The legal framework for foreign investors in Kuwait has undergone radical change in the past six months. The government is hoping to attract and facilitate foreign investment worth billions of dollars. Past attempts have not met expectations, but the feedback from the market so far is positive.

The 2013 reforms to the country’s direct investment law have yet to be fully tested. However, in a positive sign, more than 150 potential investors have contacted the new Kuwait Direct Investment Promotion Authority (KDIPA) and found their procedures to be faster and simpler than under the previous body, the Kuwait Foreign Investment Bureau (KFIB).

Questions remain over the role and cooperation of Kuwaiti ministries, which will only be resolved as investors take their projects through the whole process and KDIPA refines its remit and procedures. The first two proposals to navigate the new systems, in the information technology and telecoms sector, will be an indication of whether the reforms have been a success.

Investment simplified

In 2012, Kuwait attracted $1.9bn of foreign direct investment (FDI), compared with the UAE’s $9.6bn, while outflows totalled $7.5bn, the highest in the GCC, according to the UN Conference on Trade & Development. Between 2006 and 2010, KFIB approved only 14 foreign-owned schemes, worth about KD6bn ($20.3bn). Many investors lost interest due to the complexity of bureaucratic procedures. The failure to attract sufficient investment led parliament to pass Law 116/2013 to simplify processes.

The reforms replaced KFIB with the one-stop shop KDIPA, giving it the authority to make decisions on projects, and reducing the approval time for investments to a maximum of 30 days. But the most significant change was the replacement of a positive list stipulating a limited number of sectors open to investors with a negative list excluding only 10 strategic sectors from 100 per cent foreign ownership.

Positive sign

“The regulations have included select sectors that are important to the economy, such as extraction of certain natural resources, which is unsurprising considering the national interests in these sectors,” says Philip Kotsis, partner at UAE law firm Tamimi & Co. “Everything else, including sectors such as oil services, and import and distribution, appear unrestricted, which is very positive for [FDI] opportunities.”

The exclusion of oil and gas extraction was expected, and foreign involvement in other sectors such as real estate would have clashed with laws granting rights only to Kuwaiti citizens and would have threatened local business interests. “The list is short and very simplified,” says Alok Chugh, a partner at the UK’s EY. “But they wanted to protect and regulate the Kuwaiti business community in the sectors they dominate, such as provision of labour.”

The publication of simple, clear executive regulations and a negative list is a promising sign in a country plagued for years by slow decision-making and with a reputation for political interference in projects. The difficulties were demonstrated by the year-long hiatus between parliamentary approval for the reforms and the issue of executive regulations and the negative list. It was caused by extended negotiations between various stakeholders, including in the private sector, and delays in approval by Kuwait’s highest body, the Council of Ministers.

Investors impressed

Investors are so far impressed with the enthusiasm and responsiveness of KDIPA. It has approved the first project, with US firm IBM, within 30 days. IBM is establishing an investment vehicle and is expected to secure a licence soon, while a second project is in the final stages of gaining approval from KDIPA. “KDIPA has drive; it’s responsive and meeting its 30-day time limits,” says Chugh. “But there are bound to be roadblocks over the first few months.”

Interested investors may present KDIPA with a summation of concept paper. KDIPA will evaluate the project and its added value, and will grant existing tax incentives and customs exemptions according to weighted criteria including technology transfer, benefits and jobs for the local community.

“The new executive regulations are simplified, unambiguous and transparent, and our workflow will bring out best practices,” says Mona Bseiso, a consultant at KDIPA. “Decisions will be made at the authority level.”

KDIPA is still in the early stages of operation, and its internal teams and procedures, as well as relations with key stakeholders such as the Commerce & Industry Ministry are still tentative. Some steps in the investment process, such as incorporating an investment vehicle and acquiring land permits, must still be done at the commerce ministry. While these bodies appear to be on board with facilitating foreign investment, the process remains untested.

Services sector

Although all schemes are permitted under the new law, most initial projects are expected to be in the services sector. Manufacturing and industrial projects may find the application process more challenging.

“Manufacturing projects may only get licences if they have land available already,” says Chugh. “KDIPA cannot guarantee land permits, but they are discussing the issue with stakeholders at CIM and PAI. They will be more stringent regarding regulations, especially environmental impact.”

Overall, though, the mood is optimistic, as shown by the 150 investors that contacted KDIPA during its first three weeks of operation.