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FM AMEMBASSY KUWAIT
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UNCLAS SECTION 01 OF 11 KUWAIT 000062 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, STATE PASS TO USTR 
 
E.O. 12958: N/A 
PGOV, EINV, KTDB, USTR, OPIC, KU 
SUBJECT: 2008 KUWAIT INVESTMENT CLIMATE STATEMENT 
SUBMISSION 
 
REF: 07 SECSTATE 158802 
 
¶1. Per reftel instructions, the following is 
Post's submission for the 2008 Kuwait Investment 
Climate Statement: 
 
OPENNESS TO FOREIGN INVESTMENT 
 
The Council of Ministers approved the implementing 
regulations for its current Direct Foreign Capital 
Investment Law -- Law No. 8/2001 - passed by the 
National Assembly on March 11, 2001 --, through 
Resolution No. 1006/1/2003 on November 1, 2003. The 
legislation authorizes foreign-majority ownership 
and 100 percent foreign ownership in certain 
industries including: infrastructure projects 
(water, power, waste water treatment or 
communications); investment and exchange 
companies; insurance companies; information 
technology and software development; hospitals 
and pharmaceuticals; air, land and sea freight; 
tourism, hotels, and entertainment; housing 
projects and urban development.  Projects 
involving oil discovery or oil and gas production 
are not authorized for foreign investment and 
must be approved by a separate law. 
 
The Direct Foreign Capital Investment Law promotes 
foreign investment in Kuwait; authorizes tax holidays 
of up to ten years for new foreign investors; 
facilitates the entry of expatriate labor; 
authorizes land grants and duty-free import of 
equipment; provides guarantees against expropriation 
without compensation; ensures the right to repatriate 
profits; and protects the confidentiality of 
proprietary information in investment applications, 
with penalties for government officials who 
reveal such data to unauthorized persons.  New 
investors are protected against any future changes 
to the law.  Full benefit of these incentives, 
however, is linked to the percentage of Kuwaiti 
labor employed by the new venture.  The investor 
is also obliged to preserve the safety of the 
environment, uphold public order and morals, and 
comply with instructions regarding security and 
public health.  While the Direct Foreign Capital 
Investment Law is on the books, foreign companies still 
report numerous delays in getting approval to operate 
in Kuwait, and the law does not appear to have changed 
the investment climate in any significant way. 
 
Foreign firms still may not invest in the 
upstream petroleum sector, although they are 
permitted to invest in petrochemical joint 
ventures; Dow Chemical, a partner in EQUATE, is 
the only foreign company involved in a 
petrochemical joint venture.  Implementing 
legislation brought before Parliament in January 
2004 would allow for limited, controlled 
investment in the petroleum sector.  This law was 
submitted specifically to allow for investment in 
and development of KuwaitQs northern oilfields, 
but may be used to allow for other investment in 
the petroleum sector in the future.  The 
legislation, however, is still pending and has 
not been brought to a vote in Parliament. 
 
Kuwait's economy has been dominated by the state and 
the nationalized oil industry since the early 1970s 
despite efforts by the government to diversify. 
The government acquired major holdings in private 
Kuwaiti firms -- particularly banks and insurance 
companies -- following stock market crashes in 
1979 and 1982.  After liberation from Iraq (early 
in 1991), the government passed a debt settlement 
law and purchased outstanding debts emanating from 
the stock market crashes and the Gulf War.  Between 
1995 and 1998, the government successfully 
divested over 50 percent of its equity holdings 
in private firms by selling off its full holdings 
in 28 firms and portions of holdings in 17 other 
firms, earning some US $3.2 billion.  The program was 
suspended in 1998 because of the weakness of the 
Kuwait Stock Exchange, but resumed in May 2001 when 
the Kuwait Investment Authority sold 113 million 
shares (about 24 percent) of the Mobile 
Telecommunications Company (MTC).  There were six 
 
KUWAIT 00000062  002 OF 011 
 
 
times as many prospective buyers as could be 
accommodated.  The sale fulfilled the government's 
intention to reduce its equity in MTC from 49 
percent to 25 percent. 
 
Established after the 1982 stock market crash, 
the Kuwait Stock Exchange (KSE) is the second 
largest bourse in the Arab world after Saudi 
Arabia's NCFEI.  The KSE lists 181 Kuwaiti 
companies and 15 companies from other Arab 
States, including one Iraqi company.  It reopened 
in 1992 following the Gulf War and has a market 
capitalization of US$ 142.36 billion (KD 39 
billion) as estimated by  December 2007, an 
increase of 2.1% from 2006.  KSE boasts the 
regionQs first trading floor for women and is in 
consultations with a British firm to establish a 
Capital Markets Authority to serve as an 
independent regulatory body similar to the U.S. 
Securities and Exchange Commission. 
 
