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U.S. Department of State
Kuwait Country Commercial Guide
Office of the Coordinator for Business Affairs
1996 COUNTRY COMMERCIAL GUIDE
KUWAIT
U.S. & Foreign Commercial Service
American Embassy
Kuwait
This Country Commercial Guide (CCG) presents a comprehensive look at
Kuwait's commercial environment through economic, political and market
analyses.
The CCGs were established by recommendation of the Trade Promotion
Coordinating Committee (TPCC), a multi-agency task force, to consolidate
various reporting documents prepared for the U.S. business community.
Country Commercial Guides are prepared annually at U.S. Embassies
through the combined efforts of several U.S. government agencies.
KUWAIT
Country Commercial Guide
Fiscal Year 1996
Table of Contents
Chapter
I. EXECUTIVE SUMMARY
A. Why Export to Kuwait
B. Brief Synopsis of Commercial Environment
C. Kuwait's Business Attitudes Toward the U.S.
D. Major Business Opportunities
E. Major Roadblocks to Doing Business
F. Principal Local and Third Country Competitors
II. ECONOMIC TRENDS AND OUTLOOK
A. Major Trends and Outlook
B. Principal Growth Sectors
C. Government Role in the Economy
D. Balance of Payments Situation
E. Infrastructure Situation
III. POLITICAL ENVIRONMENT
A. Nature of Political Relationship with the United States
B. Major Political Issues affecting Business Climate
C. Brief Synopsis of Political System, Schedule for Elections
and Orientation of Major Political Parties
IV. MARKETING U.S. PRODUCTS AND SERVICES
A. Distribution and Sales Channels
B. Use of Agents/Distributors; Finding a Partner
C. Franchising
D. Direct Marketing
E. Joint Ventures/Licensing
F. Steps to Establishing an Office
G. Selling Factors/Techniques
H. Advertising & Trade Promotion
I. Pricing the Product
J. Sales Service/Customer Support
K. Selling to the Government
L. Protecting Your Product from IPR Infringement
M. Need for a Local Attorney
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
A. Best Prospects for Non-agricultural Goods and Services
B. Best Prospects for Agricultural Products
C. Significant Investment Opportunities
VI. TRADE REGULATIONS AND STANDARDS
A. Trade Barriers, including Tariffs, Non-Tariff Barriers and
Import Taxes
B. Customs Valuation
C. Import Licenses
D. Export Controls
E. Import/Export Documentation
F. Temporary Entry
G. Labeling, Marking Requirements
H. Prohibited Imports
I. Standards
J. Free Trade Zones/Warehouses
K. Special Import Provisions
L. Membership in Free Trade Arrangements
VII. INVESTMENT CLIMATE
A. Openness to Foreign Investment
B. Conversion and Transfer Policies
C. Expropriation and Compensation
D. Dispute Settlement
E. Political Violence
F. Performance Requirements/Incentives
G. Right to Private Ownership and Establishment
H. Protection of Property Rights
I. Regulatory System: Laws and Procedures
J. Bilateral Investment Agreements
K. OPIC and Other Investment Insurance Programs
L. Labor
M. Foreign Trade Zones/Free Ports
N. Capital Outflow Policy
O. Major Foreign Investors
VIII. TRADE AND PROJECT FINANCING
A. Brief Description of Banking System
B. Foreign Exchange Controls Affecting Trading
C. General Financing Availability
D. How To Finance Exports/Methods of Payment
E. Types of Available Export Financing and Insurance
F. Project Financing Available
G. List of Banks with Correspondent U.S. Banking Arrangements
IX. BUSINESS TRAVEL
A. Business Customs
B. Travel Advisory and Visas
C. Holidays
D. Business Infrastructure (e.g., Transportation, Language,
Communications, Housing, Health, Food, etc.)
X. APPENDICES
A. Country Data
B. Domestic Economy
C. Trade
D. Investment Statistics
E. U.S. and Country Contacts
1. U.S. Embassy Trade Related Contacts
2. AmCham and/or Bilateral Business Councils
3. Country Trade or Industry Associations
in Key Sectors
4. Country Government Offices Relating to
Key Sectors and/or Significant Trade
Related Activities
5. Country Market Research Firms
6. Country Commercial Banks
7. Washington-based U.S. Government Country Contacts
F. Market Research
G. Trade Event Schedule
Chapter I. EXECUTIVE SUMMARY
A. Why Export To Kuwait?
Despite its small size, Kuwait buys large amounts of American products
and services, and will likely continue to do so. In 1994 Kuwait
imported $1.175 billion worth of goods from the U.S., a 16.5% increase
over 1993. (Some 1994 exports are part of much larger multi-year sales,
e.g., $4.5 billion in U.S. defense sales to Kuwait since 1991 are
exported over several years.) Kuwait is the sixth largest market for
U.S. exports in the Middle East and North Africa; and the U.S. is
Kuwait's largest trading partner.
Kuwait imports a wide variety of U.S. military, industrial and consumer
products. Leading military imports in the past three years have
included aircraft and parts, air defense systems, radars and tanks.
Leading industrial imports include oilfield equipment/parts, aircraft
parts and generators. Leading consumer imports include passenger
vehicles and trucks. Other significant imports include: air
conditioning and refrigeration equipment, carpeting, cigarettes,
computers, construction equipment, fire fighting equipment, fishing
boats, hardware, housewares, medical equipment, office furniture,
pleasure boats/yachts, process controls, processed foods,
telecommunications equipment and water treatment equipment.
B. Brief Synopsis of Commercial Environment
Kuwait is a highly price-competitive market because it has low tariffs
(generally only four percent ad valorem), few import barriers and no
exchange controls. Procurement for large public sector projects
dominates the business scene; there is almost no manufacturing and
little non-oil exporting. American firms generally need to work through
a local agent or distributor, and should monitor an agent's performance
and potential conflicts of interest. American business negotiators find
that Kuwaiti buyers have a strong bias in favor of the lowest price,
despite a higher priced product's technical advantages or long-term
savings.
C. Kuwait's Business Attitudes Toward The U.S.
Kuwaitis are interested in American products and business proposals
because of goodwill toward the U.S. as a result of the Gulf War, local
media coverage of American news and popular culture, and because large
numbers of Kuwaitis have studied in the U.S. or travel there regularly
for business or family vacations. Kuwaitis appreciate American
products' high quality and association with a convenient, comfortable,
modern, affluent lifestyle. Kuwaitis readily buy American products that
are competitive in price and quality.
D. Major Business Opportunities
Prospects for U.S. consumer goods export growth are excellent. Kuwait's
oil wealth (10% of world oil reserves) and substantial investments
abroad (estimated at $36 billion) have created an affluent population:
its 1.83 million people have a per capita income of $16,535. As
Kuwait's young population (48% under 15 years of age, 70% under 24)
grows up, U.S. exporters will find opportunities supplying items needed
for household formation, e.g., building materials, furniture,
appliances, home furnishings and clothing. Traditionally popular
consumer items, such as jewelry, cosmetics, women's clothing, giftware,
fast food and automobiles will remain so. Progress in intellectual
property protection may generate opportunities for U.S. suppliers of
computer software and entertainment products (movies and audio/video
cassettes).
Export prospects for U.S. industrial products and services are very good
as Kuwait government procurements, Kuwait's privatization and new
foreign investments in Kuwait combine to open $15.5 billion in potential
U.S. export opportunities. Areas of near-term activity are: defense
systems ($4.7 billion), oil facilities ($2.3 billion), housing ($5.2
billion) and other infrastructure ($3.3 billion). Plans to expand oil
production capacity to 3 million barrels per day by 2000 will provide
opportunities for suppliers of oilfield equipment, process controls,
pumps, valves, compressors, security systems and other industrial
equipment. Plans to build 50,000 new public housing units open
opportunities for U.S. construction firms. Defense purchases will
likely continue for the rest of the decade, but at a slower pace.
Privatization will create new opportunities for U.S. exports of power,
medical and communications equipment as well as consulting and training
services. U.S. joint ventures in Kuwait, such as the Equate
petrochemical complex of Union Carbide and Kuwait's Petrochemical
Industries Company, will be new customers for U.S. exports and may
create others, such as new plastics, specialty chemical and synthetic
fiber plants in downstream industries. Export prospects are tempered
somewhat by the $5 billion annual deficits the Kuwait government risks
running the rest of this decade as it sustains a welfare state for
Kuwait nationals, repays Gulf War and reconstruction debts and pays for
large defense purchases.
A number of high-value U.S. food products have strong market potential
in Kuwait: frozen poultry (parts and whole birds), almonds, frozen
beef, fresh eggs, fresh apples and pears, hot sauces, salad dressings
and dips, snack foods, fruit juices, canned fruits and vegetables,
frozen vegetables, cheeses and coffee whiteners. Also, growth in the
local food processing industry is driving up demand for semi-processed
products such as vegetable oils, particularly corn and sunflower seed
oils, beverage bases, dried pulses, specialty flours and a variety of
food ingredients.
E. Major Roadblocks To Doing Business
Many American exporters, investors or technology licensors do business
profitably in Kuwait. Some obstacles, however, may require counseling
by a local accountant, lawyer or other professional: import
restrictions (e.g., ban on pork and alcohol; short food shelf life;
Arabic labeling, etc.); the requirement of a local sales agent; the
opaque and prolonged public tendering process; the high local corporate
taxes for foreign firms; the lack of a double tax avoidance treaty with
the U.S.; the restrictive immigration and labor laws for non-U.S.
employees; the reinvestment requirements of Kuwait's offset program; the
sectoral and minority ownership restrictions on foreign investment; and
the lack of adequate patent, trademark or copyright protection.
F. Principal Local And Third Country Competitors
U.S. firms face little local competition as Kuwait has little
manufacturing. Third country competition, however, is abundant, highly
price competitive, often well supported by their governments, and
vigorously represented by local agents. After the U.S. (1), Kuwait's
leading suppliers (with the top five ranked) are: China, Finland,
France (5), Germany (3), India, Italy, Japan (2), Korea, Sweden & U.K.
(4).
Country Commercial Guides are available on the National Trade Data Bank
on CD-ROM or through the Internet. Please contact STAT-USA at 1-800-
STAT-USA for more information. To locate Country Commercial Guides via
the Internet, please use the following World Wide Web address:
WWW.STAT-USA.GOV. CCG's can also be ordered in hard copy or on diskette
from the National Technical Information Service (NTIS) at 1-800-553-
NTIS.
Chapter II. ECONOMIC TRENDS AND OUTLOOK
A. Major Trends and Outlook
Oil Sector:
The Kuwaiti economy is driven by oil production and related industries.
Due to a rapid rehabilitation of the country's oil fields and
refineries, the oil sector has essentially recovered to pre-war levels.
Kuwait's crude oil production is currently running at 2.0 million
barrels per day and production capacity is estimated to be 2.5 million
barrels per day. The country's refining capacity, likewise, has been
restored to 800,000 b/d. In the oil sector, crude production may remain
constant for some time in conformance with OPEC quotas, although Kuwait
will expand capacity to 3 million barrels/day by 2000. Also, future
plans call for additional refining capacity in-country and abroad.
Non-oil Sector:
Kuwait's non-oil economy has been flat since a reconstruction boom which
followed the country's liberation. The poor economic performance can be
traced in part to the country's changed demographics following the Gulf
War. Even now, Kuwait's population is less than 80 percent of the pre-
war population. Furthermore, many of the Palestinians who lived in
Kuwait with their families prior to the war have been replaced by
bachelor expatriate workers who tend to remit their earnings home rather
than spend them in Kuwait. These two factors have had a negative effect
on the consumer-oriented businesses that make up much of Kuwait's non-
oil economy.
Despite the recent sluggishness of the non-oil economy, we believe that
business is poised for improvement over the short and medium term for
several reasons. The country is implementing plans to alleviate the
problem caused by the demographic mix by allowing more expatriate
workers to bring their families to Kuwait.
More importantly, in 1993, the government adopted a "difficult debts
law" which will provide sufficient debt relief and a mechanism by which
large Kuwaiti investors can recover from losses incurred during the
Iraqi Invasion and from some losses dating to the Souk Al-Manakh crisis
(an informal stock market which collapsed in the early 1980's). Some
elements of the law are controversial and there is pressure from some
groups to amend its provisions. The Kuwait government put forward a
series of amendments in June 1995 which require National Assembly
approval (likely after September 1995). Furthermore, it still remains
to be seen how many of the bad debts will actually be cleared up by this
legislation. Nevertheless, we anticipate that the law will stimulate
investment simply by removing uncertainty over the legal status of the
debts. This, in turn, should promote the repatriation of capital held
outside Kuwait.
B. Principal Growth Sectors
Non-Oil Sector:
We anticipate a general recovery of the non-oil sector of the economy as
a result of the debt relief law and other measures. More importantly,
however, we see good opportunities for long-term growth in
telecommunications, housing, power generation and health care as a
result of government plans to privatize these sectors, as follows:
- Telecommunications: Investors are still awaiting a long-promised
privatization of Kuwait's government-owned telecommunications sector.
