Return to: Index of "1994 Country Reports on Economic Practice and Trade Reports" ||
Index of "Economic and Business Issues" || Electronic Research Collections Index || ERC Homepage



U.S. DEPARTMENT OF STATE
KUWAIT: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                              KUWAIT

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                    1992      1993      1994  1/

Income, Production and Employment:

Real GDP (1985 prices)               N/A       N/A       N/A
Real GDP Growth (pct.)              76.3      22.6       5.0
GDP (at current prices)  2/       18,762    23,000    12,076
By Sector:
  Agriculture                         46.0      71.0      39
  Energy/Water                     - 340.0     323.7     178
  Manufacturing                      723.8     761.3     418
  Construction                       703.4     738.4     355
  Rents                              N/A       N/A       N/A
  Financial Services                 755.0     796.0     438
  Other Services                     N/A       N/A       N/A
  Government/Health/Education      5,743.0   5,858.0   3,222
Net Exports of Goods & Services   -2,723     1,720       946
Real Per Capita GDP (USD)         13,420    15,674    17,500
Labor Force (OOOs)                   600       735       745
Unemployment Rate (pct.)             0.5       0.5       0.5

Money and Prices:  (annual percentage growth)

Money Supply (M2)                  -0.58       5.7      2.19
Base Interest Rate (pct.)            7.5       6.65     6.17
Personal Savings Rate                N/A       N/A      N/A
Retail Inflation                     5.0       5.0      3.0
Wholesale Inflation                  N/A       N/A      N/A
Consumer Price Index  3/             110       110      110
Exchange Rate (USD/KD)              3.40       3.32     3.40

Balance of Payments and Trade:

Total Exports (FOB)                6,693    10,554     5,400
  Exports to U.S.                    310     2,003       822
Total Imports (CIF)                7,239     7,052     3,500
  Imports from U.S.                1,327     1,009       498
Aid from U.S.                          0         0         0
Aid from Other Countries               0         0         0
External Public Debt               5,500     5,500     6,216
Debt Service Payments (paid)         N/A       N/A        60
Gold and Foreign Exch. Reserves    3,104     4,034     3,847
Trade Balance                       -546     3,502       968
  Trade Balance with U.S.         -1,017       994       324

N/A--Not available.

1/ 1994 figures are for the first and second quarters
only.
2/ For first half of year, annual rate would be USD 24,152. 
These statistics are based on the Central Bank of Kuwait's "The
Economic Report 1990-1992" and "The Economic Report 1993."  

These reports reflects a number of post-liberation revisions
and additions in statistics.  Hence, previous statistical
series should be revised to reflect current data.  The
estimates for the first two quarters of 1994 are U.S. Embassy
estimates based on Central Bank of Kuwait data and general
trends in the economy.  The publications cited are available
from the Central Bank of Kuwait.
3/ May 1990 equals 100 - actually the CBK domestic price index.



1.  General Policy Framework

    Kuwait is a politically stable emirate where rule of law
prevails.  The press is free and commercial advertising is
available.  Arabic is the official language but English is
widely spoken.  Kuwait has a small and relatively open,
oil-rich economy which has created an affluent citizenry who
benefit from a generous welfare state.  In 1989, Kuwait's
population was 2.3 million.  Its current population is
1,752,000, of whom approximately 669,000 are Kuwaiti 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 1970's and early 1980's; the
collapse of the Souk al Manakh--an unregulated curbside
securities market--in 1982; the collapse of world oil prices
during the mid-1980's; the Iraqi invasion of 1990 and the
massive rebuilding effort undertaken after the liberation in
1991.  The Kuwaiti budget for FY 94/95 will be in deficit by
over 1.7 billion Kuwaiti Dinars (USD 5.8 billion).  Revenues
will be KD 2,637.2 billion, virtually all from oil.  FY 94/95
revenues will be 6.5 percent less than FY 93/94 projections
while expenditures will be 11 percent higher than FY/94.  The
deficit increase is caused in part by the inclusion in the
budget of almost KD 450 million (USD 1.5 billion) of arms
purchases that were included in supplemental budgets rather
than the regular budget.

    A World Bank report summary, published in the local English
press in the summer of 1993, advocates an economic program that
will reduce the deficit, privatize many government-owned
companies and services, reduce subsidies and promote employment
of Kuwaiti citizens in the private sector.  Most officials
agree with the overall conclusions of the report.  That said,
little has been done to date to move toward specific
implementation of the report's recommendations.

