A new investment law that grants unprecedented concessions to foreign investors could prove to be a watershed in the Kuwaiti economy.
The Direct Foreign Investment Law offering foreign investors a 10-year tax exemption once projects come on stream as well as the right to hold 100 per cent ownership in expanded categories of business has understandably stirred great interest among overseas businessmen.
Some 120 applications were received from foreign entrepreneurs interested in setting up ventures in Kuwait just weeks after the cabinet issued a decision in October to implement the law, approved two years earlier by parliament.
The ouster of the Saddam Hussein regime in neighbouring Iraq and the prospect of gaining lucrative deals in that country’s ongoing reconstruction meant the time had come to open up the economy for the funds and technology only overseas entrepreneurs could provide.
The decision to implement the new investment law has not come a day too early. Already, the run up to the rebuilding of Iraq has attracted phenomenal interest in the Middle East as it has done in the developed economies, requiring Kuwait to take unprecedented steps to stay in the race for contracts and not lose out to fellow competitors from its region.
In line with tradition, Kuwait has maintained the lid on investments in the key oil and gas exploration and production sector. Oil accounts for 90 per cent of its income.
But investors are heartened that the state went as far as it did in opening up such areas as manufacturing, real estate, housing, banks, hospitals, technology, transport and tourism.
Applications received by the beginning of December were for projects in the health, real estate and industrial sectors and worth “in the hundreds of millions of dollars,” said commerce and industry minister Abdulrahman Al Taweel. The bids came from beyond the Arab region and included US and European investors.
“Kuwait faces economic and investment openness in the medium and long-term after the nightmare of constant threat is gone,” said trade ministry official Shaker Al Saleh referring to the ousted Iraqi regime.
One of the exciting possibilities for investors is investment in Kuwait’s aviation sector. They have been invited to challenge the local monopoly of Kuwait Airways Corporation, which has accumulated huge losses. The government would be happy to have firms offering no-frill services, a product that is gaining worldwide popularity. But founders will be allowed just 30 per cent of the stock with the remaining being sold to the public.
“This is a major step in the right direction. It opens up the aviation sector to healthy competition,” said Al Taweel, who also commented it would have “a major positive impact on the national economy.”
The Direct Foreign Investment Law will make diversification of income sources more meaningful. Currently just one company, Equate, accounts for nearly 60 per cent of the country’s non-oil exports.
Equate is constructing a major new ethylene and derivatives complex in Kuwait which will come on line in early 2007. The new 850,000 tonnes per year (tpy) ethane cracker will provide ethane to a new 600,000tpy ethylene oxide and ethylene glycol plant, using the world-renowned Meteor technology. Equate is also expanding its polyethylene capacity to over 1 million tpy and will maintain and operate a 300,000 tpy ethylbenzene /styrene facility. One of its partners, Petrochemical Industries Company (PIC), will own the ethylbenzene plant.
