Foreign Direct Investment

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty has put significant downward pressure on global FDI in 2022, and new investment project numbers, including greenfield announcements, international project finance (IPF) deals, and cross-border mergers and acquisitions, all shifted in reverse after the first quarter of 2022 to start declining. Cross-border M&A sales were 6% lower and IPF values more than 30% lower in 2022. The outlook for global FDI in 2023 appears weak, with a significant number of economies around the world expected to enter a recession. Negative or slow growth in many economies, further deteriorating financing conditions, investor uncertainty in the face of multiple crises and, especially in developing countries, increasing risks associated with debt levels will put significant downward pressure on FDI (UNCTAD Global Investment Trends Monitor, January 2023). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession.

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 2022 World Investment Report, FDI inflows had decreased considerably, to  -142 million USD in 2020, following the global economic crisis triggered by the Covid-19 pandemic, but came back in 2021 at 198 million USD. 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 14.79 billion in 2021. 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.

The country has made some significant improvement with regards to starting a business as well as obtaining credit and construction permits. However, Kuwait 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.

Kuwait Foreign Direct Investment (FDI) increased by 372.4 million USD in September 2022, compared with an increase of 7.5 million USD in the previous quarter (CEIC Data, 2023). The Kuwait Direct Investment Promotion Authority intelligence unit pointed out that incoming flows have tended to decline since 2016. However, it expects these inflows to rise to a still modest annual average of about $600 million in 2022-2026, as the gradual privatization of state assets provides opportunities for foreign investors, and projects are being launched. Public-private partnerships go beyond the utilities sector and infrastructure projects as part of the New Kuwait Vision 2035 development plan (Kuwait Direct Investment Promotion Authority, 2022).