    A "difficult debts" law passed the National Assembly in
1993.  The Government of Kuwait purchased the commercial debts
of the banking system with USD 20 billion worth of government
bonds.  The debtors were given the option of a twelve-year
interest-free rescheduling of their debt or an "immediate
payment" of approximately 45 percent of the balance of the
debt.  Local banks are administering the program for the
Government of Kuwait.  The law contains a September 1995 
"immediate payment" deadline which has led to a more
conservative investment posture on the part of the private
sector.  There may be revisions in the regulations governing
the law.


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 Central
Bank maintained this policy during the uncertainties of October
1994 when Iraq mounted a serious threat on Kuwait's border. 
The Kuwaiti Dinar itself is freely convertible at an exchange
rate calculated daily on the basis of a basket of currencies
which reflects 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, as the
Dollar makes up over half of the basket.


3.  Structural Policies

    As a member of the Gulf Cooperation Council (GCC), Kuwait
plays a part in GCC efforts to promote economic integration
among its member states.  In practice, this means duty free
imports from other GCC states and adoption of some GCC product
standards.

    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.  Individuals are not subject to income taxes,
which eliminates one government tool used in other countries to
institute social or investment policies.  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.

    There are proposals to allow foreign equity participation
in the banking sector (up to 40 percent) and in the upstream
oil sector (terms still to be determined).  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 unit trusts.

    Foreign nationals, who represent a majority of the
population, are prohibited from having majority ownership in
virtually every business other than certain small
service-oriented businesses and may not own property (there are
some exceptions for citizens of other GCC states).  In past
years, as part of its deliberate demographic policy to reduce
the number of expatriates in the country, the government also
made it difficult for foreign workers to sponsor their families
for residency by installing high minimum wage requirements for
the individual workers wishing to apply for family visas. 
Currently, third-country nationals employed in the private
sector must earn approximately $2,000 a month, while public
sector employees must earn $1,400 a month in order to sponsor
their families in Kuwait.  This is currently under review and
the income levels may be reduced to permit more families to
come to Kuwait.  Families may elect to stay in their country of
origin, however, since the cost of living is comparatively
higher in Kuwait than in other Arab or South Asian countries. 
Finally, in labor markets, resident foreign nationals are
subject to stringent visa requirements, special taxes and fees
that are intended to both discourage their employ and limit
their tenure in Kuwait.

    Biases are also in place in regard to trade.  Government
procurement policies, for instance, generally specify local
products, when available, and prescribe a 10 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.

    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 public 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" (such as
medical care overseas, free or cheap building lots and
subsidized home mortgages) 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 and Kuwait's share of the
additional expenses of the October 1994 "Vigilant Warrior"
exercise undertaken in response to Iraqi provocations has
highlighted the need for Kuwait to contemplate the World Bank
recommendations, particularly reduced subsidies, increased fees
and possible taxes on Kuwaitis and expatriates.  A proposal for
a short-term, emergency wage tax was quickly killed and
replaced with a system of voluntary donations for the national
defense.


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 variously have been valued at between USD 80
billion and USD 100 billion.  A current reasonable estimate of
the value of Kuwait's performing assets in the Future
Generations Fund would be in the range of USD 35 to 39 billion.

    Kuwait owes a USD 5.5 billion jumbo loan to foreign banks
and other amounts to official export credit agencies (ECA). 
According to Government of Kuwait officials, these obligations
will be paid on schedule and according to terms.  In 1995,
Kuwait is scheduled to pay USD 2.486 billion which will
increase to USD 3.298 billion in 1996.


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), although there are proposals to raise
some tariffs on January 1, 1995, as part of a GCC
"harmonization upward," which contradicts efforts in most other
countries to lower tariffs.  There are also revenue reasons for
considering tariff increases.
 
    Kuwait is a Muslim country and does not permit the import
of alcohol or pork from any country.  It continues to
participate in the Arab League primary boycott of Israel. 
Kuwait has renounced the secondary and tertiary boycotts 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 countertrade obligations for all foreign suppliers in
the case of all government contracts in excess of KD 1.0
million (USD 3.40 million).


6.  Export Subsidies Policies

    Kuwait does not directly subsidize any of its exports,
which consist almost exclusively of crude oil, petroleum
products and fertilizer.  Almost 98 percent of Kuwait's food is
imported.  Small amounts of local 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 agricultural markets. 
Periodically, Kuwait cracks down on the re-export of subsidized
imports such as food and medicine.


