic Indicators
- Kuwait’s real GDP expanded by 0.9% in 2015 due largely to the shrinkage of the oil sector, which recorded a 0.5% drop. For 2016, the Kuwaiti economy is expected to grow 2.4%, boosted by an increase in public investment.
- In a bid to encourage FDI, the Kuwaiti parliament in April 2016 approved a flat 10% corporate tax, replacing a system which differentially taxed foreign companies by 15% and their local counterparts up to 5%.
- In February 2015, Kuwait approved a US$116 billion five-year development plan to focus on economic reform and diversification, infrastructure investment and greater participation of private investors in the economy.
- Kuwait is a member of the GAFTA and participates in the China-GCC Free Trade Agreement negotiations. It holds DTA with the Chinese mainland as well as a CDTA and IPPA with Hong Kong.
- Hong Kong's total exports to Kuwait dropped by 34.4% YOY to US$44 million in the first three months of 2016, following a contraction of 13.5% in 2015.
Current Economic Situation
Kuwait’s oil sector plays a dominant role in Kuwait’s economy with the country estimated to own roughly 6% of the world’s oil reserves. Oil exports account for about 94% of Kuwaiti exports, 90% of government revenues and 50% of nominal GDP.
Second to oil is the service sector, which represents some 30% of GDP with key sectors including community, social and personal services, finance, insurance and real estate, renting and business services. The remaining part of the economy is mostly attributed to manufacturing, which comprises primarily oil-related industries such as oil-refinery and petrochemicals.
Kuwait’s real GDP expanded by 0.9% in 2015 due largely to the shrinkage of the oil sector, which recorded a 0.5% decrease on the back of lower crude oil production. Meanwhile, growth of the non-oil sector remained resilient, accelerating to 4% in 2015 from 2.1% in 2014 due to quickened project implementation of the Kuwait Development Plan (KDP). According to the National Bank of Kuwait (NBK), more than KD7.5 billion (US$24.9 billion) and KD12 billion (US$39.9 billion) of projects were awarded in 2014 and 2015 respectively. Owing to higher public investment, the IMF expects Kuwait’s GDP growth to recover to 2.4% in 2016.
Kuwait’s major export markets include Korea, India, Japan, China and the US. In Q4 2015, exports dropped 15.3% quarter-on-quarter (QOQ) to KD 3.5 billion (US$11.7 billion) due in part to a halt in production from two jointly-operated oil fields over an operational dispute with Saudi Arabia. In March 2016, it was reported that Kuwait and Saudi Arabia agreed to resume production at offshore Khafji oil field, though no official restart date was announced.
In April 2016, some OPEC and non-OPEC producers met in Doha to discuss a possible production freeze. With no agreement sought, this is also seen as dimming the prospects of any output freeze or cut by OPEC when the oil cartel meets in June 2016. In April 2016, Kuwaiti oil workers went on a three-day strike to protest the reduction in subsidies and government handouts, causing a substantial, yet short-lived disruption to oil production in Kuwait, by far the fourth largest producer in OPEC.
The Kuwaiti government has taken many initiatives to diversify its economy. The KDP outlined the authorities’ long-term vision for the country between 2009 and 2035 with the aim to diversify the economy away from oil, to strengthen the role of the private sector and eventually, to transform Kuwait to a regional trade and financial centre.
Kuwait has a strong financial sector, with banks extending their reach to other countries in the Gulf and Mideast regions. The NBK has business in Lebanon, Jordan, Iraq, Egypt, Bahrain, Saudi Arabia, the UAE, and Turkey. The NBK holds high credit ratings from Moody’s, Standard & Poor’s, and Fitch Ratings and has maintained its position as one of the 50 safest banks in the world for nine consecutive years.
As part of the KDP, the parliament approved the latest five-year development plan in February 2015, more than a year after the last development plan ended amid tensions between the executive and the legislature. With pressure to complete much-needed infrastructure and economic diversification intensifying due to the decline of oil prices, the Kuwaiti government has reiterated its commitment to deliver the development projects in the coming years.
Covering the fiscal years 2015/6 to 2019/20, the latest development plan, entailing US$116 billion, focuses on economic reform and diversification as well as several long-stalled mega-projects. Investment for a broad range of sectors, including oil, transport, infrastructure, water and power are planned. The authorities also emphasized the greater participation of private investors in achieving the development agenda, seeking to increase the private sector’s share of the economy to 41.9% from its current level of 26.4%. In a bid to encourage FDI, the Kuwaiti parliament approved in April 2016 a flat 10% corporate tax, reducing the tax on foreign companies from 15% while raising that for local firms from previously up to 5%.
To achieve the goals of economic diversification outlined in the development plan, the government focuses on infrastructure developments. Most prominent of all is the City of Silk project (Madinat al-Hareer), a site spanning 250 sqkm and including a 1,001 metre-tall tower. Scheduled for completion in 2023, the site will comprise residential, commercial, educational and recreational facilities as well as tourist attractions such as hotels and national parks at an estimated cost of US$94 billion. Thanks to its large oil revenues, the strong fiscal position has enabled the Kuwaiti government to carry out construction projects as set out in the plan.
Other projects under the development plan are currently under various stages of planning and construction. For example, the US$2.6 billion Sheikh Jaber Al-Ahmad Bridge that reduce travel time between Kuwait City and the Subiya promontory and Bubiyan Island from 1.5 hours to less than 17 minutes and the US$7 billion Kuwait City Metro are scheduled for completion in 2018 and 2019 respectively. In view of rising demand for public housing, the Public Authority for Housing and Welfare also announced plans to build 174,000 housing units by 2020.