The change, which will bring in Western companies as partners, should
result in a revamp of the country's telecommunications systems.
- Housing: Kuwait provides a generous housing subsidy for Kuwaiti
citizens. Although the subsidy tends to distort demand in the housing
sector, it will likely be continued, creating, along with Kuwait's high
population growth rate, a continuing high demand for residential
housing. There may be movement toward large scale projects, rather than
individually built units.
- Power Generation: Efforts by Western companies to participate in the
country's power generation sector have not, so far, met with success.
It remains, however, a possible growth area given the rising demand for
power in the GCC states and budget constraints facing the Kuwaiti
government.
- Health Care: Kuwait is moving to privatize its health care services,
including encouraging the establishment of private hospitals and
studying the possibility of private management of government-owned
hospitals. In addition to the opportunities for management and
construction of the facilities, with increasing pressure on free health
care services, there may arise opportunities for health insurance and/or
health maintenance organizations, particularly for expatriates in
Kuwait.
The local food processing industry will continue to expand, offering
export opportunities for semi-processed agricultural products. Major
growth sectors are: vegetable oils, beverages (juices and soft drinks),
dairy products (ice cream and yogurt), dry pulses and snack foods.
Oil Sector:
Kuwait's government-owned oil sector is expected to continue to grow
with a worldwide demand for Kuwaiti crude and refined products. One of
the more exciting areas for growth, however, is the emergence of a
petrochemicals industry in Kuwait. This will be brought about by the
construction of a major $2 billion petrochemicals complex in the Shuaiba
Industrial Area that will produce ethylene, polyethylene and ethylene
glycol by mid-1997. This complex is owned by Equate, a joint venture
between Union Carbide Corporation and the government-owned
Petrochemicals Industries Company. The availability of these
intermediate petrochemical products is expected to open opportunities
for a range of chemical and plastics manufacturing industries in Kuwait.
C. Government Role in the Economy
Kuwait's government plays a dominant role in the local economy.
However, that role seems destined to decline as the country moves toward
privatization and rationalization of the economy. Kuwait's economic
system, modelled on a socialist welfare state, provides for a large
measure of government regulation. These regulations restrict
participation and competition in a number of sectors of the economy and
strictly control the roles of foreign capital and expatriate labor.
The Kuwaiti government also owns, outright, interests in many of the
private companies in the country including most of the nation's banks.
In some cases, the government bought these shares to ameliorate the Souk
Al-Manakh stock market collapse in 1982. In other cases, the government
ownership was used to provide capital for local industries. The era of
government ownership seems to be coming to an end, however. As a part
of ongoing privatization efforts, the Kuwaiti government has begun to
relinquish its interests in these companies, generally by offering its
shares on the Kuwaiti Stock Exchange. Private foreign investors may
participate in this privatization process by purchasing up to 40 percent
ownership of Kuwait's national industries, subject to prior Kuwait
government approval.
Finally, the Kuwaiti government is, by far, the largest employer of
Kuwaiti citizens, 92 percent of whom work for the government or a
government-owned company. Through efforts to "Kuwaitize" its work
force, the government of Kuwait, in effect, has guaranteed employment
for all Kuwaiti nationals. While this has had a social benefit, at
least superficially, it has resulted in many government ministries being
overstaffed and underproductive. It has also made it difficult for
private companies to recruit Kuwaitis for meaningful, but rigorous,
jobs.
D. Balance of Payments Situation
Kuwait's balance of payments situation is healthy, with exports
exceeding imports by a comfortable margin. Since crude oil and refined
products comprise more than 90 percent of the value of exports, however,
the country's balance of payments is highly susceptible to changes in
oil prices. The Kuwait government generally takes a conservative
pricing position for oil revenue in its budget projections.
E. Infrastructure Situation
Kuwait is a small country and many of the challenges of distribution of
goods and services found in other, larger countries do not exist in
Kuwait. Kuwait has two modern ports, at Shuwaikh and at Shuaiba, which
handle the vast majority of the country's imported goods. Both are
equipped with facilities to handle most kinds of cargo, but Shuwaikh is
the regular post of entry for most consumer goods entering the country
by container ship. Shuaiba, located in Kuwait's refining and
manufacturing complex, handles some of the country's industrial goods
imports and is the export point for petrochemicals, sulfur and petroleum
coke. Historically, Kuwait has been a major transshipment point for
trade to Iraq. U.N. sanctions and the political situation have
eliminated this trade, reducing the overall volumes and frequency of
ship calls.
Kuwait's road system is well developed, with modern multilane
expressways linking all areas of the country. There are no railways in
the country. Kuwait International Airport is located south of the
city, is easily accessed by expressway, has a number of regular flights
to local destinations, Europe and Asia and can handle the world's
largest aircraft.
Kuwait has several major electric power generating plants which, through
desalination processes, are also the source of the country's potable
water supply. The country currently has an adequate generating capacity
and the plants can be fired by natural gas or fuel oil. However, a
surging population and subsidized prices create a rapidly rising demand
for electricity, particularly as air-conditioning load during the summer
months. Planned expansion projects should be able to meet this demand
for the foreseeable future.
Chapter III. POLITICAL ENVIRONMENT
A. Nature of Political Relationship with the United States
Although there are no bilateral treaties between the United States and
Kuwait, the relationship between the two countries is as strong now as
it was during the immediate post-Gulf War era. During the three years
since the liberation of Kuwait by the U.S.-led coalition forces, a shift
has occurred in the buying patterns of the Kuwaitis, particularly in the
government and defense sectors. The perceived "goodwill advantage" that
American companies enjoyed because of the role the U.S. played in
liberating Kuwait has given way to the pressures of strong competition
from market forces and accelerated marketing efforts of other coalition
member countries.
American companies are successful in winning a significant share of
defense-related contracts, which are awarded largely on the basis of
technical capabilities and price. U.S. technology is highly respected
in the Kuwaiti market and efforts are presently underway to develop
technical standards for industrial and consumer goods that mirror those
of the United States.
B. Major Political Issues Affecting Business Climate
In terms of safety and security, U.S. firms should not find anything in
Kuwait to interfere with normal business operations. Kuwait has already
signed defense cooperation agreements with the United States, the U.K.,
France, Russia and China.
The government of Kuwait continues to pursue the "Kuwaitization" of the
labor force. Although initial plans to reduce the number of expatriates
in the country are now seen as unrealistic, public and political
pressure will continue for all firms and government ministries to reduce
their dependency on non-Kuwaitis. An increase in the number of Kuwaiti
employees will increase the demand for training, consulting, and
educational services, which non-Kuwaitis as well as Kuwaitis will
provide in the near future. The result of such training, however, will
eventually be to replace expatriates with Kuwaitis, particularly in
managerial, financial, engineering, computer and other technical areas.
Kuwait will generally seek information technology to reduce the number
of employees, especially expatriates.
The government of Kuwait encourages joint ventures between foreign and
Kuwaiti organizations, but requires by law that Kuwaiti partners retain
the majority share. Currently, the bar on majority foreign ownership
and other laws and statutes governing foreign participation in business
in Kuwait are under review. The government plans to revise, and in some
cases repeal, regulations that have a negative impact on foreign
investment in Kuwait, especially where the transfer of technology is
involved.
C. Brief Synopsis of Political System, Schedule for Elections and
Orientation of Major Political Parties
Kuwait became an independent state in 1961. According to its 1962
constitution, Kuwait's head of state is the Amir, currently His Highness
Sheikh Jaber Al-Ahmad Al-Sabah. Succession as Amir is restricted to the
heirs of the late Mubarak Al-Sabah. The Al-Sabah family has ruled
Kuwait since 1756.
Executive power is vested in the Amir, who exercises it through his
appointed Prime Minister and Council of Ministers. The Amir formulates
decree-laws, which are subject to the approval of the National Assembly
when in session, and establishes public institutions. The Amir has
twice (from 1976 to 1981 and from 1986 to 1992) suspended constitutional
provisions by decree and ruled extraconstitutionally. The Amir may ask
for reconsideration of a bill passed by the National Assembly and sent
to him for ratification, but the bill would automatically become law if
it were subsequently passed by a two-thirds majority at the next
sitting, or by a simple majority at a subsequent sitting. The Amir may
declare martial law, but only with the approval of the National
Assembly. Kuwait is divided administratively into five governorates
(Ahmadi, Farwaniya, Hawalli, Jahra and Kuwait City), each headed by a
governor that has ministerial rank and is appointed by the Minister of
Interior.
Legislative power is shared by the Amir and an elected National
Assembly, which is subject to dissolution by Amiri decree. The
unicameral National Assembly has fifty members (2 each from 25
constituencies), each of whom serves a four-year term. After being
dissolved in 1986, the National Assembly was reconstituted after
elections in October 1992. Elections by secret ballot are held every
four years; the next elections are scheduled for 1996. As political
parties are not permitted in Kuwait, candidates nominate themselves.
The franchise is limited to males descended from families long resident
in Kuwait and who have undergone a lengthy naturalization process.
The National Assembly elected in 1992 has assumed an active role in
Kuwait's political life, enacting legislation, including the national
budget. National Assembly members are free to criticize the government
and to require Cabinet ministers to answer their questions. The
National Assembly may pass a vote of no confidence in a minister, in
which case the minister must resign. Such a vote is not permissible in
the case of the Prime Minister, but the National Assembly may approach
the Amir on the matter, and the Amir shall then either dismiss the Prime
Minister or dissolve the National Assembly. Parliamentary committees
often scrutinize government actions, and in 1995 one committee released
an investigative report, later referred to the Public Prosecutor,
alleging widespread irregularities and malfeasance in past Defense
Ministry procurement activities.
The judicial system includes courts of the first degree (criminal
assize, magistrates', civil, domestic and commercial courts), a
Misdemeanors Court of Appeal, a High Court of Appeal (for civil cases)
and a Court of Cassation (in limited cases). Kuwait has a civil law
system with Islamic law playing a significant role in personal matters.
Political Parties
While political parties are banned, the government has taken no action
against a number of political groups that acted much like parties during
the 1992 elections and the succeeding National Assembly session. The
following illegal political organizations exist: Constitutional
Alliance, a group supported by the merchant class; Democratic Forum, a
left-wing, Arab nationalist group; Islamic Constitutional Movement, a
Sunni Muslim group affiliated with the Muslim Brotherhood; Islamic
Social Reform Society, an Islamic "fundamentalist" group; National
Islamic Coalition, a Shi'a Muslim group; Popular Islamic Congress, a
Sunni Muslim group; and Salafiyeen, an Islamic "fundamentalist" group.
Political activity also finds its outlet in informal, family-based
social gatherings known as diwaniyas. Professional groups, bar
associations and scientific bodies operate and maintain international
contacts without government interference.
Workers' Rights
Kuwaiti workers, 92 percent of whom are government employees, have the
right to join unions. Kuwaiti law, however, prevents the establishment
of more than one union per functional area or more than one general
confederation. Out of a total Kuwaiti and non-Kuwaiti labor force of
938,800 in 1994, union membership was only 50,000 people, mostly
Kuwaitis (although foreign workers may also join unions as nonvoting
members), organized in 14 unions. All but two of the unions, the Bank
Workers' Union and the Kuwait Airways Workers' Union, are affiliated
with the Kuwait Trade Union Federation (KTUF). The KTUF consists of
nine civil service unions (35,000 members) and three oil sector unions
(15,000 members), but the oil unions have equal representation (36
members) in the 72-member KTUF Assembly. Collective bargaining by the
union with the public or private sector employer may be appealed to the
Ministry of Social Affairs and Labor or ultimately to a labor
arbitration board, including officials from the Ministry of Social
Affairs and Labor, the Attorney General's Office and the High Court of
Appeals. Kuwait government workers are legally entitled to a minimum
wage, but workers in the private sector are not. All workers in Kuwait
are entitled to employer-provided medical care and compensation for
work-related injury or illness, including illness resulting from
exposure to hazardous substances. Workers in the private sector have
the right to strike, limited by compulsory negotiation followed by
arbitration if a settlement cannot be reached.
Kuwait's foreign or expatriate workers, most of whom (700,000) worked in
the private sector in 1994, have the right to join unions, the right to
receive a minimum wage in the public sector, the right to medical care
and workmen's compensation in the event of a work-related injury or
illness and the right to strike in the private sector. Expatriates
dominate the private sector in Kuwait and postwar government efforts to
reduce their numbers have failed. In 1995 the government removed
minimum salary requirements expatriate workers needed to meet to obtain
visas for their families. A new draft labor law, currently being
reviewed by the Ministry of Social Affairs and Labor, will benefit all
workers, but especially expatriates, by establishing a private sector
minimum wage, limiting the workweek for laborers, protecting domestic
servants and deterring visa trading, i.e., the practice of importing
unskilled laborers to sell their services by selling the laborers'
residence permits to another sponsor.