7.  Protection of U.S. Intellectual Property

    Kuwait is a founding member of the new World Trade
Organization.  In keeping with related obligations under the
Uruguay Round/ Trade Related Intellectual Property Agreement
(TRIPS) it will have to begin to implement laws and practices
consistent with international conventions on intellectual
property protection (notably the Berne Convention for the
Protection of Literary and Artistic Works and the Paris
Convention for the Protection of Industrial Property.)
Currently, intellectual property rights protection is extremely
minimal in Kuwait.  Kuwait is not party to any worldwide
conventions for the protection of intellectual property
rights.  Kuwait's laws do not address important areas of
intellectual property and those areas which are addressed in
law do not provide adequate deterrents to piracy.

    Kuwait 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 draft copyright law being prepared
by the Government of Kuwait was still not complete by the end
of 1994.  There is concern that the content of the draft may
still not include adequate protection for foreign works, sound
recordings or compilations of facts and data.  The adequacy of
terms of protection for various types of works and the need for
deterrent penalties for infringement are also concerns the U.S.
has raised with officials in the Kuwaiti government.

    Kuwait has had patent and trademark laws since 1962, but
the penalties under both are so low (a maximum fine of USD
2,100) as to be effectively irrelevant in deterring illegal
activities.  The patent law excludes certain products such as
chemical inventions involving foods, pharmaceuticals and other
medicines, from protection.  Among patentable products and
processes it offers a term of protection of only 15 rather than
the more conventional 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."


8.  Worker Rights

    a.  The Right of Association

    Kuwait is a member of the International Labor Organization
(ILO) and has ratified the 1948 ILO Convention 87 on Freedom of
Association.

    Both Kuwaiti and non-Kuwaiti workers have the right to
establish and join unions but the government restricts the
right of association by limiting the number of unions which may
be established.  There are certain additional restrictions on
non-Kuwaiti workers.  In 1994, 28,400 workers in Kuwait were
organized as union members; non-Kuwaitis constituted 33 percent
of unionized workers.

    New unions must have at least 100 members, 15 of whom must
be Kuwaiti.  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 nonvoting members.  In
practice, foreign workers can join unions after one year. 

    One law requires that workers may establish only one union
in any occupational trade, and that the unions may establish
only one federation.  Both the ILO and International
Confederation of Free Trade Unions (ICFTU) have criticized this
requirement since it discourages unions in sectors employing
few Kuwaiti citizens (e.g. in construction).

    b.  The Right to Organize and Bargain Collectively

    Although legally unions are independent organizations, in
fact, the government maintains a large oversight role with
regard to their financial records:  90 percent of union budgets
are in the form of government subsidies.  Unions must also
follow a standard format for internal rules and
constitutions,
which includes prohibitions of any involvement in domestic
political, religious, or sectarian issues.  In practice, these
limitations have not prevented unions from engaging in a wide
range of activities.  A court (under certain circumstances) or
the Amir may dissolve a union.  In practice, no union has been
dissolved in either manner.  Kuwaiti citizen union members have
the right to elect representatives of their own choosing,
provided the candidates are also Kuwaitis and can demonstrate
that they have no criminal record.

    All but two 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 and three oil sector unions, but the oil unions
have equal representation (36 members) in the 72-member KTUF
Assembly.  The KTUF belongs to the International Confederation
of Arab Trade Unions and the formerly Soviet-controlled World
Federation of Trade Unions.

    The KTUF opened an "Expatriate Labor Office," responsible
for resolving problems between foreign workers and their
employers in the private sector.  The office is not connected
with the government.  It provides assistance to all foreign
laborers, regardless of whether or not they are union members.

    The right to strike is recognized, but limited by Kuwait's
labor law, which stipulates compulsory negotiation, followed by
arbitration if a settlement cannot be reached between labor and
management.  There are no specific legal provisos to prohibit
retribution against strikers and strike leaders.  Despite
limitations, strikes do occur.  In 1994, one strike was called
by cleaning personnel in Kuwaiti schools for a pay raise; the
second, by security guards at the Social Welfare Home over
unpaid wages.  The majority of these workers were expatriates.

    The ILO has critized: Kuwait's prohibition on more than one
trade union for a given field; the requirement that a new union
must have at least 100 workers; the five-year residence
requirement for foreign workers to join a trade union; the
denial to foreign trade unionists voting rights and the right
to be elected to union positions; the prohibition against trade
unions engaging in any political or religious activity; and the
reversion of trade union assets to the Ministry of Social
Affairs and Labor in the event of dissolution.

