Return to: Index of "1993 Country Reports on Economic Practice and Trade Reports" ||
Index of "Economic and Business Issues" || Electronic Research Collections Index || ERC Homepage


TITLE:  KUWAIT ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                              KUWAIT

                     Key Economic Indicators
     (Millions of Kuwaiti dinars (KD) unless otherwise noted)


                                  1991      1992      1993 est.
Income, Production,
 and Employment

Real GDP (1985 prices)              n/a       n/a       n/a
Real GDP Growth (pct.)            -39.3      99.9       n/a
GDP (at current prices)            3,184     6,367     4,200
By Sector:
 Oil Sector                          447.5   2,719     1,452
 Non-oil sector                    2,300
 Net Exports of
  Goods and Services                -804      n/a       n/a
Real Per Capita GDP (KD)           2,170     4,245      n/a
Labor Force (000's)                  450       600      608
Unemployment Rate (pct.)           nil        0.5       0.5

Money and Prices

Money Supply
(annual percentage growth)

Money Supply (M2)                  -3.6      -1.2       2.4
Base interest Rate (pct.)           7.5       7.5       6.0
Personal Savings Rate (pct.)        n/a       n/a       n/a
Retail Inflation                    9.5       5.0       8.00
Wholesale Inflation                 n/a       n/a       n/a
Exchange Rate (KD/$)                0.289     0.294     0.304

Trade and Balance of Payments
(millions of U.S. dollars)

Total Exports (FOB)                  755     6,693     5,029
  Exports to U.S. (FOB)               40       285     1,700
Total Imports (CIF)                4,682     8,830     2,803
  Imports from U.S. (CIF)          1,230     1,700       920
Aid from U.S.                          0         0         0
Aid from Other Countries               0         0         0
External Public Debt               5,500     5,500     5,500
Debt Service Payments               n/a        300       300
Gold and FOREX Reserves            3,179     2,771     4,077
Trade Balance                     -3,823      -795     1,709
  Balance with U.S.               -1,190    -1,415       780


Note:

These statistics are based on Central Bank data, NAT of Kuwait
data,and U.S. embassy estimates.  Data in Kuwait during the War
and post-war period are subject to large omissions and errors. 
Consequently, data should be used with care.  Revised data for
the 1990-93 period should be finalized by mid-1995.


1.  General Policy Framework

    Kuwait has a small and relatively open, oil-rich economy. 
Pre-war Kuwait's population was 2.3 Million.  Its current
population is almost 1.5 million, of whom approximately 600,000
are Kuwait citizens.  Kuwait's proven crude oil reserves amount
to approximately 94 billion barrels; i.e., ten percent of total
world reserves, making Kuwait, potentially, a very rich nation
well into the next century.

    The Kuwaiti economy has been subject to several severe
shocks over the past two decades.  These include a massive
increase in government intervention and control of the
commercial economy during the late 1970s and early 1980s; the
collapse of the Souk al-Manakh -- an unregulated curbside
securities market -- in 1982; the collapse of world oil prices
during the mid-1980s; and, finally, the Iraqi invasion of
1990.  Together, the first three of these blows produced a 40
percent decline in real GDP in Kuwait between 1972 and 1989. 
The Iraqi invasion left Kuwait in the spring of 1991 with its
oil fields ablaze, its treasury depleted by the costs of the
war, its population reduced, its public sector institutions in
disarray, and its private sector largely crippled by Iraqi
arson and sabotage.

    The Kuwaiti budget for FY 93/94 passed the National
Assembly which was elected in October, 1992.  It is the first
budget for post-liberation Kuwait that has been subjected to
"outside" scrutiny and approval.  The budget will be in deficit
by over one billion Kuwaiti dinars (or $3.29 billion).  Oil
accounts for almost 90 percent of revenues.  A "difficult
debts" law also passed the National Assembly.  This law may
clear out the "debt overhang" that has been a drag on the
domestic economy.

    Government salaries, the housing program and rebuilding of
the infrastructure are major expenditure items.  Overall
defense expenditures are not included in this budget.

    The recovery in Kuwait should be somewhat stronger and
broader in 1994 than in 1993.  For 1993, GDP should be in the
region of $18 billion, before increasing in 1994 to slightly
more than $20 billion, largely on the strength of increased oil
production.

    Kuwait's consumer sector has experienced a number of
divergent trends in the post liberation period.  Initially,
business boomed as businesses and private consumers purchased
goods to replace property destroyed, damaged or stolen by the
Iraqi occupiers.  This created a huge and atypical demand bulge
which foreign suppliers, chiefly from the U.S., supplied. 
Business was good and prices were secondary considerations to
speed of delivery and quality factors.  This trade boom petered
out in late 1991.

    The decline in the consumer sector continues.  Damaged
goods have been replaced, starting a product replacement cycle
that will not see replacement sales return to prewar levels for
a number of years.  In the automotive sector, a recent survey
shows new car sales are now below pre-war levels and are
predicted to remain depressed until late 1994 and early 1995. 
Demand will be below 1988 sales levels in 1993 and 1994.