The National Assembly ratified the "Indirect 
Foreign Investment Law" in August 2000, allowing 
foreigners to own 100 percent of all listed 
shareholding companies, except banks.  The 
banking sector was opened under the Direct 
Foreign Investment Law and the Central Bank has 
already granted licenses to six foreign banks. 
Five of them have already opened branches: BNP 
Paribas and HSBC, both of which began operations 
in 2005; Citibank and the National Bank of Abu 
Dhabi, which began operations in 2006; and Qatar 
National Bank, which began operations in 2007. 
Doha Bank has not yet opened a branch in Kuwait. 
However, while foreign banks may now operate in 
Kuwait, they are restricted to opening only one 
branch and are prohibited from competing in the 
retail banking sector.  Kuwait's banking sector 
is regulated by the country's effective Central 
Bank and is comprised of Islamic, specialized, 
and commercial banks.  With the conversion of 
Kuwait Real Estate Bank (KREB) in 2006, which 
became Kuwait International Bank (KIB), there are 
now three Islamic banks including Kuwait Finance 
House (1977) and Boubyan Bank (2004).  KIB's 
conversion leaves one remaining specialized bank, 
the Industrial Bank of Kuwait.  The seven 
commercial banks include National Bank of Kuwait 
(1952), Commercial Bank of Kuwait (1960), Gulf 
Bank (1960), Al-Ahli Bank of Kuwait (1967), The 
Bank of Kuwait and the Middle East (1971), Burgan 
Bank (1976) and Bank of Bahrain and Kuwait 
(1977).  Bank of Kuwait & Middle East has plans 
to convert to an Islamic bank upon Central Bank 
approval. 
 
 
On July 9, 2001, the Kuwaiti government announced 
an ambitious five-year privatization program, 
which closely resembled past initiatives.  The 
plan outlined a wide range of activities, but 
with little detail.  The first year called for 
privatizing some gas station outlets and part or 
all of Kuwait Airways (KAC), which has operated 
at a loss since 2000.  Year two would initiate 
privatization of post office, telegraph, and 
telecommunication services.  Years three and four 
would complete the telecommunication 
privatization and initiate the privatization of 
the Ports Authority and Public Transport Company. 
The fifth and final year would target the power 
and water sectors, as well as Kuwait's 
Petrochemical Industries Company (PIC).  Kuwait's 
National Assembly has made it clear that any 
privatization program will have to insulate consumers 
from significant rate increases and protect the jobs 
of Kuwaiti citizens.  Little of the 2001 five-year 
plan has been implemented.  A law to privatize KAC, 
which continues to operate at a significant loss and 
now faces direct local competition from the new, 
private Jazeera Airways, was finally approved by the 
Parliament in January 2008.  Under the law, KAC will 
be transformed into a private company within the 
next two years after two independent international 
auditors have valued the companyQs assets.  Thiry- 
five percent will be sold to a core investor, which 
will be the local or foreign company making the 
 
KUWAIT 00000062  003 OF 011 
 
 
highest bid.  Forty percent will be sold to Kuwaiti 
citizens through an initial public offering, 
government institutions will retain 20 percent, and 
5 percent will be distributed equally among KAC 
employees.  Forty-two percent of the new company's 
employees must be Kuwaitis whose minimum salaries 
will be set by the government.    Another private 
airline, Al-Wataniya, was licensed and formed in 
2005, but has not yet begun operations.  Both mobile 
telephone companies in Kuwait are private, with the 
Government holding significant minority interest, 
and the Ministry of Communication still sets 
tariffs, which are high.  QatarQs state owned Qtel 
purchased a majority stake on one of the two mobile 
phone companies, Wataniya, in March 2007.  In 
November 2007, the Kuwaiti government granted a 
license for a third mobile telecommunications 
company.  The new company will be 26 percent owned 
by Saudi Telecom, which was the highest bidder in a 
government auction.  The government will retain a 24 
percent share, and the remaining 50 percent will be 
sold to Kuwaiti citizens in an initial public 
offering expected in February 2008.  None of the 
other communication services have yet been 
privatized, though privatizing landlines has been 
discussed for several years.  The ports and 
transport sector have not been privatized either. 
The energy and power sector has seen the most 
progress in privatization.  Eighty of the 120 
government-owned gas stations have been privatized, 
with plans to privatize the remaining forty.  The 
outcome will be three competing gas station 
companies, with gas still subsidized by the 
government and set in a price range.  The 
government-owned lubrication oils plant was 
privatized in 2004 as were the coke smelter 
operations.  KuwaitQs Petrochemical Industries 
Corporation (PIC) is now operating a joint private 
venture with Dow Chemicals called Equate, and the 
operation has proven to be a successful, profitable 
model of both privatization and foreign investment. 
On the heels of EquateQs success, Dow and PIC have 
formed two more ventures which have already been 
tendered: a second olefins plant and an aromatics 
facility which are both under construction and due 
to come online in 2008 and 2009 respectively. 
 