IV. MARKETING U.S. PRODUCTS AND SERVICES
A. Distribution and Sales Channels
Distribution and sales of products and services occur at wholesale
outlets (i.e., larger companies) and in numerous, smaller retail
outlets. Either type of outlet may be in either a company's
headquarters or in separate warehouses and shops. Consumer goods are
distributed mainly through numerous neighborhood cooperative markets.
Suppliers of soft drinks like Pepsi Cola, Coca Cola, Crush, Seven Up,
etc. provide door-to-door service. Larger foodstuffs, auto spare parts,
and soft drink companies also have their own distribution teams which
sell and deliver goods to retail customers.
There are numerous food importers, many of whom are also wholesalers,
distributors, and retailers. A handful of large local companies tend to
dominate sales. For example, in Kuwait, cooperative stores account for
about 80 percent of retail food sales. Major fruit and vegetable
importers also import fresh eggs. There is a growing demand among
processors/packers of bulk shipments of semi-processed food products to
also handle the final processing and packaging, especially for corn oil,
nuts, fruit juices, and snack foods. Imported U.S. beef products are
mostly purchased by hotels, restaurants, and catering companies.
B. Use of Agents/distributors; Finding a Partner
Commercial Law No. 36 of 1964 as amended by Commercial Law No. 68 of
1980 regulates commercial agency agreements. Foreign companies wishing
to operate in Kuwait without setting up a Kuwaiti registered legal
entity may only do so through a Kuwaiti agent. The above laws regulate:
-- Commercial agents who undertake to promote a product/service for a
principal, negotiate deals on his behalf, conclude such deals and carry
them out.
-- Distributors who promote, import, stock and distribute the
principal's products in the distributor's own name.
-- Service agents or sponsors for foreign companies that want to carry
out government contract work as per Article 24 of Commerce Law No.
68/1980.
In the case of foodstuffs, local agency laws are not strictly enforced.
Food products are sometimes imported by other than the designated
agents.
To identify Kuwaiti agents of foreign companies, American firms may
address their inquiries to: Mr. Saleh S. Al-Batel, Controller of
Commercial Agencies, Ministry of Commerce and Industry, P.O. Box 2944
Safat, 13030 Kuwait, Tel: (965) 243-9992, Fax: (965) 241-1089.
No foreign company is allowed to participate directly in a Kuwaiti
tender. The foreign company must bid through a local agent duly
appointed through an agency agreement registered with the Ministry of
Commerce and Industry.
To be eligible for registration, agency agreements must include the
following:
- The full range of products and services that the agent is
representing;
- The period of the agency agreement (which should be one year with
renewal and escape clauses); and
- The agent's fees, usually a percentage of any contracts awarded.
The agency agreement should be registered with the Ministry of Commerce
and Industry within two months of attestation by the Embassy of Kuwait
in Washington, D.C and the U.S. State Department. Agency or sponsorship
agreements between the Kuwaiti company and the foreign company must be
translated into Arabic by an official government translator and then
registered with the Department of Commercial Agencies, Ministry of
Commerce and Industry. Registration of an agency should not take more
than two weeks from the time the documents are available in Arabic.
The agency agreement may include choice of law and choice of forum
clauses negotiated by the principal and the agent. The application of
foreign laws, however, may not contradict the public policy of Kuwait.
The agreement between the two parties should indicate the nature of the
agent's work, responsibilities of the parties and the commission to be
paid to the agent. There is no statutory minimum notice of termination,
although contracts should include a termination clause.
An agent is obliged to act for the benefit of its principal and to
follow the instructions of its principal; to maintain confidentiality on
behalf of the principal; and to keep the principal abreast of market and
legal conditions in Kuwait. Duties of the principal should be listed
specifically in the contract.
If the agency agreement is terminated by the principal, it will probably
be necessary to compensate the agent for investments made, and good
faith efforts undertaken, to promote, sell and service the principal's
products and services. Agency termination, whether disputed or not, can
be a costly matter.
Because of the highly price competitive nature of the Kuwaiti market,
Kuwaiti merchants view a commission agent or a third party as a
middleman that can be dispensed with. Thus, Kuwaiti merchants prefer to
deal directly with the foreign manufacturer or its sole exporting agent.
By the same token, Kuwaiti firms normally refuse to be appointed as a
sub-agent for Kuwait that would be supplied by a general agent in a
nearby country (such as Bahrain or the United Arab Emirates).
Foreign consulting firms do not need local agents; however, they should
register with the Consultants and Physical Plan Department at the
Ministry of Planning to be considered for Kuwait government contracts.
C. Franchising
Although the Kuwaiti market is relatively small, franchising offers U.S.
firms profitable opportunities. The population of 1.8 million have high
disposable incomes and a strong inclination to buy American goods.
Labor saving services are in demand. At present, most franchises are in
fast food, with McDonald's being the latest arrival. Opportunities
exist for franchises in other areas such as: automotive service
centers, beauty salons, testing centers, dry cleaning/laundry shops and
photocopy stores. U.S. fast food franchises are highly sought after by
local companies. Most of the major U.S. fast food companies are already
established in the market. A local sponsor is required to establish
operations.
D. Direct Marketing
Marketing in Kuwait is a competitive business. In addition to newspaper
advertising, direct marketing through personal contacts, i.e. by word of
mouth, is very effective. While direct marketing through the mail is
still in the developmental stage, it is expected to become a more useful
tool in the near future as the postal service improves. As the British
Postal Service recently won a contract to establish organized and
systematic mail service in Kuwait, such improvement should happen soon.
Direct marketing by television is also in the developmental stage, but
holds promise as a way to reach conservative Muslim women in the privacy
of their homes.
Foreign firms are not allowed to have direct access to the Kuwaiti
market except through a local agent or distributor, which markets on
behalf of the foreign principal. Direct marketing is possible only when
done by a joint venture that the foreign company sets up with a local
firm.
E. Joint Ventures/Licensing
Foreign investors are offered a number of incentives to participate in
joint ventures with Kuwaiti firms, such as limited liability, relief
from Kuwait corporate taxes, and management control options. Because
all government procurement must be conducted with Kuwaiti citizens or
firms, joint ventures between foreign investors and Kuwaiti nationals
offer the best vehicle to gain access to this market. Kuwait
discourages joint ventures in the oil, insurance, banking and other
financial sectors.
A joint venture may be formed by two or more persons, who are then
jointly and severally liable. It is usual for the objects and terms to
be set forth in a joint venture contract. A joint venture is not a
legal entity and does not require registration in the commercial
register. It is common for a number of foreign contractors involved
jointly in a major project to form a construction joint venture or
consortium. Joint ventures may offer U.S. firms a way to alleviate
Kuwait offset program requirements.
F. Steps to Establishing an Office
As indicated above, foreign firms can have direct access to the Kuwaiti
market only through a local agent/partner. Any local company shall have
no legal personality and may not commence business until it is
registered in the commercial register, and until the official instrument
whereby it is formed is published in the Official Gazette. The official
instrument must include the company's memorandum and articles together
with a declaration by the founders, which should include a statement
that they have taken up and paid for the subscribed shares and that the
paid amount has been deposited in the company's account at a local bank.
After the business license is issued, it will take about six months to
incorporate a company. The cost of incorporation is about $10,000.
Renting an office, furnishing it and recruiting staff follow. The
minimum amount of capital required to establish a company is $25,000.
G. Selling Factors/Techniques
Selling factors in Kuwait include reasonable price, good quality,
attractive packaging, and effective after-sale service. Offering
customers installment purchase plans and discounts for large volume
purchases are common practices.
Selling techniques vary and include the following: offering a discount
percentage; offering big sale discounts twice a year; offering free
service for equipment purchased during a limited period; organizing
promotional sales and offering reduced prices or give-aways; and
offering trade-ins.
Key points to stress when selling food products are competitive price,
U.S. origin, high quality and new-to-market status, if applicable.
Arabic labels are required. U.S. companies willing to print Arabic
labels and provide promotional and marketing assistance will have a
competitive edge. Face-to-face contact can significantly increase the
chances of establishing successful business relations.
H. Advertising and Trade Promotion (including listing of major
newspapers and business journals)
Newspaper advertising in Kuwait is the most effective tool for
communication with the public. In 1994, advertising expenditure in
Kuwait reached approximately $80 million, with 66% of the media coverage
in newspapers. Advertising is also available on several Kuwait Radio
stations and on several Kuwait Television channels (Channel one, Arabic
news and programs; channel two, English news and programs; and channel
three, Arabic sports programs).
List of newspapers in Kuwait:
Arabic Newspapers
- Anba
P.O.Box 23915, Safat, Kuwait 13100. Tel. (965) 483-4772
- Qabas
P.O.Box 21800, Safat, Kuwait 13078. Tel. (965) 481-2818
- Rai Aam
P.O.Box 695, Safat, Kuwait 13007. Tel.: (965) 481-7651
- Seyasseh
P.O.Box 2270, Safat, Kuwait 13023. Tel.: (965) 481-6326
- Watan
P.O.Box 1142, Safat, Kuwait 13012. Tel.: (965) 484-0451
English Newspapers
- Arab Times
P.O.Box 2270, Safat, Kuwait 13023. Tel.: (965) 481-6326
- Kuwait Times
P.O.Box 1301, Safat, Kuwait 13014, Tel.: (965) 240-3727
There are a number of advertising agencies in Kuwait that serve U.S. and
local companies' needs. Some of the agencies mentioned below work
independently, while others have affiliations with U.S. or European
firms. Some of the larger agencies are:
- Camp, Saadeh and Skaff (also CSS & Grey)
P.O. Box 24299, Safat, Kuwait 13103. Tel.: (965) 240-3570
- Clued Media Group
P.O. Box 24270, Safat, Kuwait 13103. Tel.: (965) 532-7962
- Horizone Advertising
P.O. Box 20199, Safat, Kuwait 13062. Tel.: (965) 240-3371
- Ideas Unlimited
P.O. Box 25731, Safat, Kuwait 13118. Tel.: (965) 245-0400
- Impact and Echo
P.O. Box 21081, Safat, Kuwait 13071. Tel.: (965) 243-8120
- Intermarkets
P.O. Box 20604, Safat, Kuwait 13067. Tel.: (965) 242-3773
- Memac
P.O. Box 27216, Safat, Kuwait 13133. Tel.: (965) 245-4700
- Pan Arab Advertising Co.
P.O. Box 2449, Safat, Kuwait 13025. Tel: (965) 240-0701
- Publiographics
P.O. Box 1035, Safat, Kuwait 13011. Tel: (965) 241-8511
- Radius Leo Burnett
P.O. Box 4455, Safat, Kuwait 13045. Tel: (965) 240-4967
- Al Siham Promoseven
P.O. Box 24084, Safat, Kuwait 13101. Tel: (965) 244-4571
- TMI
P.O. Box 15363, Daiya, Kuwait 35454. Tel: (965) 246-0234
- Warba Graphic
P.O. Box 26992, Safat, Kuwait 13130. Tel: (965) 241-1761
I. Pricing the Product
The selling price of an American product to an end user in Kuwait
includes the following elements in addition to the U.S. supplier's ex
factory cost: the manufacturer's profit; the U.S. inland transportation;
U.S. export packing & documentation; freight; insurance; Kuwait customs
duties (4% generally); Kuwait customs clearance and inland
transportation ($175/container generally); the Kuwait agent's
commission (typically 5-15%); the Kuwait agent's administrative
overhead; provision for waste and damage; and installation in Kuwait (if
U.S. personnel required for this).
Common practice in Kuwait in pricing a U.S. consumer product is to
substitute the Kuwaiti Dinar for the U.S. dollar in the U.S. supplier's
export invoice price, in effect multiplying the U.S. FOB port of export
price by 3.4. In the case of pharmaceuticals, the Ministry of Public
Health limits Kuwaiti importers to a 70 percent profit margin.
Industrial items sourced from the U.S. by private Kuwaiti firms to fill
Kuwait government tenders must be priced to compete at world price
levels.
The average importer's mark-up on food products is about 10-15 percent.
Retail food prices are generally 20-30 percent above import/wholesale
prices.
J. Sales Service/Customer Support
U.S. firms intending to operate in Kuwait should ensure that their sales
contracts contain a follow-up maintenance clause. This clause helps to
ensure that the quality and the service of the product remain up to
American standards.
Consumer warranties are normally given for goods such as electrical
appliances, vehicles, watches, etc. Warranties range in length from 90
days to 4-5 years depending on the product. U.S. firms should establish
a factory service center for their products. Independent service
centers also repair and maintain most consumer products and goods.