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 absent their employers' consent. 
Kuwaiti sponsorship is necessary in order to obtain a residence
permit and foreign workers cannot change their employment
without permission from their original sponsors.  Domestic
servants are particularly vulnerable to abuses from this
practice because they are not protected by Kuwaiti labor law. 
In addition, domestic servants who run away from their
employers can be treated as criminals under Kuwaiti law for
violations of their work and residence permits, especially if
they attempt to work for a new employer without permits.

     Sponsors frequently hesitate to grant their servants
permission to change jobs because of the financial investment
(travel, medical examinations and visas) made before they even
arrive in Kuwait (often USD 700-1,000).  In many cases,
employers can exercise control over servants by holding their
passports.  The practice is prohibited, however, and the
government has acted to retrieve passports of maids involved in
work disputes.  There are some reports employers illegally
withheld wages from domestic servants to cover the costs
involved in bringing them to Kuwait.  The government has done
little, if anything, to protect domestics in such cases.

    d.  Minimum Age for Employment of Children

    Under Kuwaiti law, the minimum employment age is 18 years
for all forms of work, both full- and part-time.  Compulsory
education laws exist for children between the ages of 6 and
15.  The Minister of Social Affairs and Labor is charged with
enforcing minimum age regulations.  The laws are not fully
observed in the nonindustrial sector, although no instances
involving Kuwaiti children have been alleged.  Children may be
employed part-time in small family businesses.  There have been
unconfirmed reports of some South Asian domestics under 18 who
falsified their age to enter Kuwait.

    Employers may obtain Ministry permits to employ juveniles
(14-18 years old) in certain trades.  Juveniles may work a
maximum of six hours daily, provided they work no more than
four consecutive hours followed by at least an hour of rest.

e.  Acceptable Conditions of Work

    The Ministry of Social Affairs and Labor is responsible for
enforcing all labor laws.  A two-tiered labor market ensures
high wages for Kuwaiti employees while foreign workers,
particularly unskilled laborers, receive substantially lower
wages.  In 1993, the minimum wage in the public sector, set by
the government, was appropriately USD 630 a month (180 Kuwaiti
Dinars) for Kuwaitis and approximately USD 315 a month (90
Kuwaiti Dinars) for non-Kuwaitis.  There is no legal minimum
wage in the private sector although occasionally it has been
suggested.

    The labor law establishes general conditions of work for
both the public and the private sectors, with the oil industry
treated separately.  Women are permitted to work throughout the
oil industry, except in hazardous areas and activities, with
equal pay for equal work.  The civil service law prescribes
additional conditions for the public sector.  It limits the
standard workweek to 48 hours with one full day of rest per
week, provides for a minimum of 14 days of leave annually, and
establishes a compensation schedule for industrial accidents.

    Foreign laborers frequently face contractual disputes, poor
working conditions and, in some cases, physical abuse. 
Domestic servants, excluded from the purview of Kuwait's labor
laws, frequently work hours greatly in excess of 48 hours. 
Recourse is uneven.  Domestic servants from Asian countries
have complained in some cases of the lack of assistance from
their embassies.  In other cases, embassies have founded
shelters for abused domestics and worked with the Kuwaiti
government to repatriate workers who wished to return home.

    The ILO has urged Kuwait to guarantee the weekly
24-consecutive-hour rest period to temporary workers employed
for a period of less than six months and workers in enterprises
employing fewer than five persons. In November 1994, the
government received an ILO Expert Delegation for consultations
on possible labor reform.

    Laws and regulations do exist on health and safety, medical
care and compensation.  However, compliance and enforcement
appear poor, especially regarding unskilled foreign laborers. 
While Kuwaiti employers have been known to exploit workers'
willingness to accept substandard conditions, workers can
remove themselves from hazardous work situations without
jeopardizing their jobs, and legal protections exist for
workers who file complaints.  The government periodically
inspects installations to raise awareness among workers and
employers and ensure that they abide by the rules.

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.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                              (1)
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                                                 0
Finance/Insurance/Real Estate                          (2)
Services                                               (1)
Other Industries                                        8
TOTAL ALL INDUSTRIES                                   (1)     

(1) Suppressed to avoid disclosing data of individual companies
(2) Less than $500,000
Source: U.S. Department of Commerce, Bureau of Economic Analysis

(###)


To the top of this page