Build, Operate and Transfer (BOT) projects are 
gaining increasing acceptance in Kuwait, with BOT 
projects proposed in the power, wastewater, real 
estate development and transport sectors.  After 
nearly four years of deliberation, the Sulaibiya 
Waste Water Treatment BOT contract was signed in May 
¶2001.  The winning consortium, which included U.S. 
firms, projected revenues of US $390 million over 
10 years.  The project, which was commissioned in 
2004, now processes 50 million gallons of 
wastewater daily to be used for irrigation. 
 
A new BOT law was approved by the Parliament in 
January 2008 after BOT projects came under 
intense scrutiny by the State Audit Bureau in 
late 2006 for alleged violations and several 
contracts were cancelled.  The new law 
establishes a high commission for state 
properties and bans any government institution 
from allocating state land to any project without 
the approval of the new commission.  It also 
stipulates that new companies will be established 
to implement major projects on state land with a 
40 percent share sold in an auction to an 
investor (presumably a local holding company), 50 
percent sold to Kuwaiti citizens in an IPO, and 
the remaining 10 percent sold to the local or 
foreign company implementing the project.  The 
law limits the term of BOT contracts to 30 years 
with the exception of "special" projects, which 
can continue for up to 40 years. 
 
There have been a number of real estate BOT projects 
by privately owned Kuwaiti companies.  The first- 
class US $132 million Sharq Mall, owned by the 
National Real Estate Company, contains retail 
outlets, restaurants, theaters, and entertainment 
concessions.  More recently, the Fifth Waterfront 
Development Project constructed Marina Mall in 2002. 
This US $162 million BOT is owned by the United 
 
KUWAIT 00000062  004 OF 011 
 
 
Realty Company and features high-end retail, 
eating, and entertainment outlets.  A future BOT 
is planned for a central incinerator in the 
Shuaiba Industrial Area, a project that 
stipulates foreign participation with at least 25 
percent equity. 
 
Foreign-owned firms and the foreign-owned portions of 
joint ventures are the only businesses subject to 
corporate income tax, which applies to both 
domestic and offshore income.  In December 2007, 
Kuwait's Parliament approved a new tax law to 
reduce the tax rate on foreign companies from 55 
percent to 15 percent to attract more foreign 
investment.  The new 15 percent tax rate will be 
applied as a flat tax on the annual net profits 
of foreign companies, unlike the previous system 
which incorporated a series of tranches that 
progressively reached a maximum of 55 percent. 
Capital gains on stock market investments will be 
exempt as will the profits of Kuwaiti 
distributors of foreign goods.  New foreign 
investors can be exempted from all taxes for up to 10 
years under the new Direct Foreign Capital Investment 
Law. 
 
Kuwaiti firms are not subject to the corporate 
income tax, but those registered on the Kuwait 
Stock Exchange (shareholding companies) are 
required to contribute 2.5 percent of their 
national earnings to the Kuwait Foundation for the 
Advancement of Science (KFAS).  The National 
Employment Law levies an additional 2.5 percent tax 
that will fund a program granting Kuwaitis 
working in the private sector the same social and 
family allowances provided to Kuwait's government 
workers.  Kuwait levies no personal income tax. 
 
Tax exclusions -- besides those offered under the new 
Direct Foreign Capital Investment Law -- for business 
expenses are limited, and Kuwait's tax code is often 
ambiguous.  For example, deductions are only three 
percent for agent commissions and head office 
expenses (mainly for turnkey supply and 
installation-type contracts).  The most 
significant tax ambiguity exists in terms of 
defining foreign companiesQ taxable presence in 
Kuwait, and several foreign firms are engaged in 
ongoing disputes over their tax liabilities. 
 
The licensing authority of the Ministry of 
Commerce and Industry screens all proposals for 
direct foreign investment.  In the past, this 
authority has encouraged high-tech industries 
over sectors viewed to be saturated, such as the 
hotel industry.  The Foreign Capital Investment 
Committee (FIC), chaired by the Minister of Commerce 
and Industry and including representatives from the 
private and public sectors, will authorize 
investment incentives put forth under the new 
Foreign Investment Law on a case-by-case basis. 
Foreign companies have reported numerous delays in 
gaining authorization, some waiting up to 18 months 
for approval. 
 