After-sale service and customer support are very common in the
automotive and electrical home appliance sectors. Automobile dealers
offer a one-year or 15,000-mile guarantee after sale. They may also
offer discounted service fees on occasion. Home appliance dealers offer
guarantees or warranties against appliance faults or failures. They
either fix the fault at their expense or replace the appliance with a
new one within a certain time after sale. Agents or dealers of home
appliances may send their repair technicians to make house calls.
K. Selling to the Government
Tender Law No. 37 of 1964 regulates government tenders. The Central
Tenders Committee (CTC) acts on behalf of nearly all government
departments, but is independent of them as it is under the jurisdiction
of the Council of Ministers. However, the Ministry of Housing has its
own tenders committee, and the Ministries of Defence and Interior
(including the security forces) can each also issue their own tenders
independently of the CTC.
The CTC handles tenders for more than $17,500 (KD 5,000) worth of goods
or services sought by government ministries and public companies in the
oil sector. Tenders are usually awarded on the basis of the lowest
price once technical compliance of the bids with the tender's
specifications has been established. A list of 56 major non-defense
(mostly construction) projects currently underway in Kuwait worth $22.05
billion is provided below to give prospective U.S. bidders an idea of
the number, value and range of Kuwait's major government procurements.
Major non-defense government projects underway in Kuwait are;
- KAC 4 Airbus A340-300 Aircraft ($440 million)
- KCCI Headquarters ($40 million)
- KNPC 1994-1997 Project Management ($64 million)
- KNPC Storage Tank Repairs ($6 million)
- KNPC Mina Al-Ahmadi Refinery Reconstruction ($87 million)
- KNPC Mina Al-Ahmadi Acid Gas Removal Plant ($181 million)
- KNPC Mina Al-Ahmadi MAFP Project ($101 million)
- KNPC Mina Abdullah Steam System Revamp Project ($23 million)
- KOC 1993-1996 Project Management ($83 million)
- KOC North & South Tank Farms Reconstruction ($60 million)
- KOC Central Manifold Project ($50 million)
- KOC Gathering Centers Nos. 27 & 28 ($400 million)
- KOC 2 Calm Buoys Marine Export Facilities ($40 million)
- KOC 2-D Seismic Processing ($40 million)
- KOC 3-D Seismic Processing ($70 million)
- KOTC 3 Oil Supertankers ($180 million)
- Kuwait University New Campus at Shedadiya ($535 million)
- Kuwait University Medical Faculty Expansion ($75 million)
- MEW & MPW Headquarters ($55 million)
- MEW Sabiya 2400 MW Power Plants ($1.6 billion)
- MEW Sabiya-Jahra-Sulaibiya Cables ($58 million)
- MEW Refurbishment of 4 Substations ($115 million)
- MEW 2 Recarbonation Units ($122 million)
- MEW Al-Zour South Distillation Project ($212 million)
- MEW 2 Substations & Overhead Lines ($81.4 million)
- MEW 240 MW Shuaiba Substation ($93.7 million)
- MEW 3 Transformer Stations ($19.2 million)
- MEW Substation Transformers ($8.6 million)
- MEW Diversion of Transmission Lines ($7.6 million)
- MOC Telecommunications Tower ($115 million)
- MOC 100,000 Line Switching Equipment ($15 million)
- MOC 80,000 Line Switching Equipment ($10 million)
- Min. of Information 15 500KW FM Transmitters ($22.5 million)
- MPW Amiri Diwan/Council of Ministers Buildings ($300 million)
- MPW Bayan Palace Reconstruction ($48 million)
- MPW Civil Service Commission Building ($23 million)
- MPW Jahra Sewer System ($63 million)
- MPW KAB Headquarters ($10 million)
- MPW MOC Safat Post Office ($30 million)
- MPW MOI Coast Guard Building ($108 million)
- MPW MOI Headquarters ($68 million)
- MPW MOI Special Forces Headquarters ($70 million)
- MPW MPH Adan Dental Clinic ($7 million)
- MPW MPH Psychiatric Disease Hospital ($33 million)
- MPW Petroleum Complex Design ($5.8 million)
- MPW Petroleum Complex Construction ($116 million)
- MPW South Surra Sewerage Consultancy ($8 million)
- MPW Sulaibikhat Sewer System Renewal ($53 million)
- MTC 50,000 GSM Cellular Phones, Phase I ($32 million)
- Municipality Renovation of Kuwait's Waterfront ($70 million)
- NAHC Houses & Apartments in Sabiya and Khairan ($15 billion)
- PIC-Union Carbide Equate Ethylene Plant ($400 million)
- PIC-Union Carbide Equate Ethylene Glycol Plant ($165 million)
- PIC-Union Carbide Equate Polyethylene Plant ($170 million)
- PIC Shuaiba Polypropylene Plant ($84 million)
- UASC 10 Container Ships ($600 million)
- U.S. Embassy ($26 million)
Abbreviations:
KAB - Kuwait Audit Bureau
KAC - Kuwait Airways Corporation
KCCI - Kuwait Chamber of Commerce and Industry
KNPC - Kuwait National Petroleum Company
KOC - Kuwait Oil Company
KOTC - Kuwait Oil Tanker Company
MEW - Ministry of Electricity and Water
MOC - Ministry of Communications
MOI - Ministry of Interior
MPH - Ministry of Public Health
MPW - Ministry of Public Works
MTC - Mobile Telecommunications Company
NAHC - National Authority for Housing Care
PIC - Petrochemical Industries Company
UASC - United Arab Shipping Company
L. Protecting Your Product from IPR Infringement
Kuwait is slowly making progress on intellectual property issues. In
January 1995, it became a member of the World Trade Organization, which
requires Kuwait to phase in intellectual property protection to bring
its laws up to international standards within five years. Kuwait also
recently hosted a regional seminar of the World Intellectual Property
Organization (WIPO). In an address to the seminar, the Minister of
Commerce & Industry publicly called for Kuwait to take all necessary
steps to join WIPO and the Paris and Berne Conventions for the
protection of intellectual property.
Kuwait is not, however, currently a member of any international
intellectual property rights convention. It does have laws providing
some patent and trademark protection. These laws are not actively
enforced, except for spot customs checks for imitation or counterfeit
goods and/or goods bearing infringing trademarks.
Trademarks may be registered in Kuwait for ten years and renewed
indefinitely for another ten-year period. If a trademark has not been
used for a five-year period, an interested party can apply to the courts
to have it cancelled. Registration gives the owner the exclusive right
to use the mark on the goods for which it is registered, and third
parties can therefore be prevented from using the mark on competing
products. Registration procedures take about three weeks and require a
$60 fee. Trademark registration is linked to the Kuwaiti agent; when a
new agent is selected, the trademark continues in force under the old
agent's name until the new agent registers the trademark.
Patents protect against unauthorized use for an initial period of ten
years; they may be registered for an additional five years. Patent
registration costs only $34 (KD 10).
At present, there is no copyright law under which original literary or
artistic works, including books, software, videocassettes,
audiocassettes, movies, etc., are protected. Pending enactment of a
proposed copyright law, all published material, including audio tapes
and videotapes, is treated as public property.
M. Need for a Local Attorney
Disputes arising out of business transactions fall in two broad
categories. The first category concerns collection or payment issues,
as in the case of an American firm sending goods/commodities to a local
firm that then refuses to pay the full amount, claiming the goods do not
comply with the terms and conditions of the letter of credit (L/C).
Another example is when an American firm carries out a project in Kuwait
and then has problems in getting paid for its services. The second
category consists of disputes arising from the termination of agency
agreements. To help resolve a dispute, US&FCS Kuwait may intervene, and
advocate strongly, on behalf of the American firm. If the local firm,
however, persists in its refusal to settle the dispute, then the
American firm may have to resort to the local courts to obtain
satisfaction. To gain access to the local judicial system, the U.S.
firm will have to hire a local attorney. A list of law firms known to
US&FCS Kuwait is set forth below.
Abdulla S. Al-Rkayan & Associates
P.O. Box 5277, Safat
13053 Kuwait
TEL: (965) 242-1281
FAX: (965) 242-0582
CONTACT: Ms. Houria B. Coffman
TITLE: Attorney
Abdul Razzak A. Mohammed Law Firm
P.O. Box 22880 Safat
13089 Kuwait
TEL: (965) 245-5717
FAX: (965) 246-9357
CONTACT: Mrs. Yvonne R. Carrison
TITLE: Managing Director
International Legal Department
Ahmad G.H. Al Otaibi & Partners
P.O. Box 5750 Safat
13058 Kuwait
TEL: (965) 242-5163
FAX: (965) 242-2359
CONTACT: Mr. Ernest Alexander
TITLE: Attorney
Anwar Al-Bisher Law Firm
P.O. Box 26292, Safat
13123 Kuwait
TEL: (965) 243-1122
FAX: (965) 240-2501
CONTACT: Mr. Anwar N. Al-Bisher
TITLE: Attorney at Law
Al-Ayoub & Partners
P.O. Box 1714, Safat
13018 Kuwait
TEL: (965) 246-4321
FAX: (965) 246-6591
CONTACT: Mr. Abdulla K. Al-Ayoub
TITLE: Attorney
Bryan Cave
P.O. Box 4213, Salmiya
22043 Kuwait
TEL: (965) 534-0028
FAX: (965) 534-0028
CONTACT: Mr. William Pyron
TITLE: Attorney
Dixon & Dixon, Najeeb Al-Waqyan Law Firm
P.O. Box 22833, Safat
13089 Kuwait
TEL: (965) 241-5617
FAX: (965) 240-7030
CONTACT: Mr. Najeeb Al-Waqyan
TITLE: Attorney
Al-Essa, Al-Bader & Partners
P.O. Box 4207, Safat
13043 Kuwait
TEL: (965) 243-8020
FAX: (965) 240-9616
CONTACT: Mr. Bader Saud Al-Bader
TITLE: Attorney
Al Ghazali Partners and Graham & James
P.O. Box 4970, Safat
13050 Kuwait
TEL: (965) 243-9690
FAX: (965) 242-2895
CONTACT: Mr. Mamoun Hariri
TITLE: Attorney
Jones, Day, Reavis & Pogue
c/o Salman Duaij Al-Sabah Law Office
P.O. Box 5117, Safat
13052 Kuwait
TEL: (965) 240-0261
FAX: (965) 240-0260
CONTACT: Mr. Martin Camp
TITLE: Attorney
Al Sarraf & Al-Ruwayeh & Stephenson Harwoud Law Firm
P.O. Box 1448 Safat
13015 Kuwait
TEL: (965) 240-0061
FAX: (965) 240-0064
CONTACT: Mr. Issam "Sam" Essa Habbas
TITLE: Attorney
Yousef Essa Al-Matar & Edmond Chartouni
P.O. Box 23198, Safat
13092 Kuwait
TEL: (965) 241-2283
FAX: (965) 246-6591
CONTACT: Mr. Yousef Essa Al-Matar
TITLE: Attorney
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
Best Prospects for Non-Agricultural Goods and Services for U.S.
Exporters:
Estimated U.S. Market Size
(US Dols Millions)
Rank ITA Best Prospect Sector 1994 1995 1996 Growth
1 OGM Oil & Gas Field Machinery
& Service 920 1,058 1,248 90
2 AIR Aircraft and Parts 25 125 145 20
3 PCI Process Control - Industrial 40 47 55 8
4 FUR Furniture 25 28 35 7
5 APP Apparel 18 23 30 7
6 APG Airport and Ground Support
Equipment 23 31 37 6
7 MED Medical Equipment 16 19 25 6
8 MCS Management Consultancy Services 9 11 17 6
9 ACR Air Conditioning and Refrigeration
Equipment 60 65 70 5
10 CSF Computer Software 35 40 45 5
11 APS Automotive Parts and Services
Equipment 20 30 35 5
12 BLD Building Products 25 30 35 5
13 SEC Security and Safety Equipment 28 30 35 5
14 SPT Sporting Equipment
(Fitness Equipment) 25 30 35 5
15 TES Telecommunications Services 7 10 15 5
16 CPT Computers and Peripherals 84 86 90 4
17 DRG Pharmaceuticals 23 26 30 4
18 LAB Scientific Laboratory
Instruments 20 22 25 3
19 DNT Dental Equipment 15 19 22 3
20 CON Construction Equipment 10 12 15 3
21 COS Cosmetics and Toiletries 9 10 13 3
22 POL Pollution Control Equipment 8 9 10 1
* Rank order is based primarily on estimated growth in U.S. exports to
Kuwait during 1995-1996, and secondarily on estimated U.S. market size
in 1996.
Best Prospects for Agricultural Goods and Services for U.S. Exporters:
Estimated U.S. Market Size
PS&D Best Prospect Sector 1994 1995 1996
Million eggs)
FOD Table Eggs 38 50 60
(Thousand Metric Tons)
FOD Poultry Meat 2 3 3
FOD Corn Oil 6 9 10
A. Best Prospects for Non-Agricultural Goods and Services for U.S.
Exporters:
(All data in US$ millions, unless otherwise noted.)
