Foreign Direct Investment

Global foreign direct investment (FDI) flows showed a strong rebound in 2021, up 77% to an estimated USD 1.65 trillion, from 929 billion in 2020, surpassing their pre-COVID19 level. FDI flows in developing countries increased by 30% but almost three quarters of the total increase in global FDI (USD 500 billion) was recorder in developed economies, with developing economies showing a more modest recovery growth. FDI inflows to West Asia and the middle East increased by more than 49% in 2021 to 90 billion USD (UNCTAD, January 2022).

Kuwait has always been a country open to foreign investment and is further opening to foreign capital, however, FDI is still underdeveloped in the country. According to UNCTAD's World Investment Report 2021, FDI inflows have decreased considerably, to USD -319 million in 2020, compared to USD 104 million recorded in 2019, following the global economic crisis triggered by the Covid-19 pandemic. The lack of diversity in the economy and falling oil prices caused a decrease in inflows. The stock of FDI has been estimated at USD 14.1 billion in 2020. The bulk of investments are directed towards the oil & gas sector, followed by real estate/construction and financial services. The majority of foreign investments come from the United States and China.

As a resource-rich economy, Kuwait is diligently looking to deploy its oil wealth to develop and diversify the economy. The nation aims to attract more than $200bn in foreign direct investment (FDI) between 2020 and 2035 in order to become a global centre for trade and finance. The government is taking concrete steps towards achieving its ambitions to boost private sector investment in key sectors. Kuwait Vision 2035 focusses on improving the country’s economic infrastructure, such as the construction of new airports, ports, roads, industrial areas, residential developments, hospitals, a railroad, and a metro rail.  The Northern Gateway initiative, which encompasses the Five Islands or Silk City projects, envisions public and private sector investment in the development of an international economic zone. It is not yet clear how increased fiscal pressure resulting from COVID-19 and lower oil prices will affect the plan (US State Department, 2022).

With the decline in oil revenue, the government seeks increased foreign investments as it plans to diversify its oil-dependent economy, and has taken a number of steps towards achieving this goal. The FDI promotion policy focuses on several sectors that can most benefit from foreign investment and expertise. A law on foreign investment, enacted in 2013, was implemented in 2015 and a series of other laws related to businesses and public-private partnerships were introduced as well. The law allowed 100% foreign ownership in some sectors and also made available a number of tax breaks and other benefits to attract new investors, who in return must guarantee a set of quotas regarding the employment of Kuwaiti nationals. Further steps have been taken: allowing the opening of the stock market to non-Kuwaitis, the presence of foreign operators in the petrochemical industry and the entry of foreign banks in the country. The industries covered by the FDI Law that allows 100% foreign ownership, include: infrastructure (water, power, wastewater treatment, and communications); insurance; information technology and software development; hospitals and pharmaceuticals; air, land, and sea freight; tourism, hotels, and entertainment; housing projects and urban development; and investment management.
Kuwait ranks relatively low in the last World Bank's 2020 Doing Business report compared to other Gulf countries. Nonetheless, the country rose to the 83rd position out of 190 economies this year, up by 14 spots from 2019. This was mainly due to significant improvement with regards to starting a business as well as obtaining credit and construction permits. However, the country continues to depend heavily on the oil & gas sector and such is sensitive to commodities prices fluctuation, and the degree of state intervention in the economy is considered too high. Furthermore, the local market is limited in size and the political situation is fragmented, with tensions between the parties.