On July 26, 1992, the Council of Ministers of the 
State of Kuwait established the Counter Trade Offset 
Program through the issuance of Decision No. 694, 
which stipulates that all Foreign Contractors who meet 
certain criteria should participate in the Counter- 
Trade Offset Program. 
 
In January 2002, the Kuwaiti government transformed 
its offset program into a mechanism for promoting 
foreign investment in Kuwait.  The program was briefly 
suspended in September 2004 in order to study its 
effectiveness, but in August 2005 the Ministry of 
Finance announced that Kuwait would reactivate its 
offset regime for both civil and defense contracts. 
In April 2006, Kuwait established the National Offset 
Company to  manage, enforce and review all offset 
proposals.  The company is designed to be a one-stop 
shop for all matters related to offsets.  On October 
24, 2007, the Company launched QOffset FundQ, with 
variable capital up to KD 1 billion. 
 
Offset obligations are applied to military contracts 
 
KUWAIT 00000062  005 OF 011 
 
 
of a value equal to or above KD3 million (about $11 
million), civil/government contracts of a value equal 
to or above KD10 million (about $36.5 million) and 
oil/gas contracts.  Oil and gas exploration and 
production contracts are excluded from the offset 
program.  Offset obligations amount to 35 percent of 
contract value with offset multipliers being 
established to target investment into determined 
sectors of the Kuwaiti economy.  The foreign 
contractor will be subject to an unconditional 
financial guarantee equal to 6 percent of the contract 
value. 
 
 
CONVERSION AND TRANSFER POLICIES 
 
After 27 years of linking the Kuwaiti dinar (KD) 
exchange rate to a basket of currencies, Kuwait 
decided to peg the dinar to the US dollar under a 
flexible peg from the beginning of 2003. The move 
was in preparation for the adoption of a single 
GCC currency in 2010.  On May 20, 2007, the Central 
Bank of Kuwait (CBK) announced that, based on the 
Council of Ministers' approval, the determination of 
the exchange rate of the Kuwaiti Dinar (KD) against 
the US Dollar would be based on a basket of major 
world currencies reflecting the foreign trade and 
financial relations of the State of Kuwait, and in a 
similar way to the policy applied before January 5, 
¶2003.   GOK cited inflationary pressures due to a 
weak dollar as the reason for unpegging the Kuwaiti 
Dinar from the US Dollar. 
 
There are no restrictions on current or capital 
account transactions in Kuwait beyond the 
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.  Under the current Foreign 
Investment Law, investors are also permitted to 
transfer all or part of their investment to 
another foreign or domestic investor. 
 
 
*Source: Central Bank of Kuwait, May 2007. 
 
 
EXPROPRIATION AND COMPENSATION 
 
There have been no recent cases of expropriation 
or nationalization involving foreign investments 
in Kuwait.  Nevertheless, as a safeguard, the Direct 
Foreign Capital Investment Law guarantees against 
expropriation or nationalization except for the 
public benefit in accordance with existing laws; 
in this case, compensation will be provided 
without delay for the "real economic value of the 
project at the time of expropriation."  When 
foreign companies were nationalized in the past, 
as with Kuwait's oil industry in the 1970s, 
foreign interests were compensated promptly and 
effectively. 
 
DISPUTE SETTLEMENT 
 
The Foreign Investment Law stipulates that 
Kuwaiti courts alone are responsible for 
adjudicating any disputes involving a foreign 
investor and other parties, although arbitration 
is permitted. Few contracts in Kuwait contain 
clauses specifying recourse to traditional 
commercial and political arbitration.  According 
to the Central Bank of Kuwait, the Kuwaiti judicial 
system recognizes and enforces foreign judgments only 
when reciprocal arrangements are in place. Kuwait 
is a signatory to the International Center for 
the Settlement of Investment Disputes (ICSID, i.e. 
the Washington Convention).  There have been no 
investment disputes involving American firms in 
Kuwait in over five years; commercial disputes are 
more common.  In both cases, the slow pace of 
KuwaitQs legal system often frustrates American 
claimants. 
 
Kuwait has a developed legal system and a strong 
 
KUWAIT 00000062  006 OF 011 
 
 
trading history.  It has a civil code system 
influenced by Islamic law.  As a traditional trading 
nation, KuwaitQs judiciary is familiar with 
international commercial laws.  Kuwait has been a 
GATT member since 1963 and has signed the WTO 
agreement.  Kuwait, however, is not a signatory to 
the WTO Government Procurement Code. 
 
A feature of Kuwaiti law which U.S. business 
should be aware of is the application of travel 
bans which may be applied against individuals who 
have civil or criminal cases registered against 
them.  The ban prevents individuals from 
departing Kuwait until the pending matter is 
settled or acceptable guarantees are offered.  Former 
Kuwaiti business partners involved in disputes with 
U.S. businesses have managed to have travel bans 
imposed on U.S. partners for allegedly violating 
Kuwaiti civil law. Though very infrequent, such 
cases highlight the need to take extra care 
before entering into long-term business 
relationships in Kuwait. 
 