1. Oil and Gas Field Machinery and Service (OGM)
The oil and gas sector grew very rapidly in the past year. Both the
state-owned Kuwait Oil Co. and Kuwait National Petroleum Co. embarked on
major expansion programs. The planned construction of projects like the
petrochemicals complex, gathering centers, pipelines, refineries
upgrades, the drilling of oil wells and the rebuilding of storage tanks
open many opportunities for American goods and services. In addition,
the petrochemicals joint venture between the Petrochemicals Industries
Co. and Union Carbide will create opportunities for the construction of
plastics and specialty chemical downstream industries.
1994 1995 1996
A. Total Market Size 2000 2500 2950
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 1840 2116 2495
E. Total Imports from U.S. 920 1058 1248
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
2. Aircraft and Parts (AIR)
In 1992, Kuwait Airways Corporation (KAC) ordered 15 aircraft for $1.5
billion: 3 Airbus A320's, 5 Airbus A300-600's, 3 Airbus A310's and 4
Boeing 747's. In March 1995, KAC ordered 4 Airbus A340-300's worth an
additional $440 million. KAC plans to buy three Boeing 747's over the
next three years. KAC imports about $45 million worth of aircraft spare
parts each year, 60 percent of which is from the U.S. More parts will
be needed on account of the expansion of KAC's fleet.
1994 1995 1996
A. Total Market Size 540 500 550
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 540 500 550
E. Imports from the U.S. 25 125 145
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
3. Process Control - Industrial (PCI)
With the rapid growth of the oil and gas sector, there will be
corresponding expansion in the industrial process control market, a
market in which U.S. companies are already strong competitors.
1994 1995 1996
A. Total Market Size 66 75 87
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 66 75 87
E. Total Imports from U.S. 40 47 55
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
4. Furniture (FUR)
The market for home and office furniture during 1994 and 1995 remained
almost unchanged. There is, however, potential for near-term growth as
the furniture purchased immediately after liberation will soon need
replacement or renewal. Also, a number of ministries and government
entities have started ordering new furniture. Many new buildings such
as the new Audit Bureau and Kuwait Airways headquarters, the Amiri Diwan
and the Council of Ministers buildings, and the new National Bank of
Kuwait headquarters are completed and require furnishing. There are
several other major construction projects planned for the next two-three
years including the Petroleum Complex, the Chamber of Commerce and
Industry and the Civil Service Commission buildings. Besides, thousands
of new housing units are being built each year. This will substantially
increase the demand for imported furniture. Furniture imports from the
U.S. constitute about 20% of the total imports. The U.S.' major
competitor is Italy.
1994 1995 1996
A. Total Market Size 126 130 165
B. Total Local Production 6 10 20
C. Total Exports 20 10 15
D. Total Imports 140 140 160
E. Imports from the U.S. 25 28 35
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
5. Apparel (APP)
Local production of apparel is insignificant. Most apparel made in
Kuwait caters to the low end of the market and includes clothing
relabeled in Kuwait that was originally imported form India and
Pakistan. The high-end and some of the good middle-end apparel markets
are dominated by European firms. American firms can obtain a larger
market share by exporting maternity, children, sports and casual wear.
1994 1995 1996
A. Total Market Size 150 160 170
B. Total Local Production 2 5 9
C. Total Exports 0.5 0.7 1
D. Total Imports 150 160 170
E. Total Imports from U.S. 18 23 30
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
6. Airport and Ground Support Equipment (APG)
The Government of Kuwait's Directorate General of Civil Aviation has
begun the implementation of a master plan prepared by NAACO of the
Netherlands to expand the existing airport to accommodate over 5 million
passengers/year. They have already begun the enhancement of the control
tower, however, the major part of implementing the plan has yet to take
place. This includes the redesign of the main terminal and the runways
and the procurement of equipment such as navigational instruments,
radars and conveyors.
1994 1995 1996
A. Total Market Size 77 88 101
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 77 88 101
E. Total Imports from U.S. 23 31 37
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
7. Medical Equipment (MED)
The Kuwait government is expected to continue to place a high priority
on public health care services. There will be projects to replace,
upgrade, and modernize existing medical facilities. The Ministry of
Public Health has already granted 45 licenses for new private hospitals.
This will give U.S. medical companies new opportunities in the Kuwaiti
market.
1994 1995 1996
A. Total Market Size 40 45 50
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 40 45 50
E. Total Imports from U.S. 16 19 25
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
8. Management Consultancy Services (MCS)
The planned privatization of telecommunications, power, health care,
education and other industries in Kuwait, coupled with the fast pace of
technological development sweeping international business, will open up
many opportunities for U.S. management consulting companies in Kuwait.
1994 1995 1996
A. Total Market Size 20 22 24
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 20 22 24
E. Imports from the U.S. 9 11 17
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
9. Air Conditioning and Refrigeration Equipment (ACR)
Kuwait is an excellent market for air conditioning equipment because of
its high temperatures during most of the year and intense seasonal
humidity.
1994 1995 1996
A. Total Market Size 100 95 110
B. Total Local Production 4 7 10
C. Total Exports 0 0 0
D. Total Imports 100 95 110
E. Total Imports from U.S. 60 65 70
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
10. Computer Software (CSF)
The U.S. firm Microsoft dominates the market. The following types of
applications software would sell well in Kuwait: Image processing
systems, banking, insurance, hospital management, computer networking,
education, training, design support, graphic design, and business
solutions. U.S. firms should assess their prospects in this market
carefully as there is presently no copyright law in Kuwait.
1994 1995 1996
A. Total Market Size 50 60 70
B. Total Local Production 2 2 2
C. Total Exports 45 50 0
D. Total Imports 50 60 70
E. Total Imports from U.S. 35 40 45
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
11. Automotive Parts and Service Equipment (APS)
Demand for automobile spare parts and service equipment will likely
continue to be high due to the tough weather conditions, poor after-
sales service, high accident rate and bad driving habits. 30,000-37,000
new cars are added to the market every year. U.S.-made cars have the
majority share of the market. GM, Chrysler, Ford, and Jeep are
represented locally. Japanese and European motor companies are also
present. Genuine spare parts are favored, but counterfeit parts are
widely available as well.
1994 1995 1996
A. Total Market Size 59 65 70
B. Total Local Production 0 0 0
C. Total Exports 5 5 7
D. Total Imports 64 70 77
E. Imports from the U.S. 20 30 35
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
12. Building Products (BLD)
This subsector covers cement, iron, wood, ceramic tiles and specialty
construction materials. Local production of cement, tiles and bricks
almost meets local consumption demand. Steel and iron bars for
construction are imported from Saudi Arabia and Qatar as well as from
Turkey and other countries. Specialty construction products are
imported from various countries like the U.S.A., Germany, U.K., Italy,
Spain, and Japan. The Kuwait market for the sector is about USD 500
million and is likely to increase sharply subject to the availability of
funds for the execution of planned public housing projects. The sector
is marked by price volatility and strong international competition.
1994 1995 1996
A. Total Market Size 525 555 595
B. Total Local Production 210 223 250
C. Total Exports 0 0 0
D. Total Imports 315 332 345
E. Imports from the U.S. 25 30 35
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
13. Security and Safety Equipment (SEC)
Kuwait is keenly aware of the need to ensure its safety and security.
Frequent border intrusions have forced the Ministry of Interior to
develop a border security program and to improve security at strategic
facilities such as refineries, power plants and the new petrochemical
complex. U.S. safety and security companies will have increasing
opportunities in the Kuwaiti market.
1994 1995 1996
A. Total Market Size 70 75 80
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 70 75 80
E. Total Imports from U.S. 28 30 35
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
14. Sporting Equipment (SPT)
The market in Kuwait for sporting equipment is growing as new health
clubs open and as water sports remain popular. There are more than 60
sporting clubs and physical fitness institutes in Kuwait. In addition,
there are also health clubs affiliated with the seven five-star hotels.
As Kuwait has a long coastline and nine islands, water sports are very
popular among the Kuwaitis.
1994 1995 1996
A. Total Market Size 70 80 90
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 70 80 90
E. Total Imports from U.S. 25 30 35
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
15. Telecommunications Services (TES)
The Ministry of Communications (MOC) provides almost all communications
services to subscribers through 32 exchanges, 26 of which are fully
digital. The Ministry needs US$ 11 million to install 70,000 new
telephone lines. Several international companies such as AT&T, GPT
(British), Alcatel (French), Fujitsu (Japanese), and Ericsson (Swedish)
provide switches, though Ericsson traditionally dominates the market.
The Ministry plans to have an integrated services digital network
(ISDN), but this has been postponed due to low demand. MOC provides ten
services including: call transfer, call follow me, disconnecting the
international dialing number, conference calls, call-waiting, hot line
service, and status of outstanding bills. The building of tens of
thousands of housing units in the next few years will increase the
demand for telecommunications services. There are plans to build two
new satellite earth stations, but these are on hold due to budgetary
restraints. The Mobile Telecommunications Company (MTC) provides mobile
telephone and paging services to over 70,000 and 110,000 subscribers,
respectively.
1994 1995 1996
A. Total Market Size 70 65 70
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 70 65 70
E. Imports from the U.S. 7 10 15
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
16. Computers and Peripherals (CPT)
Most major American computer firms are present in the Kuwaiti market and
possess about 90 percent of the total imports of mainframes,
minicomputers, microcomputers and data communications equipment. U.S.
image processing systems are gaining wider acceptance. Several upcoming
major projects will create an excellent potential market for U.S.
computer equipment.
1994 1995 1996
A. Total Market Size 120 130 140
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 120 130 140
E. Total Imports from U.S. 84 86 90
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
17. Pharmaceuticals (DRG)
The Ministry of Public Health is embarking on a scheme to revamp the
medical sector, including the distribution of pharmaceuticals. There
are six major government hospitals, 53 clinics and 6 privately owned
hospitals in Kuwait, with an anticipated growth of about 5% in the
field. Substantial private and public sector resources will be
allocated to the establishment of American-standard health care
services. This will undoubtedly reflect on the profit potential of the
pharmaceuticals industry in Kuwait. On the one hand, growth in Kuwait's
pharmaceuticals sector depends on the pace of privatization and public
expenditure. On the other hand, growth in demand is attenuated by the
effects of Kuwait's drug price controls and by the continual treatment
of some patients in Europe and the U.S.
1994 1995 1996
A. Total Market Size 58 66 76
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 58 66 76
E. Total Imports from U.S. 23 26 30
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
18. Scientific Laboratory Instruments (LAB)
The existing public and private hospitals, private laboratories, Kuwait
University, and Kuwait Institute for Scientific Research form a good
market for scientific laboratory instruments. Although the 1995 figures
indicate a decline in imports, a 5 percent increase is expected in 1996
because of plans for new private hospitals.
1994 1995 1996
A. Total Market Size 70 40 45
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 70 40 45
E. Total Imports from U.S. 20 22 25
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
19. Dental Equipment (DNT)
European companies hold about 60 percent market share, while the U.S.
firms have 40 percent. Growth is expected in this sector because there
are many new private dental clinics and more than 15 licenses have been
granted to establish new private hospitals in Kuwait. In addition, the
government and private sector plan to upgrade existing medical
facilities. Opportunities exist, especially in the areas of laboratory
equipment, disposables and consumer items.
1994 1995 1996
A. Total Market Size 40 48 55
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 40 48 55
E. Total Imports from U.S. 15 19 22
Exchange Rate:
(U.S. $1.00 = Kuwaiti Dinar) .297 .290 .295
The above statistics are unofficial estimates.
20. Construction Equipment (CON)
The following projects are either being, or will be, completed in the
next few years and will need a lot of construction equipment: the
Petroleum Complex; the Kuwait Chamber of Commerce and Industry
headquarters; the National Housing Care Authority; the Civil Service
Commission; the Subiya Power Station (Civil Work); the new compound of
the American Embassy; the expansion of Kuwait University; the probable
building of a bridge that will link Failaka Island with the proposed
city of Subiya and the Kuwait City suburb of Salmiya; the building of
over 40,000 new housing units in various locations, and the building of
several new private hospitals in various locations in Kuwait. As a
result, the demand for construction equipment will be high. American
construction equipment companies are present in the market but can
improve their position against Japanese competition.
1994 1995 1996
A. Total Market Size 26 28 33
B. Total Local Production 0 0 0
C. Total Exports 5 7 12
D. Total Imports 31 35 45
E. Imports from the U.S. 10 12 15
Exchange Rate .297 .290 .290
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
21. Cosmetics and Toiletries (COS)
French and Italian cosmetic companies dominate the local market.
However, recent price increases for European products have caused
Kuwaiti consumers to seek alternatives; this trend has assisted American
companies in reaching new customers.
