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FM AMEMBASSY KUWAIT
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INFO RUEHZM/GCC COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 09 KUWAIT 000064 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, STATE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: 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 Kuwait's 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 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 
region's 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 
 
KUWAIT 00000064  002 OF 009 
 
 
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 company's assets.  Thiry-five percent will 
be sold to a core investor, which will be the local or foreign 
company making the 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.  Qatar's 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. 
Kuwait's 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 Equate's 
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 
 
KUWAIT 00000064  003 OF 009 
 
 
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 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 
companies' 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 "Offset Fund", with variable capital up to KD 1 billion. 
 
 
KUWAIT 00000064  004 OF 009 
 
 
Offset obligations are applied to military contracts 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 Kuwait's legal system 
often frustrates American claimants. 
 
Kuwait has a developed legal system and a strong trading history. 
It has a civil code system influenced by Islamic law.  As a 
traditional trading nation, Kuwait's 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 
 
 
KUWAIT 00000064  005 OF 009 
 
 
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 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 00000064  006 OF 009 
 
 
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) 
 
BANKKD (million)U.S. $ equivalentNational Bank of 
Kuwait7,898.30028,825.91Kuwait Finance 
House6,313.79123,043.03Gulf Bank4,059.95114,817.34Commercial 
Bank of Kuwait2,917.23310,646.84Al-Ahli 
Bank2,424.5268,848.64Burgan Bank2,210.2158,066.48Bank of 
Kuwait and the Middle East1,929.4067,041.63Bank of Kuwait & 
Bahrain1,616.2585,898.75Kuwait International 
Bank803.5572,932.69Boubyan 
Bank504.3391,840.65TOTAL30,677.576111,961.96 
(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 
uwait 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 
 
KUWAIT 00000064  007 OF 009 
 
 
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 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. - 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 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 
 
KUWAIT 00000064  008 OF 009 
 
 
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 Department's 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 20:00-0700, 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 "immoral jobs that abuse women's femininity" 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: 
- USD300 to 1500 
- Shutting 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 KNREC's contract and suspending all its activities at 
the FTZ area.  To date, KNREC is appealing this decision in Kuwaiti 
 
KUWAIT 00000064  009 OF 009 
 
 
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 KIA's 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.)