PERFORMANCE REQUIREMENTS/INCENTIVES 
 
Government Procurement Requirements 
 
Law No. 37 of 1964 (Articles 43 and 44) specifies 
the use of local products when available and 
prescribes a 10 percent price advantage for local 
firms in government tenders. 
 
Boycotts 
 
In June 1993, Kuwait publicly announced its 
decision to end enforcement of the secondary and 
tertiary Arab League boycotts of Israel. 
Although there are occasional reports that some 
tender requests contain boycott clauses 
reportable under U.S. anti-boycott laws, these 
usually result from clerical errors or the use of 
outdated forms.  Kuwait maintains an open boycott 
office in its Customs Department, and has stated 
that it will wait for Arab League action before 
eliminating the primary boycott of Israeli-owned 
companies and goods produced in Israel. 
 
 
Shipping Requirements 
 
The Kuwaiti government has insisted that cargoes 
for government projects originating in U.S. ports 
will no longer be prevented access in favor of 
the United Arab Shipping Program. 
 
Participation in Research and Development 
 
There are no specific restrictions on foreign 
participation in government-financed or subsidized 
research and development, but little activity of this 
kind has occurred to date.  The Kuwait Institute 
for Scientific Research (KISR) has expressed 
interest in working with foreign firms.  The 
government would welcome programs that provide 
expertise unavailable locally, but these are 
likely to be evaluated on a case-by-case basis. 
Both KISR and the Ministry of Health have entered 
into discussions with MIT, Harvard, and Johns 
Hopkins about prospective research partnerships. 
 
Visa and Work Permit Requirements 
 
Kuwait has a stringent visa regime and most work 
permits require a local sponsor.  The Foreign 
Investment Law, however, may redress this problem 
for new investors.  Reciprocal changes between 
the U.S. and Kuwait--particularly the introduction 
of a 10-year multiple entry visa--have benefited U.S. 
business travelers.  Visa requirements for 
citizens of 34 nations, including the United 
States, were relaxed in 2004 allowing for 
application for a visa upon arrival at the 
airport.  However, investors should be aware that 
as of August 2006, persons entering on tourist 
visas will no longer be able to convert to work 
permits without first leaving the country. 
Foreign-born U.S. citizens, especially those of 
 
KUWAIT 00000062  007 OF 011 
 
 
Middle Eastern descent, sometimes experience 
difficulties with visa and residency 
applications.  Any problems experienced by 
potential U.S. visitors should be referred to the 
American Embassy or to the Bureau of Consular 
Affairs, Department of State. 
 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
Rights to private ownership and establishment are 
respected in Kuwait, although foreigners face 
selected restrictions.  Licenses from the 
Ministry of Commerce and Industry are required for 
the establishment of all new companies, and 
government authorization is required for any 
incentives offered by the Foreign Investment Law. 
As stated above, foreign ownership is restricted or 
prohibited in some sectors of the economy, and non- 
GCC citizens may not own land in Kuwait. 
 
Kuwaiti law severely restricts the types of 
collateral to which creditors may have recourse 
in the event of default by a borrower.  Banks may 
not foreclose on residential real estate property 
or personal possessions in the event of default, 
although they may sue the borrower for the 
balance due under the loan contract.  Borrowers 
typically pledge a portion of their future 
severance benefits as collateral for a bank loan. 
 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
 
Kuwait has not developed effective antitrust laws 
to foster competition, and its bureaucracy often 
resembles that of a developing country.  Kuwait's 
open economy has generally promoted a competitive 
market.  When government intervention occurs, 
however, it is usually to the benefit of Kuwaiti 
citizens and Kuwaiti-owned firms. 
 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
Kuwait has a free, but inefficient, capital 
market where credit is allocated on market terms. 
Foreign investors can obtain credit through local 
banks.  With the help of government subsidies, 
the financial markets -- and particularly the 
commercial banks -- operated throughout the 1980s 
primarily to collect funds for the re-lending to 
favored customers.  Payment discipline was lax and 
real economic losses common.  Under a bank 
stabilization program introduced in 1992, the Central 
Bank of Kuwait purchased all of the outstanding 
domestic credits of Kuwait's commercial banks 
while eliminating all guarantees for profits, 
equity, and liabilities other than the banks' 
deposit liabilities.  Henceforth, all losses would 
stay with the banks, which would be responsible 
for the management of all their assets and 
liabilities.  In addition, the Central Bank 
improved bank supervision, resulting in a fairer 
and more efficient distribution of credit 
throughout the Kuwaiti banking system.  Each of 
Kuwait's ten commercial banks reported continued 
earnings growth in 2007. 
 