1994 1995 1996
A. Total Market Size 31 34 37
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 31 34 37
E. Total Imports from U.S. 9 10 13
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
22. Pollution Control Equipment (POL)
Pollution control has become a major topic of discussion in the Kuwaiti
parliament as more industries establish themselves. The Kuwaiti
government is seeking ways to lower the risk of environmental damage
from increasing industrialization. This trend will open opportunities
for U.S. suppliers of pollution control equipment.
1994 1995 1996
A. Total Market Size 21 25 28
B. Total Local Production 0 0 0
C. Total Exports 0 0 0
D. Total Imports 21 25 28
E. Total Imports from U.S. 8 9 10
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
B. Best Prospects for Agricultural Goods and Services
1. Table Eggs (FOD)
Exports of U.S. table eggs to Kuwait increased from two million eggs in
1992 to 38 million in 1994. This was mainly due to a successful EEP
initiative for table eggs to the Gulf region. U.S. eggs are recognized
for their high quality by the trade and consumers. The U.S. share of
the Kuwaiti egg market is expected to increase steadily for the above
reasons. Saudi Arabia, the Netherlands and Lebanon are other principal
suppliers.
1994 1995 1996
(Million Eggs)
A. Total Market Size 265 285 300
B. Total Local Production 140 150 160
C. Total Exports 0 0 0
D. Total Imports 125 135 140
E. Total Imports from U.S. 38 50 60
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
2. Poultry Meat (FOD)
U.S. frozen chicken and chicken parts are known for their high quality.
The existence of an EEP program for whole chickens is expected to
enhance sales of frozen whole chickens to this country. Also, more
brands of U.S. chicken parts are being offered on the Kuwaiti market.
Brazil, France and Denmark dominate the market for whole chickens. The
United States and Brazil dominate the market for chicken parts. Whole
chickens represent 90 percent of total imports of chicken meat. The
preferred size for whole chickens ranges from 900-1,200 grams per bird.
Chicken parts are imported in two-pound trays.
1994 1995 1996
(Thousand Metric Tons)
A. Total Market Size 61 64 67
B. Total Local Production 18 19 20
C. Total Exports 1 1 1
D. Total Imports 44 46 48
E. Total Imports from U.S. 2 3 3
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
3. Corn Oil (FOD)
Corn oil is the preferred cooking oil in Kuwait and the other Gulf
countries. As of 1992, a local firm started to pack corn oil imported
from the United States in bulk. Consumption of corn oil, and
consequently imports from the United States, is expected to increase
steadily as the locally packed oil is offered at competitive prices.
U.S. corn oil exports to Kuwait more than doubled in 1993. Saudi
Arabia, Singapore and the U.A.E. are other principal suppliers of corn
oil to the Kuwaiti market.
1994 1995 1996
(Thousand Metric Tons)
A. Total Market Size 11 14 16
B. Total Local Production 0 0 0
C. Total Exports 1 1 1
D. Total Imports 12 15 17
E. Total Imports from U.S. 6 9 10
Exchange Rate .297 .290 .295
(US$ 1.00 = Kuwaiti Dinar)
The above statistics are unofficial estimates.
C. Significant Investment Opportunities
The petrochemicals sector in Kuwait offers significant investment
opportunities. The $2.2 billion petrochemical complex being built for
Equate, the joint venture between the U.S.' Union Carbide and Kuwait's
government-owned Petrochemical Industries Company (PIC), is the first
major foreign investment in Kuwait. Once production begins in mid-1997,
the output of this complex, i.e., ethylene, ethylene glycol and
polyethylene, will lay the foundation for a number of downstream
industries in the areas of plastics, synthetic fibers and specialty
chemicals. Pleased with the success of the Equate venture, PIC is now
considering adding a new joint venture to build a $1 billion aromatics
plant.
The Government of the United States acknowledges the contribution that
outward foreign direct investment makes to the U.S. economy. U.S.
foreign direct investment is increasingly viewed as a complement or even
a necessary component of trade. For example, roughly 60 percent of U.s.
exports are sold by American firms that have operations abroad.
Recognizing the benefits that U.S. outward investment brings to the U.S.
economy, the government of the United States undertakes initiatives,
such as Overseas Private Investment Corporation (OPIC) programs,
investment treaty negotiations and business facilitation programs, that
support U.S. investors.
VI. TRADE REGULATIONS AND STANDARDS
A. Trade Barriers, including Tariffs, Non-Tariff Barriers and
Import Taxes
1. Potentially High Tariffs
There are no customs duties on food, agricultural items and essential
consumer goods. Imports of some machinery, most spare parts and all raw
materials are exempt from customs duties. Oil companies may apply for
tariff exemptions for certain machinery and drilling equipment.
On July 1, 1992, the General Administration of Customs began collecting
a 4 percent general tariff on most imports. This flat rate is applied
to the cost, insurance, and freight (c.i.f.) value of imported goods.
Where imports compete with goods that are locally manufactured by
"infant industries," the Ministry of Commerce and Industry may impose
protective tariffs of up to 25 percent. In such cases, tariff reviews
and determinations are done on a case-by-case basis. In August 1992,
for instance, the tariff on cigarettes was raised to 30 percent. Before
the Gulf War the Kuwait government imposed tariffs of up to 30 percent
to protect local industries. The Kuwait government may also raise
tariffs in order to raise revenue or to "harmonize upward" with tariffs
in other GCC states.
In February 1995 the General Administration of Customs proposed three
new categories of customs duties:
(1) The 4 percent category, to be applied to basic food and building
materials (except that foodstuffs imported from other GCC countries are
exempted from duty in Kuwait);
(2) The 8 percent category, to be applied to all manufactured goods,
including automobiles and electronic equipment; and
(3) The 50 percent category, to be applied to tobacco, cigarettes,
arms, fireworks and explosives.
The new tariffs will go into effect when they have been approved by the
Finance Ministry. By the time of this writing in July 1995, these
duties had not yet been approved.
2. Incompatible Standards
Kuwait, like other GCC member states, maintains restrictive standards
which impede the marketing of U.S. exports. For example, shelf life
requirements throughout the GCC for processed foods are in many cases
far shorter than necessary to preserve freshness.
Shelf life requirements are in fact so short that they cause otherwise
edible, fresh U.S. products to be deemed by local merchants to be
uncompetitive with products that can be left on the shelves longer
because they have been shipped from suppliers in countries closer to
Kuwait than the U.S. Standards for many electrical products are based
on those of the U.K., even though in many cases U.S. products could
perform better at lower cost if standards were more flexible. Standards
for medical, telecommunications and computer equipment tend to lag
technological developments, with the result that Kuwait government
tenders often specify the purchase of obsolete, more costly items.
3. Government Procurement & Offset Policies
Kuwait government procurement policies specify local products when
available and prescribe a 10 percent price advantage for local firms in
government tenders.
The Kuwait government views its offset program as a major vehicle for
motivating foreign investment in Kuwait. The U.S. government generally
opposes the attachment of any type of performance requirement to
government tenders, and has recommended that the Government of Kuwait
carefully weigh all the potential costs to itself of an offset program.
At the same time we have encouraged U.S. firms to familiarize themselves
with the terms of this program so as to ensure the offset program does
not become an undue obstacle to their business.
Under the program, all government contracts in excess of KD 1.0 million
(USD 3.5 million) are now to include clauses imposing offset
obligations. Moreover, the cumulative supply of more than KD 1 million
(USD 3.5 million) in goods and services under a series of contracts
during a period of one year by any one company will also result in
offset obligations, which will be levied against the full, cumulative
value of those contracts.
Offset obligations will continue to be set at 30 percent of the value of
the contract. The dollar value, however, of this obligation can be
reduced if the obligation is settled in a manner which accords with the
Government of Kuwait's priorities. The mechanism for reduction of
offset obligations is a system of multipliers which gives suppliers
additional offset credits depending on how and in what economic areas
their investments are made. For instance, so-called "micro" multipliers
give suppliers additional credit for a variety of financial measures
including original equity, debt, retained earnings of ventures, sales, R
& D investments, education and training costs, and pre-establishment
costs including feasibility studies, business plans, market research,
etc. In addition, the value of these credits can be further increased
by "macro" multipliers, depending on the economic sector in which the
investment is made. These sectors include education, management and
training; manufacturing; assembly for processing; and services.
Detailed questions on the offset program should be referred to the U.S.
& Foreign Commercial Service office in Kuwait and the Ministry of
Finance Countertrade Offset Program Executive Office.
4. Lack of Intellectual Property Rights Protection
Intellectual property rights protection has been extremely lax in
Kuwait. While Kuwait has had patent and trademark laws since 1962, the
penalties under both are so low as to be effectively irrelevant in
deterring illegal activities. Counterfeit products such as clothing,
auto parts and household products are widely available. Moreover, the
patent law contains provisions for compulsory licensing (e.g., in cases
where the patent has not been used in Kuwait) and government "taking"
(e.g., in cases of "great importance to national industry") that go far
beyond the standard in other countries.
Protection afforded by trademark registration is coterminous with one's
agency agreement and must be applied for anew after one changes one's
agent.
Kuwait has no copyright law, although it recently issued a decree
(regulation) protecting U.S. audio and video copyrights. As a result,
there is a large overt market for pirated software, cassettes,
videotapes and unauthorized Arabic translations of foreign language
books. The Kuwait government plans to strengthen copyright protection
and to implement stricter guidelines and more severe penalties for
violations of patents and trademarks. However, these changes will take
several years. Kuwait has not signed any international intellectual
property conventions, such as the Berne Convention for the Protection of
Copyrights, the Paris Convention for the Protection of Industrial
Property, or the Geneva Phonograms Convention.
5. Arab League Boycott
In June 1993, Kuwait announced that it would no longer apply the
secondary boycott to firms that do business with Israel and the tertiary
boycott to firms that do business with firms subject to the secondary
boycott, but would continue to apply the primary boycott to goods and
services produced in Israel itself. Kuwait has also taken steps to
revise its commercial documentation to eliminate all direct references
to the boycott of Israel. U.S. firms may still occasionally receive
requests for boycott-related information from private Kuwaiti firms or
uninformed Kuwaiti public officials. In such cases, U.S. firms should
advise the Embassy of the request, report the request to the U.S.
Department of Commerce and take care to comply with all requirements of
the U.S. antiboycott laws. Kuwait has received a one-year waiver of
"Brown Amendment" requirements. This waiver will expire in May, 1996.
The "Brown Amendment" prohibits defense sales to those countries that
have not eliminated all vestiges of the enforcement of the secondary and
tertiary boycott of Israel.
B. Customs Valuation
For perishable imports arriving via air, land, or sea, customs clearance
is prompt and takes about three hours. To complete clearance, the
importer presents its import license and quality test certificate.
Recurring perishable imports can be cleared and taken to the importer's
premises after an undertaking that a sample has been submitted to the
Municipality for quality testing.
Customs' assessment of duty on the imported goods is usually based on
the commercial invoice. If the customs officials, however, believe the
declared value is not realistic, they may make their own assessment.
American exporters of perishable goods are recommended to appoint their
own quality surveyors in Kuwait to protect their rights. Local
importers have their own connections with the local officials and may
obtain certificates in their favor, e.g., stating that the imports are
wasted, damaged, or not fit for human consumption.
C. Import Licensing
Importers do not need an import license for each product to be imported
or for each shipment. An importer does, however, need to obtain, an
annual import license from the Ministry of Commerce and Industry which
authorizes the import, on a multiple-entry basis, of any amount of goods
from any country during its one-year term. To obtain this license,
importing companies must fulfill the following conditions:
-- They must be registered in the commercial register at the Ministry
of Commerce and Industry, as well as with the Kuwait Chamber of Commerce
and Industry (KCCI); and
-- the Kuwait shareholding in the capital of the company must be at
least 51%.
A special import license is required to import certain kinds of goods,
i.e., firearms, explosives, drugs and wild animals.
Some drugs require a special import license from the Ministry of Public
Health. Imports of firearms and explosives require a special import
license from the Ministry of Interior.
D. Export Controls
There are generally no restrictions on exports from Kuwait, with the
exception of a few items requiring export licenses. No duties are
levied on goods exported from Kuwait. Foreign contractors, however,
need a letter of clearance from the Director of Income Taxes, Ministry
of Finance, to be able to export equipment from Kuwait for use on a
project outside of Kuwait.
E. Import/export Documentation
Imports to Kuwait require three certified and legalized copies of the
commercial invoice, three copies of the bill of lading (air waybill),
and a certificate of origin. The certificate of origin should:
-- be duly certified by a U.S. chamber of commerce or the National
U.S.-Arab Chamber of Commerce. Legalization is done by the Kuwait
Consulate in New York City or by the Kuwait Embassy in Washington, D.C.;
-- contain the full name of the manufacturing plant or producer as well
as the full name of the freight forwarder;
-- show the means of transportation; and
-- indicate the country of origin.
Invoices and documents should be available to the importer before the
arrival of goods in Kuwait as goods cannot be cleared through customs
without these documents.