    For consumer electronics, the story is much the same. 
Sales have dropped below 1988 levels and are expected to drop
to less than 75 percent of 1988 levels in the 1994 sales year. 
In electronics, new high quality equipment means that
replacement cycles may be even longer than the three years
assumed for automobiles.

    Retailers are very aware of profound population shifts
within Kuwait.  The current population is estimated at 1.49
million (43 percent Kuwaiti), down from the pre-war population
of 2.3 million.  Over 300,000 middle class consumers are gone,
replaced by lower paid workers who are often here on "bachelor"
status.  These "bachelors" in lower income groups seek to
minimize their in-country expenditures in order to maximize
their transfer payments back to their families in their home
country.  This means that less is spent in aggregate on mid- to
high-quality consumer goods here.


2.  Exchange Rate 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.

    The Kuwaiti dinar itself 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 over
the past year.


3.  Structural Policies

    There are three basic points worth noting about the
government's structural policies in Kuwait.  First, policies as
a body tend to strongly favor Kuwaiti citizens and
Kuwaiti-owned companies.  Income taxes, for instance, are only
levied on foreign corporations and foreign interests in Kuwaiti
corporations, at rates that may range as high as 55 percent of
all net income.  Foreign investment, similarly, is welcome in
Kuwait, but only in select sectors as minority partners and
only on terms compatible with continued Kuwaiti control of all
basic economic activities.  Moreover, some sectors of the
economy -- including oil, banking, insurance and real estate --
have traditionally been closed to foreign investment. 
Foreigners (with the exception of nationals from some Gulf
Cooperation Council states) are also forbidden to trade in
Kuwaiti stocks on the Kuwaiti Stock Exchange except through the
medium of unit trusts.

    Biases are also in place in regard to trade.  Government
procurement policies, for instance, generally specify local
products, when available, and prescribe a ten percent price
advantage for local companies on government tenders.  There is
also a blanket agency requirement, which requires all foreign
companies trading in Kuwait to either engage a Kuwaiti agent or
establish a Kuwaiti company with majority Kuwaiti ownership and
management.  Finally, in labor markets, resident foreign
nationals are subject to stringent visa requirements, special
taxes and fees that are intended to both discourage their
employment and limit their tenure in Kuwait.

    Secondly, price signals are only partially operational in
Kuwait.  In many ways, Kuwait is still a welfare state, in
which many basic products and services are heavily subsidized. 
Water, electricity and motor gasoline are relatively
inexpensive.  Basic foods are subsidized.  Local telephone
calls are free (after payment of an annual subscription fee),
as is education and medical care.  In most cases, these
subsidies are available to all residents of Kuwait; in some
cases, however -- the so-called "first line commodities" -- the
subsidies are reserved for citizens of Kuwait.

    Finally, and perhaps most importantly of all, some major
aspects of this system of preference and privilege may be under
scrutiny.  The budget deficit in the 1993/94 budget has led to
calls for reduced subsidies, increased fees and possible taxes
on Kuwaitis and expatriates.  In addition, the IMF has done a
study on the Kuwaiti budget and deficits while the World Bank
has prepared a report on privatization.  The deficit,
reductions in subsidies and privatization will be the subject
of debate in the National Assembly's next session.


4.  Debt Management Policy

    Prior to the Gulf War, Kuwait was a significant creditor to
the world economy, having amassed a foreign investment
portfolio, under the auspices of the Kuwait investment
authority, that was variously valued at between $80-100
billion.  All of this changed with the war when major
expenditures on defense, reconstruction and aid severely
depleted the government's resources.  Altogether, Kuwait
appears to have run a fiscal deficit that may be as high as $70
billion over fiscal years 1990/91 and 1991/92, half of which
was apparently financed through the sale of assets.  The
balance was covered by a domestic bond issue (worth
approximately $20 billion) to cover the central bank's purchase
of all the domestic credits of Kuwait's banking system;
repurchase agreements worth approximately $9 billion; and a
$5.5 billion commercial bank loan.  Combined with previously
outstanding Kuwaiti Treasury Bills, these new borrowings have
now raised Kuwait's combined foreign and domestic government
debt to $38-40 billion.

    Looking ahead, it now appears likely that the Government of
Kuwait will run budget deficits for the next three to five
years, despite rising oil revenues.


5.  Significant Barriers to U.S. Exports

    There are few significant barriers to U.S. exports in
Kuwait.  Tariffs are low (currently, no higher than four
percent on any product), and, since the conclusion of the Gulf
War, U.S. exports to Kuwait have boomed.

    On the other hand, Kuwait is a Muslim country and does not
permit the import of alcohol or pork from any country.  It also
participates in the Arab League primary boycott of Israel. 
Boycott questions involving U.S. firms should be referred to
the U.S. Embassy in Kuwait or to responsible U.S. Government
agencies in the U.S.  Finally, Kuwait has a new offset program
which will establish significant investment and/or
counter-trade obligations for all foreign suppliers in the case
of all government contracts in excess of KD 1.0 million ($3.29
million).