As part of its efforts to increase private sector participation in the economy, the country’s first public-private partnership (PPP) agreement was signed with a consortium led by France’s GDF Suez for financing the Az-Zour North Independent Water and Power Project (IWPP) in 2013. The project involves the construction of a 1,500MW gas-fired combined cycle power plant and a desalination plant costing about US$1.8 billion. In early 2015, the Kuwaiti government issued new executive by-laws for PPP and replaced the Partnerships Technical Bureau (PTB) with the Kuwait Authority for Partnership Projects (KAPP), which will give greater independence in implementing PPP projects.
In 2013, Kuwait issued a new Foreign Direct Investment Law (FDI Law) to encourage foreign investment by making it easier for investors to obtain an “Investment License”. Under the FDI Law, a new public authority, the Kuwait Direct Investment Promotion Authority (KDIPA), was established in 2014 to offer “one-stop-shop” services and streamline the approval and licensing process, requiring the time for issuing a licence be limited to 30 days of the application.
The KDIPA is keen to promote FDI in a wide range of sectors including infrastructure, environmental services, oil and gas downstream chemical manufacturing, education and training, healthcare, integrated housing projects and urban development, storage and logistics services, banking, financial services and insurance, tourism, technology and cultural, media and marketing.
Foreign investors will benefit from exemption of corporate income tax for up to 10 years, as well as customs exemptions for the importation of machinery and intermediary goods. In addition, foreign investors are permitted to set up to wholly-owned entities and invest in almost all sectors. As per KDIPA’s “negative list” issued in February 2015, FDI is barred from sectors such as upstream petroleum and national defence.
Cumulative FDI in Kuwait topped US$15.4 billion in 2014, down 4.6% from 2013. According to China’s Ministry of Commerce, Chinese investment in the Kuwait has been growing in recent years, with cumulative FDI rising from US$50.9 million in 2010 to US$345.9 million in 2014.
Kuwait is a member of the World Trade Organisation (WTO) since January 1995, and maintains a rather liberal trade regime. Imports are subject to few controls except for imports such as arms and ammunition, explosives, radioactive materials, drugs, pesticides and insecticides. Importation of fireworks, oxygen, certain steel pipes, firearms, narcotics, alcoholic beverages, air guns, pork, pornographic and subversive materials and used vehicles over five years old is prohibited. In September 2010, Kuwait joined the WTO Information Technology Agreement (ITA), which requires member countries to completely eliminate duties on IT products covered by the ITA.
Import licences are required for all commercial imports, and they are only issued to registered importers. To be eligible for registration, an importer must be a Kuwaiti citizen, or the Kuwait shareholding in the capital of the company must be at least 51%.
The tie between Kuwait and its fellow members of the Gulf Cooperation Council (GCC) is strong. In November 1999, the GCC agreed to form a customs union, which took effect from January 2003 to zero-rate the goods traded within the GCC. The change in tariff structure to align with the GCC customs union lowered Kuwait’s simple average applied MFN tariff from 7.7% in 2002 to 4.7% in 2012. On the other hand, the accord establishes a single external tariff of 5% applying on 1,500 imported items from non-member countries. As a result, Kuwait’s customs duty is calculated on the CIF value at the rate of 5% for most Hong Kong products. It also provides a list of items that can be imported duty-free. Under the accord, goods imported into the GCC area can be freely transported subsequently throughout the region without paying additional tariffs.
Kuwait is a member of the Greater Arab Free Trade Area Agreement (GAFTA) and enjoys free trade with Algeria, Bahrain, Egypt, Iraq, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, the UAE and Yemen. As part of the GCC, Kuwait has free trade agreement (FTA) with Singapore, New Zealand and the European Free Trade Association (EFTA). Negotiations on the establishment of FTA with the EU, Japan, China, India, Pakistan, Turkey, Australia, Korea and the Group of Mercosur are on-going.
Kuwait holds double taxation agreement (DTA) with a number of countries including Canada, China, France, Germany, Russia and the UK. A Comprehensive Double Taxation Agreement and Investment Promotion and Protection Agreement between Kuwait and Hong Kong were signed in 2012 and 2013 respectively.
It is noteworthy that Kuwait abandoned its currency peg to the US dollar in May 2007, and instead pegged the Kuwaiti dinar to a trade-weighted basket of currencies. Kuwait was the first GCC country to do so.
Hong Kong's Trade with Kuwait
Hong Kong's total exports to Kuwait dropped by 34.4% year-on-year (YOY) to US$44 million in the first three months of 2016, following a contraction of 13.5% in 2015. Major export items in the period included telecom equipment and parts (US$26 million, 59% of total, -44.8% YOY), watches and clocks (US$4 million, 9.4% of total, +9.1% YOY) and jewellery (US$2 million, 5.6% of total, +95% YOY).
Hong Kong's imports from Kuwait fell by 6.5% YOY to US$10 million in the first three months of 2016, following a 47% decline in 2015. Major imports in that period were polymers of ethylene in primary forms (US$6 million, 64.4% of total, -23.5% YOY), telecom equipment & parts (US$2 million, 17.1% of total, +508% YOY) and parts & accessories of motor vehicles (US$1 million, 9.5% of total, +31.9% YOY).
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.