Shipment of live animals, animal products, plants, or plant products
require sanitary and health certification and inspection in the country
of origin. All imported beef and poultry products require a health
certificate from the country of origin and a certificate issued by an
approved Islamic center in the country of origin which verifies that the
meat contents and preparation comply with the Islamic Law (Halal).
Exporters should contact the U.S. Department of Agriculture, Animal and
Plant Health Inspection Service (APHIS) for further information.
Food and pharmaceutical products should bear the following:
-- batch or lot number
-- manufacturing date
-- expiry date or validity
-- description of contents
-- storage conditions
-- name of the pharmacopeia (for a pharmacopeial product)
Private Kuwaiti companies usually make payment by opening a letter of
credit through any Kuwaiti bank. Government agencies pay letters of
credit directly through the Central Bank of Kuwait.
In brief, export documentation should include:
-- a detailed description of the goods;
-- total as well as unit prices;
-- net and gross weight;
-- type of packing;
-- full name and address of the manufacturers and/or exporters;
-- trade marks and numbers of the goods as shown in the manifest;
-- means of transportation, the shipper's port and country of origin;
and
-- certification of the invoices by the authorized organizations.
F. Temporary Entry
Products imported into Kuwait which do not comply with established
standards and regulations may be allowed a three-month temporary entry
against storage fees. If the exporter fails to correct the fault, the
goods will either be reexported at his own expense, or will be
auctioned. Goods coming into Kuwait for transshipment may be allowed
temporary entry.
G. Labeling, Marking Requirements
All goods imported into Kuwait must be clearly marked with the country
of origin. All foodstuffs should carry an Arabic language label (in
Arabic or in Arabic/English) stating the name of the manufacturer, the
brand name of the food product, the name of the food product, its
composition (a list of ingredients and additives, if any, in descending
order of importance), net and gross weight in metric units, country of
origin and its production and expiry dates. All fats and oils used as
ingredients must be specifically identified on the label. Arabic
stickers are acceptable provided they do not cover vital information on
the original label.
From February 1, 1986 on, the Department of Health of the Municipality
of Kuwait has barred the entry into Kuwait of any imported food items if
more than six months have elapsed since the original date of production
shown on the package, provided the food item has an expiry date of more
than one year after production.
If the expiry date of the food item falls within a period of less than
one year from the date of production, then such an item shall be denied
entry into Kuwait if more than half of the life time of the item has
elapsed, or if three months has elapsed, whichever elapsed period is
shorter.
However, food items whose expiry date falls within less than two months
of the date of production are exempted from the above regulations.
H. Prohibited Imports
Kuwait prohibits the import of pork, pork products, alcoholic beverages,
products containing alcoholic beverages and gambling machines. Kuwait
also prohibits imports from Israel.
I. Standards
The Department of Standards and Metrology in the Ministry of Commerce
and Industry has drawn up about 300 Kuwaiti standards that are currently
in force. These have been based on a combination of American, British,
German and other national standards modified to suit Kuwait's needs.
In addition, Kuwait has adopted a number of import regulations to
conform with Gulf Cooperation Council (GCC) standards. Examples of such
import regulations are: instruction manuals for imported durable goods
must be translated into Arabic; and consumer durable goods including,
but not restricted to, large appliances must be able to operate without
a transformer on Kuwait's 240 volt, 59 hertz power transmission system.
J. Free Trade Zones/Warehouses
There are no free trade zones (FTZ) in Kuwait. However, a Dutch company
was entrusted with the task of conducting a feasibility study to
establish a FTZ at Shuwaikh port with a more liberal customs regime. It
is believed that this would boost the re-export trade to Kuwait's
neighbors, including Iran. No decision has yet been made to set up the
FTZ.
Warehouses are available in Kuwait, both at the two main ports of
Shuwaikh and Shuaiba as well as in large refrigerated warehouses in
other locations. Several leading importers also have their own
warehousing facilities.
K. Special Import Provisions
(See sections C, E, F, G and H above.)
L. Membership in Free Trade Arrangements
Kuwait is a member of the World Trade Organization.
VII. INVESTMENT CLIMATE
A. Openness to Foreign Investment
Government Policy:
Joint Venture and Foreign Investment Restrictions: Foreign ownership in
joint ventures with Kuwaiti firms is now limited to 49 percent. Foreign
firms may not invest in the oil sector yet. Proposals for upstream
participation are being considered. Foreign firms may own up to 40
percent of banks and public companies scheduled for privatization.
Foreign investment in real estate is limited to nationals of the other
GCC-member states. Foreigners (again with the exception of GCC
nationals) are not permitted to invest in stocks directly through the
Kuwait stock exchange. Other sectors such as telecommunications, health
care and airlines are still government-run, but may become more
accessible to foreign investment when they are scheduled for near-term
privatization.
Since the 1970's, Kuwait's economy has been dominated by the state and
the nationalized oil industry. State intervention increased in the
1970's and early 1980's as the government tried to solve the 1982 "Souk
Al-Manak" stock market collapse. The invasion of Kuwait exacerbated
economic problems. After liberation, the government purchased
outstanding debts from the banks and put through a debt settlement law.
In the short term, this increased the government involvement in the
economy. Government officials have said they intend to reverse the
trend.
The means of reversing government control would be a privatization
program. Hence, the entire foreign investment scene could change
dramatically in a short time. At the time of this writing in July,
1995, Kuwait has before it a number of World Bank studies recommending
privatization of large segments and key sectors of its economy. A
number of industries, starting with the telecommunications sector, may
actually be privatized in 1996.
In addition, large investments in joint ventures are underway. Union
Carbide and the Petrochemical Industries Corporation (PIC) have planned
a $2 billion petrochemical complex here that will primarily serve the
emerging Asian markets.
Foreign finance, particularly officially supported export credits, is a
required element in large sales or projects here. Foreign owned firms
and the foreign owned portions of joint ventures are subject to
corporate income tax as high as 55 percent. GCC-wide agreements may
alter particular provisions of the Kuwaiti tax laws as efforts to
harmonize GCC laws move forward. Kuwait levies no income tax on any
Kuwait residents or Kuwaiti national in business.
Commercial Agency & Commercial Representatives' Law
Kuwait's Commercial Law No. 68 of 1980 describes contract and commission
agents and commercial representatives and Law No. 36 of 1964 requires
agents to be Kuwaiti nationals. In the post-liberation period there
were exceptions made to these laws during the emergency period, but
there have not been any exceptions made recently. It remains a matter
of GOK interpretation whether exceptions are available for particular
purchases.
Other Barriers
Agent and Distributor Rules: The requirement that a local agent must be
used in all sales transactions, as currently exists, can create problems
for some U.S. firms, particularly those that signed hastily without
consulting with local lawyers before signing an agency agreement. The
Embassy can provide a list of lawyers.
Amendments have been proposed to Kuwait's commercial law, which permits
foreign joint ventures in banking (up to 40 percent ownership) and may,
in time, permit GCC branch banking. In addition, the Kuwait Petroleum
Company, for the first time in its history, has concluded a joint
venture agreement through its subsidiary Petrochemical Industries
Company with a U.S. firm for a major (USD 2 billion) investment in
petrochemicals.
Screening of Foreign Investment: All proposals for direct foreign
investment are screened by the licensing authority of the Ministry of
Commerce and Industry. In the past, this authority has been used to
encourage investments in higher technology industries and to discourage
investments in sectors in which there was judged to be significant
overcapacity; e.g. the pre-Gulf War hotel industry.
Major Sectors/Matters in which Foreign Investors are Denied National
Treatment or MFN Treatment: Under current laws, some specific sectors
of the economy -- including upstream oil development; insurance; and
real estate -- have traditionally been closed to foreign investment.
There are some limited exceptions to this for citizens from GCC states.
There are domestic and GCC reference regulations in force that allow
discrimination against some suppliers.
The primary boycott of Israel is in place. Articles 3 and 43 of Law No.
37 allow the Central Tenders Committee to award contracts to suppliers
of local products with prices up to ten percent higher than imports.
Foreigners (with the exception of nationals from some GCC states) are
forbidden to trade in Kuwaiti stocks on the Kuwaiti stock
exchange, except through the medium of mutual funds. Kuwaitis, GCC
nationals and resident expatriates in Kuwait will be permitted to
purchase shares in a new public investment fund being launched by the
KIA that will consist of shares on the Kuwait stock exchange.
Services Barriers - Shipping: In the past, Kuwait prevented access to
government project cargo by U.S. shipping lines by giving the United
Arab Shipping Company (UASC) the right of first refusal on all
government project cargoes. The U.S. Embassy in Kuwait has been assured
by the Kuwait government that this no longer applies to shipments from
U.S. ports. The Embassy can assist with particular cases.
Privatization Programs: The Government of Kuwait is sensitive to the
problems caused by state participation in Kuwait's commercial economy
and has indicated that it will shortly begin a large privatization
program. As noted above, the entire foreign investment scene could
change dramatically. As this report is being drafted in July 1995,
Kuwait has before it a number of World Bank studies recommending the
privatization of large segments and key sectors of its economy. A
number of Industries, starting with the telecommunications sector, may
actually be privatized this year.
Discrimination against Foreign Investors at the Time of the Initial
Investment and after the Investment is Made: Foreign investment is
discriminated against in several ways: through the bar on majority
ownership; the bar on investment in prohibited sectors such as oil and
financial services; and the different corporate tax treatment (foreign
firms pay to the extent of their ownership while Kuwaiti firms do not
pay at all).
U.S. and Foreign Firms Participation in Government Financed and/or
Subsidized Research and Development Programs on a National Treatment
Basis: Few U.S. firms are interested in research and development in
Kuwait. Offset requirements may change this. The Kuwait Institute for
Scientific Research (KISR) is interested in working with foreign firms.
That said, there has been little foreign firm participation in research
and development work in Kuwait financed by the Kuwait government. While
there are no specific bars to foreign participation in this area, any
program would likely be evaluated on a case by case basis. U.S.
participation that brought expertise unavailable locally would be
welcomed in most cases.
High Business Taxation: Corporate taxation in Kuwait is applied only to
foreign firms and has become a major problem for U.S. and other firms
seeking to establish a permanent business presence in Kuwait. Rates are
high, ranging up to 55 percent of gross profits.
Exclusions for business expenses are arbitrarily limited to very low
levels, e.g., three percent of gross revenues for all head office
expenses in some cases (mainly for turnkey supply and installation-type
contracts). Offshore as well as onshore income is taxed. Finally,
administration of the entire tax code is arbitrary and capricious,
leaving foreign firms without a basis on which to estimate their
ultimate tax liability.
Discriminatory or Excessively Onerous Visa, Residence or Work Permit
Requirements, or Similar Requirements Inhibiting Foreign Investors:
Kuwait has a stringent visa and work permit scheme. There have recently
been reciprocal liberalizations that have benefitted U.S. citizens
coming here on business visits, particularly the advent of 10-year
multiple entry visas. A local sponsor is required for most work
permits. Any problems experienced by potential U.S. visitors should be
referred to the Bureau of Consular Affairs, Department of State.
Investment Incentives and Favored Treatment for Foreign Investors
Investment Incentives (e.g. grants, tax deferrals, special access to
credit, import quota exceptions, etc.) Available to Foreign Investors
and Favored Treatment Given to Foreign Investors: There is a movement
underway to expand the investment incentives available to foreign
investors. At the moment, incentives -- in the form of exemptions from
import duties and corporate income taxes for periods of up to ten years
-- are officially available only for industrial undertakings approved by
the Council of Ministers in which Kuwaiti citizens hold a majority
share.
Efficient Capital Markets and Portfolio Investment
Kuwait has an open financial system and policies facilitate the free
flow of financial resources. There is a free flow of resources in the
product and factor markets of Kuwait subject to the legal restrictions
outlined above.
Efficient Capital Markets: Kuwait has a free, but, to date, not very
efficient, capital market. Underpinned by government subsidies, that
market -- and particularly Kuwait's commercial banks -- functioned
throughout the 1980's basically to collect funds for relending to
favored customers. Payment discipline was lax and real economic losses
common, though disguised by government programs, including, in
particular, government guarantees for all the liabilities, equity and
profits of Kuwaiti banks.
Under a bank stabilization program introduced in 1992, the Central Bank
purchased all of the outstanding domestic credits of Kuwait's commercial
banks, while eliminating all guarantees for profits as well as equity
and liabilities other than the bank's deposit liabilities. Henceforth,
all losses will stay with the banks, which will be responsible for the
management of all their assets and liabilities. The Central Bank has
also taken steps to sharply improve bank supervision. As a result,
credit distribution through Kuwait's banking system is far more
efficient and rational than it has been in the past.
Kuwait maintains a well-regulated stock exchange, which reopened on
September 28, 1992 for the first time since the war, and which now lists
43 stocks of Kuwaiti companies, 7 companies from other Gulf states and 2
Kuwaiti mutual funds (The First Investment Fund and The Real Estate
Investment Fund). To date, only Kuwaiti citizens and nationals from
some GCC states are permitted to trade stocks on the exchange, but there
are plans, reportedly, to broaden participation, both as regards the
parties that may trade on the exchange and the companies that may be
listed there.