6.  Export Subsidies Policies

    Kuwait does not directly subsidize any exports, which
consist almost exclusively of crude oil, petroleum products and
fertilizer.  Small amounts of vegetables are grown by farmers
receiving government subsidies, and small amounts of these
vegetables are sold to neighboring countries.  However, not
enough of these vegetables are grown or sold to make any
significant impact on local or foreign markets.  Periodically,
Kuwait cracks down on the re-export of subsidized imports such
as food and medicine.


7.  Protection of U.S. Intellectual Property

    Intellectual property rights protection is extremely lax in
Kuwait.  Kuwait is not party to any worldwide conventions for
the protection of intellectual property rights and, 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
effectively irrelevant in deterring illegal activities.  The
patent law, moreover, excludes certain chemical inventions
involving foods, pharmaceuticals and medicines, and offers a
term of protection of 15 years, below the international
standard of 20.  It also contains extraordinary provisions for
compulsory licensing whenever a patent is insufficiently used
in Kuwait or is of "great importance to national industry".

    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.  A new draft copyright
law is under preparation by the Government of Kuwait; however,
that law may still 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.


8.  Worker Rights

    a.   Right of Association

    Workers with Kuwaiti nationality have the right to
establish and join unions and, after liberation, about 28,400
workers in Kuwait were organized as union members.  New unions
must have at least 100 members, 15 of whom must be Kuwaiti. 
The Minister of the Interior must certify that he has no
objection to any founding member of the union.  Expatriate 
workers, who comprise about 80 percent of the labor force in
Kuwait, are allowed to join unions after five years residence,
but only as non-voting members.  In practice, however, foreign
workers can join unions after one year.  In addition, Kuwaiti
law forbids the establishment of more than one union per
"functional area" or more than one general confederation.

    b.   Right to Organize and Bargain Collectively

    The right to strike is recognized but is limited by
Kuwait's labor law, which provides for compulsory negotiations
followed by arbitration if a settlement cannot be reached in a
timely fashion.  The civil service law also provides for
collective bargaining between government agencies and unions
representing civil service employees.  In practice, union
representatives and ministry officials hold coordination
meetings on a regular basis.  Unions are prohibited from
involvement in domestic political, religious or sectarian
issues.

    c.   Prohibition of Forced or Compulsory Labor

    The Kuwaiti Constitution prohibits forced labor "except in
the cases specified by law for national emergencies and with
just remuneration."  Nonetheless, there continue to be credible
reports that foreign nationals employed as domestic servants
have been denied exit visas if they seek them without their
employer's consent.  In many cases, employers exercise some
control over their servants by holding their passports,
although the government prohibits this practice and has acted
to retrieve passports of maids involved in disputes.

    d.   Minimum Age for Employment of Children

    The minimum age for employment under Kuwaiti law is 18
years for all forms of work, both full and part-time.  This law
applies to Kuwaitis and expatriates.  This law is not fully
observed in the non-industrial sector.  Some small businessmen
employ their own children on a part time basis and there have
been unconfirmed reports that some South Asian domestic
servants are under 18.

    e.   Acceptable Conditions of Work

    General conditions of work are established by Kuwaiti labor
law for both the public and private sector, with the oil
industry treated separately.  The basic labor law limits the
workweek to 48 hours, provides for a minimum 14 days' leave per
year and establishes a compensation schedule for industrial
accidents.  A permanent commission also supervises public
health and occupational safety and has had some success in
raising health and safety awareness in industry in general.

    The law governing the oil industry is more generous.  It
provides for a 40-hour workweek, overtime pay for shift work,
30 days annual leave and generous sick leave.  Women are
permitted to work throughout the industry, except in hazardous
areas and activities, and are promised equal pay for equal work.

    The Ministry of Social Affairs and Labor is responsible for
enforcing labor laws.  However, while compliance and 
enforcement of those laws appears to have been poor in the
immediate post-liberation period, especially with respect to
unskilled foreign laborers.  There has been a gradual
improvement as things in Kuwait have returned to normal. 
Foreign laborers frequently face contractual disputes, poor
working conditions and, in some cases, physical abuse. 
Domestic servants, for example, are entirely excluded from the
purview of Kuwait's labor laws and frequently work long hours
greatly in excess of 48 hours.  Domestic servants from Asian
countries have complained about lack of assistance from their
embassies in some cases.  In other cases, embassies have
founded shelters for abused domestics and have worked with the
Government of Kuwait to repatriate groups of workers who have
desired to return home.

    f.   Rights in Sectors with U.S. Investment

    The only significant U.S. investment in Kuwait is in the
divided zone between Kuwait and Saudi Arabia, where one U.S.
oil company, working under a Saudi concession, operates under
and in full compliance with the Kuwaiti labor law that applies
to the oil sector.


              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 D
Total Manufacturing                                       0
    Food & Kindred Products                     0
    Chemicals and Allied Products               0
    Metals, Primary & Fabricated                0
    Machinery, except Electrical                0
    Electric & Electronic Equipment             0
    Transportation Equipment                    0
    Other Manufacturing                         0
Wholesale Trade                                           0
Banking                                                   D
Finance and Insurance                                     0
Services                                                  D
Other Industries                                          4

TOTAL ALL INDUSTRIES                                      D



(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

(###)
To the top of this page