BANK ASSETS 
Kuwait's banks have not yet released their 2007 
annual reports.  The assets of Kuwait's 
commercial banks on December 31, 2006 were: (in 
'000s) 
 
BANK                     KD (million)            U.S. $ 
                                                 equivalent 
National Bank of Kuwait   7,898.300              28,825.91 
Kuwait Finance House      6,313.791              23,043.03 
Gulf Bank                 4,059.951              14,817.34 
Commercial Bank of Kuwait 2,917.233              10,646.84 
Al-Ahli Bank              2,424.526               8,848.64 
Burgan Bank               2,210.215               8,066.48 
Bank of Kuwait and 
the Middle East           1,929.406               7,041.63 
Bank of Kuwait & Bahrain  1,616.258               5,898.75 
Kuwait International Bank   803.557               2,932.69 
 
KUWAIT 00000062  008 OF 011 
 
 
Boubyan Bank                504.339               1,840.65 
TOTAL                    30,677.576             111,961.96 
 
(US $1 equals KD 0.274 as of December 11, 2007 - 
CBK) 
 
The quality of local banks varies from blue chip, 
world-class to weak.  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.  Legal, 
regulatory, and accounting systems are opaque but 
are generally consistent with international 
norms.  The Central Bank of Kuwait requires 
annual reports from local banks to meet 
international accounting standards.  U.S. 
businesspeople are advised to seek local legal 
and financial advice for complicated investments 
and transactions. 
 
There are few defensive measures to protect 
against hostile takeovers, which are rare in 
Kuwait. There is no evidence of private sector or 
government efforts to restrict foreign 
participation in industry standards-setting 
consortia or organizations.  U.S. suppliers often 
have trouble, however, complying with 
specifications that are technologically-tailored 
to other (usually European, especially U.K.) 
suppliers.  In addition, American suppliers' 
preference for turnkey projects often does not 
mesh with Kuwait's preference to split projects 
into a series of separately-tendered smaller 
projects. 
 
Finally, U.S. investors should be aware that 
family, clan, and tribal ties throughout the 
business community and government can restrict 
foreign participation, investment, and control of 
domestic enterprises.  Kuwait is a very big small 
town. 
 
POLITICAL VIOLENCE 
 
Politically Motivated Damage to Projects and/or 
Installations 
 
With the potential for terrorist actions 
throughout the Persian Gulf region still high, 
the Government of Kuwait continues to strengthen 
domestic counterterrorism measures.  There have 
not been any incidences of terrorism in Kuwait 
since January 2005, and the government has 
aggressively pursued convictions against members 
of a local terrorist cell involved in 
confrontations with Kuwait security forces in 
January 2005.  Kuwait also increased security 
around key oil installations after Al-Qaeda 
threatened to attack Gulf oil facilities. 
 
CORRUPTION 
 
The often-lengthy procurement process in Kuwait 
occasionally results in accusations of attempted 
bribery or the offering of other inducements by 
foreign bidders.  This is a crime in Kuwait and 
there are currently several investigations and 
trials underway involving current or former 
government officials accused of malfeasance. 
There have been no convictions for bribery, 
however, since the end of the Gulf War.  In 1996, 
the government passed Law No. 25, which requires 
all companies securing contracts with the government 
valued at KD 100,000 (US $364,963.5) or more to 
report all payments made to Kuwaiti agents or 
advisors while securing the contract.  The law 
similarly requires entities and individuals in 
Kuwait to report any payments they received as 
compensation for securing government contracts. 
 
BILATERAL INVESTMENT AGREEMENTS 
 
Kuwait has signed investment agreements with Germany, 
France, Italy, Russia, China, Romania, Poland, 
Hungary, Turkey, Malaysia, Pakistan, Switzerland, 
Malta, Finland, Ethiopia, Croatia, Tajikistan, 
Austria, Bulgaria, Kazakhstan, Morocco, Mongolia, the 
 
KUWAIT 00000062  009 OF 011 
 
 
Czech Republic, Japan, UK, Egypt, Sudan and Syria. 
In the past few years, Kuwait has signed a bilateral 
investment agreement with Pakistan and a free trade 
agreement (FTA) with Jordan.  Kuwait has initiated 
agreements on bilateral investment with Denmark, 
Belgium, the Netherlands, Thailand, Ukraine, Latvia, 
Lithuania, Lebanon, Bosnia/Herzegovina, and India. 
Kuwait began talks with Singapore on a Free Trade 
Agreement in December 2004. 
 