Credit is allocated on market terms and under a variety of government
programs. Foreign investors are able to get credit on the local market.
The private sector has access to a variety of credit instruments through
local banks.
Legal, regulatory, and accounting systems tend to be more opaque than
transparent, but are generally consistent with international norms. The
Central Bank of Kuwait requires annual reports for local banks to meet
international accounting standards. Local legal and financial advice
should be sought for complicated investments and transactions. There is
not an effective regulatory system established to encourage and
facilitate portfolio, non-GCC investment in the local stock market.
Kuwait is a major overseas investor.
The total assets of the country's five largest banks in Kuwait as of
December 31, 1994 were:
Bank KD million USD million
National Bank of Kuwait 3,971 13,501
Gulf Bank 1,390 4,726
Bank of Kuwait and the Middle East 844 2,870
Burgan Bank 860 2,924
Kuwait Real Estate Bank 349 1,187
KD 1.00 equals USDols 3.40
The quality of local banks varies from Blue Chip, World-Class operations
to very weak. Portions of some bank assets have been non-performing in
the past. The balance sheets of some local banks are heavily weighted
toward lower yielding government bonds.
There are no "cross-shareholding" and "stable shareholding" arrangements
used by private firms to restrict foreign investment through mergers and
acquisitions because there is very little foreign investment in Kuwait.
As there are very few hostile takeovers in Kuwait, there are few
defensive measures to protect against this practice.
There are no laws or regulations specifically authorizing private firms
to adopt articles of incorporation/association which limit or prohibit
foreign investment, participation, or control.
Private Sector and/or Government Efforts to Restrict Foreign
Participation in Industry Standards-Setting Consortia or Organizations:
Post is not aware of any specific cases of such restrictive
participation. U.S. suppliers have difficulty complying with
specifications that are technologically tailored closely to equipment
offered by other (mostly European) suppliers. Existing standards favor
European (especially U.K.) suppliers. U.S. suppliers' preference for
turnkey projects does not match the Kuwait government's preference for
splitting large projects into a series of small ones (with each one
tendered separately). The role of GCC-wide standards will be critical
in the future.
Other Practices by Private Firms to Restrict Foreign Investment,
Participation, or Control in/of Domestic Enterprises: Kuwait is a very
big small town. Family, clan and tribal ties throughout the business
community and government can restrict foreign participation, investment
and control of domestic enterprises.
Foreign Direct Investment Statistics: Kuwaiti public investments abroad
consist of the portfolio investments held by the Kuwait Investment
Authority, which are now estimated at between USD 35 billion and USD 39
billion, and the direct investments of the Kuwait Petroleum Corporation
in oil production, refining and distribution. Specific investments of
KIA are not divulged and are protected by stringent state secrecy laws.
In addition, private Kuwaitis hold foreign assets, in the form of both
direct and portfolio investments, of about USD 30 billion.
B. Conversion and Transfer Policies
Convertibility Policies
The Kuwaiti Dinar is freely convertible at an exchange rate calculated
daily on the basis of a basket of currencies, which is weighted to
reflect Kuwait's trade and capital flows. In practice, the Kuwaiti
Dinar has closely followed the exchange rate fluctuations of the U.S.
Dollar.
Transfer Policies
There are no restrictions on current or capital account transactions in
Kuwait, beyond a requirement that all foreign exchange purchases be made
through a bank or licensed foreign exchange dealer. Equity, loan
capital, interest, dividends, profits, royalties, fees and personal
savings can all be transferred in or out of Kuwait without hindrance.
However, on capital transfers in or out of Kuwait, a large portion of
Kuwait's foreign investment is mediated by public agencies and
corporations, such as the Kuwait Investment Authority and the Kuwait
Petroleum Corporation, which are subject to government guidance
regarding both the form and the direction of those investments.
C. Expropriation and Compensation
There have been no recent cases of expropriation or nationalization
involving foreign investments in Kuwait. In the past, when foreign
companies were nationalized (as in the case of the nationalization of
Kuwait's oil industry during the 1970's), the foreign interests were
compensated promptly and effectively.
D. Dispute Settlement
Kuwait does not generally permit international arbitration in the case
of commercial or investment disputes. Kuwait, however, is a member of
the International Center for the Settlement of Investment Disputes
(ICSID) and has adhered to the New York Convention on the Recognition
and Enforcement of Arbitral Awards. Clauses specifying recourse to
international arbitration are only occasionally written into commercial
contracts. As a result, many disputes are still settled in local courts
or through traditional commercial and political negotiations. Central
Bank of Kuwait experts state that Kuwait's judicial system recognizes
and enforces foreign judgments only when reciprocal arrangements are in
place.
Investment Disputes: There have been few investment disputes involving
American firms in Kuwait. Commercial disputes are much more common. In
both cases, the slow pace of the legal system here can be very
frustrating to American claimants.
Legal System: Kuwait has a developed legal system. It is a civil code
system influenced by traditional Islamic Sharia law. As a traditional
trading nation, the judiciary here is familiar with international
commercial laws. Kuwait has been a GATT member since 1963 and has
signed the WTO agreement. Kuwait is not a signatory to the GATT
government procurement code.
Boycott: While Kuwait in June 1993 publicly announced the end of
enforcement of the secondary and tertiary Arab League boycotts of
Israel, official publication of implementing regulations continues to be
delayed. The Brown Amendment requirements may speed action in this
area. Some contracts continue to contain boycott clauses reportable
under U.S. antiboycott laws. However, when these clauses are brought to
the attention of the GOK officials, these officials see to it that the
clauses are not enforced. Kuwait has said it will wait for Arab League
action before eliminating the primary boycott of Israel.
Import Policies: Changes to adopt a "highest common denominator" tariff
in Kuwait have been supported by local industries seeking tariff
protection and those seeking to increase government revenues. In
addition, local industrial protection rules, including higher tariffs,
are under consideration by the GOK. These rules were waived in the
post-liberation period. Efforts to harmonize GCC tariffs have lead to
suggestions to harmonize "upward" rather than "downward" for some
products.
Secured Interests in Property: Kuwaiti law permits private ownership of
property by its citizens, but severely restricts the types of collateral
creditors may have recourse to in the event of default by a borrower.
Banks may not foreclose on residential real property or personal
property in the event of default, but they may, however, sue the
borrower for the balance due under the loan contract. Borrowers
normally pledge a portion of their future severance benefits as
collateral for a bank loan. Non-GCC foreigners are not permitted to own
land.
Commercial Environment: The central role of the government throughout
the economy cannot be underestimated. In one way or another, the GOK
owns or controls over 70 percent of the local economy.
The economic recovery of in Kuwait should be somewhat stronger and
broader in 1995 than in 1994. For 1994, GDP should be in the range of
USD 27 billion, before increasing in 1995 to slightly more than USD 28
billion, largely on the strength of increased oil production and in
spite of lower world oil prices.
That said, the Kuwaiti business community and many Kuwaitis feel poorer
than before. The decline in the consumer sector continues, caused by
profound population shifts within Kuwait. The current population is
estimated at 1.83 million (37.2 percent Kuwaiti), down from the prewar
population of 2.3 million. Over 300,000 middle class consumers are
gone, replaced by lower paid workers who seek to minimize their in-
country expenditures in order to maximize their remittances back home.
The IMF team prescribed a program that is classic for a country with a
budget deficit - reduce subsidies, raise taxes and fees, reduce the
public sector and promote privatization and free enterprise. Whether
this will work in Kuwait remains to be seen. The Kuwaiti population has
grown used to its welfare state benefits and is likely to resist
reductions.
The government has begun to privatize part of its holdings. In theory,
this should work. In practice, this is a small country and
privatizations here could be subject to abuse and manipulation unless
they are carefully planned. To date, the government has chosen to sell
off its shares in a number of publicly traded companies. A key question
is whether portions of privatizations will be placed overseas and/or
with expatriates.
Government Tenders: For some tenders, Embassy intervention may be
required to get suppliers onto lists of prequalified companies or onto
the selected tender shortlists. The same criteria for foreign and
domestic suppliers may be used, but domestic suppliers often have an
advantage with their knowledge of the local market. In some cases, the
tailoring of bid specifications to favor particular companies has been
alleged.
Ministries and government departments may sole source, i.e. may purchase
or tender independently of the Central Tenders Committee, if the value
of the purchase is less than KD 5,000 (USD 17,000). The CTC may allow a
GOK ministry or department to exceed this limit if the sole sourcing is
in "the public interest" (Article 3 of Law No. 37). Some tenders have
been issued on short notice. Standards and specifications have been
tailored to favor particular suppliers or bidders in the past.
Binding International Arbitration of Investment Disputes between Foreign
Investors and the State: Kuwait is a signatory to the International
Center for the Settlement of Investment Disputes (ICSID - also known as
the Washington Convention) and the New York Convention of 1958 on the
Recognition and Enforcement of Foreign Arbitral Awards.
E. Political Violence
Politically Motivated Damage to Projects and/or Installations:
Terrorism in Kuwait is benign, but the potential for it to occur is
high. The threat of terrorism in Kuwait comes primarily from Iran and
Iraq. Iran, in particular, has demonstrated the capability to conduct
worldwide terrorist operations through surrogates. Iraq was responsible
for the attempted attack on former President George Bush during his
visit to Kuwait in April, 1993. Small-scale bombings of cinema, video
and music houses have occurred, but the last such bombing occurred in
early 1994. No group claimed responsibility and the perpetrators were
not apprehended by Kuwaiti authorities. There have been no politically
motivated attacks on U.S. projects and/or installations in Kuwait since
liberation in 1991, except for a mysterious drive-by shooting in mid-
1993 in which a building housing U.S. contractors was fired upon.
F. Performance Requirements/Incentives
The only trade-related performance requirements are a new offset
program, which has established offset obligations (to be settled through
countertrade, training or investment programs) in the case of all
government contracts in excess of KD 1.00 million (i.e., USD 3.4
million). These obligations can range from very low levels to as much
as 30 percent of the value of the contract, depending on the type, area
and structure of the investment. All obligations are to be settled
within ten years, with a penalty (equivalent to 6 percent of the value
of the contract) payable in the case of non-performance. Further
details are available from the U.S. & Foreign Commercial Service at the
U.S. Embassy in Kuwait or the Finance Ministry Countertrade Offset
Program Executive Office.
G. Right to Private Ownership and Establishment
Rights to private ownership and establishment are respected in Kuwait,
though, as noted above, foreigners face special restrictions. Licenses
from the Ministry of Commerce and Industry are required for the
establishment of all new companies. In addition, some sectors of the
economy, including oil production and refining, are dominated by state-
owned monopolies. Government ownership is common in other sectors of
the economy, including banking and insurance, in part as a result of
stock interests acquired during rescue programs following the crash of
the "Souk Al-Manakh" stock market in 1982.
H. Protection of Property Rights
Intellectual property rights protection remains extremely lax in Kuwait.
Kuwait is not party to any worldwide conventions for the protection of
intellectual property rights. While it has had patent and trademark
laws since 1962, the penalties under both are so low (a maximum fine of
$2,100) as to be ineffective in deterring illegal activities. The
patent law, moreover, excludes certain chemical inventions involving
food, pharmaceuticals and medicines, and offers a term of protection of
only fifteen, rather than 20, years. It also contains extraordinary
provisions for compulsory licensing whenever a patent is insufficiently
used in Kuwait or is of "great importance to national industry."
Patents: Patent laws in Kuwait are under examination. Current laws do
not meet currently accepted international standards.
Copyrights: Kuwait also has no copyright law, with the result that
there is now a large, overt market for pirated software, cassettes and
videotapes, as well as unauthorized Arabic translations of foreign
language books. The new draft law on copyrights which was submitted to
the National Assembly early in 1993 continues to languish in committee.
The draft still does not provide adequate protection for foreign works,
sound recordings or compilations of facts and data. The terms of
protection for different types of works are also short and penalties for
infringement relatively light.
Responding to repeated calls from the U.S., Kuwait has been working
closely with U.S. copyright experts to bring its draft copyright law up
to accepted international standards. In addition, the government
recently issued a decree (regulation) providing protection for U.S.--and
only U.S.--sound and video recordings. Under this decree, all pirated
U.S. tapes must be off shop shelves by August 1. Much of this movement
started after Kuwait was given special mention as a copyright violator
in the U.S. Special Trade Representative Special 301 trade report in
April 1995. Although this is the mildest reprimand possible, it is the
first time Kuwait has been named in the report.
Trademarks: In the past, companies on the boycott list have been denied
trademark protection in Kuwait.
Trade Secrets: There are no statutory provisions for the protection of
trade secrets in Kuwait; protection depends entirely on that negotiated
in a contract between the party disclosi