Trade and Investment Framework Agreement 
 
Kuwait signed a Trade and Investment Framework 
Agreement (TIFA) with the United States in 
February 2004.  The TIFA is the first step in 
developing economic reform and trade 
liberalization criteria to strengthen the U.S. Q 
Kuwait economic relationship and to work toward 
an eventual Free Trade Agreement.  At the first 
bilateral TIFA Council meeting, held in May 2004 
in Washington, D.C., it was agreed that the TIFA 
process would provide for periodic technical 
discussions.  Several areas in particular stood 
out as needing further attention:  intellectual 
property rights (IPR), standards-related issues, 
taxation, and service and investment 
requirements.  Technical experts on both sides 
continue to work on these areas.  Technical 
discussions took place in February 2006, followed 
by a formal TIFA Council meeting in September 
2006 in Washington, D.C, and another round of 
technical discussions in Washington in June 2007. 
While Kuwait has made notable progress on IPR 
protections (including an upgrade to the Watch 
list on the 2005 Special 301 Report), Kuwait's 
taxation practices and standards regime continue 
to be significant problems. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
In 1989, Kuwait concluded an agreement with the 
U.S. on investment guaranty programs, which 
facilitated the extension of programs from the 
Overseas Private Investment Corporation (OPIC) to 
Kuwait.  Kuwait is also a member of the 
Multilateral Investment Guarantee Agency (MIGA). 
Currently there are no OPIC programs in Kuwait. 
 
LABOR 
 
Kuwait has a diverse labor force.  Kuwaiti 
nationals occupy most of the top management 
positions in the private and government sectors.  Due 
to a welfare system that includes guarantees for 
government jobs, unemployment among Kuwaitis is less 
than five percent, but it is rising as a result 
of a growing influx of young Kuwaitis into the 
labor force (20,000 to 25,000 annually).  The new 
entrants are reluctant to enter the private sector 
and cannot be absorbed by the government, where 
underemployment remains a serious problem. 
Kuwaitis are outnumbered in the work force by 
expatriate laborers of diverse backgrounds. 
While there are a number of American and Western 
European workers in Kuwait, particularly in high- 
skilled positions, the vast majority of 
expatriate workers are low paid laborers from 
other Middle Eastern countries, South Asia, and 
the Philippines.  Prior to the Gulf War (1991), 
Palestinians occupied many of the country's 
middle-management positions.  Since the war, 
workers of other nationalities, often Egyptians or 
South Asians, have filled most of these positions. 
Since liberation, the Government of Kuwait has 
adopted inconsistent policies intended to limit and 
discourage growth of the resident expatriate 
population.  The government has instituted a 
quota system on work permits designed to protect 
workers by preventing Kuwaitis from importing 
unnecessary workers and then leaving those 
workers on the street.  Unskilled foreign workers 
are restricted from transferring from one sponsor 
to another within the private sector for a 
minimum of two years, but college graduates may 
transfer after one year.  The government has also 
levied new fees on expatriate workers and their 
families in order to raise the cost of employing 
 
KUWAIT 00000062  010 OF 011 
 
 
foreign workers.  At the same time, however, the 
government has reduced the minimum salary 
required for expatriates (in some business 
categories) to be eligible to bring their 
dependents to Kuwait, lowering it from 400 KD a 
month to 250 KD a month. 
 
Kuwaiti workers have the right to organize and 
bargain collectively, but Kuwaiti law prevents 
the establishment of more than one union per 
functional area or more than one general 
confederation.  Foreign workers, who constitute 
the vast majority of the work force, are 
permitted by law to join unions only as non- 
voting members after five years of work in the 
particular sector the union represents.  The 
right to strike is also recognized for private 
sector workers, although provisions calling for 
compulsory negotiation and arbitration in the 
case of disputes limit that right.  Kuwaiti labor 
law prohibits anti-union discrimination. 
 
Separate Kuwaiti labor laws set work conditions 
in the public and private sectors, with the oil 
industry treated separately.  Forced labor is 
prohibited and the minimum age for employment is 
18 years in industrial or dangerous jobs. Youth 
as young as 14, however, may work part-time in 
some non-industrial positions, and are allocated 
more breaks than adults.  A two-tiered labor 
market ensures high wages for Kuwaiti employees 
while foreign workers, particularly unskilled 
laborers, receive substantially lower wages.  In 
the private sector, the minimum wage is 40 KD (US 
$145.98)per month, in the public sector the 
current effective minimum wage is KD 250 (US 
$912.41) per month for Kuwaiti bachelors and KD 
325 (US $1,186.13) per month for married 
Kuwaitis, plus KD50 (US $182.48) for each child-- 
compared to KD 90 (US $328.47) for non-Kuwaitis. 
The basic labor law also limits the workweek to 
48 hours, provides for a minimum of 14 days of 
leave per year, which increases to 21 days after 
five years in the same job, and establishes a 
compensation schedule for industrial accidents. 
However, the law is inconsistently enforced and 
disputes over the payment of salaries and 
contract-switching are common, especially among 
unskilled workers.  Current labor laws do not 
apply to domestic servants. The State 
DepartmentQs annual Human Rights Report and 
Trafficking in Persons Report highlight the 
vulnerability of domestic servants to 
exploitation.  In 2006, the Ministry of Interior 
implemented a new mandatory contract for all 
domestic workers that specifies daily, weekly, 
and annual rest periods, although it does not 
specifically limit working hours.  New 
regulations also outlaw the passing 
administrative fees to workers.  These new rules 
became effective October 1, 2006, so effective 
enforcement is still an open question. 
 
The International Labor Organization's (ILO) 
Committee of Experts has reiterated its 
longstanding criticisms of the discrepancies between 
the Kuwaiti Labor Code and ILO Conventions 1, 30, 
and 87 regarding hours of work and freedom of 
association.  Areas criticized by the ILO include 
the prohibition to establish more than one trade 
union for a given field; the requirement that a new 
union have at least 100 workers; the regulation that 
workers must reside in Kuwait for five years 
before joining a trade union; the denial of the 
right to vote and to be elected for foreign trade 
unionists; 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.  A new labor law, which would 
award private sector workers more benefits, 
establish a minimum wage, and broaden rights to 
establish unions has been endorsed by the Council 
of Ministers but awaits parliamentary approval. 
 
On June 12, 2007, National Assembly ratified a law 
that bans women from working during the hours 20:00- 
 
KUWAIT 00000062  011 OF 011 
 
 
0700, except for those working in the medical sector. 
This law issued by Amiri Decree No. 52/2007, effective 
June 15, 2007, with consensus approval from 
conservative and Islamist MPs, exempts women working 
in hospitals, clinics, private therapy clinics, and 
any other institutions approved by the Minister of 
Social Affairs & Labor. 
 
The law also bans women from working in jobs that are 
hazardous, rough, and damaging to health.  In 
addition, the law bans women from working in Qimmoral 
jobs that abuse womenQs femininityQ and in places that 
exclusively serve men. 
 
The Ministry of Social Affairs & Labor will assign 
officers to enforce this law.  These Officers will 
have the right to conduct raids on public places and 
stores, seize violators, and report and refer them to 
concerned authority. 
The law stipulates a minimum penalty of 300 USD and a 
maximum penalty of stated the following punishment 
applied to violators: 
-QUSD300 to 1500 
-QShutting down the store for one month period. 
 
FOREIGN TRADE ZONES AND FREE PORTS 
 
In July 1995, the National Assembly passed Law No. 26 
authorizing the Ministry of Commerce and Industry 
to establish free trade zones in Kuwait.  In May 
1998, the privately-owned National Real Estate 
Company signed a contract with the Ministry to 
operate, manage, and market the 50 square-kilometer 
Kuwait Free Trade Zone (KFTZ) at Shuwaikh port, which 
was inaugurated in November 1999.  Many restrictions 
faced by foreign firms, such as corporate taxes, do 
not apply to offices or plants within the KFTZ. 
Some 90 percent of space within the KFTZ has been 
leased; the majority of firms operating in the 
zone are Kuwaiti. 
 
On November 26, 2006, Cabinet Council issued 
Resolution No. 507/2006 terminating KNRECQs 
contract and suspending all its activities at the 
FTZ area.  To date, KNREC is appealing this 
decision in Kuwaiti courts but has not received a 
judgment to revoke the said resolution. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
 
Kuwaiti public investments abroad consist of 
portfolio investments held by the Kuwait 
Investment Authority, direct investments of other 
government entities, as well as those held by 
private Kuwaitis. In July 2007, the Finance 
Minister publicly announced that KIAQs assets 
under management were valued at $213 billion. 
Details about the composition of both KIA and 
non-KIA investment portfolios, such as Kuwait 
Petroleum Corporation's reserve fund, remain 
murky. The holdings of private Kuwaitis, in both 
direct and portfolio investments, are believed to 
exceed $100 billion. 
 
Other major investors in Kuwait include Dow 
Chemical which has a 45 percent stake in the US 
$2 billion Equate project, a petrochemical joint 
venture with the Petrochemical Industries Company 
(PIC) that began operation in 1997. (Although the 
U.S.-owned Saudi Arabian Chevron is headquartered 
on the Kuwait side of the PNZ, it operates under 
a Saudi concession for Saudi Arabia's share of 
the onshore oil resources in the PNZ due to 
expire in 2009.) 
 
 
 
MISENHEIMER