Kuwait

Originally published: Jun-21-2009

View More Country Risk Reports

Official Name: State of Kuwait

Internet Domain: .kw
International Dialing Code: +965
Time Zone: UTC +3

Table of Contents

Location and Size

Kuwait is a very small, rich Middle Eastern country at the top of the Persian Gulf, flanked by large, powerful neighbors - Saudi Arabia, Iraq and Iran. The country is slightly smaller than the U.S. State of New Jersey.

Government

Constitutional hereditary emirate, gaining independence from the United Kingdom on June 19, 1961.

Branches:

• Executive – Amir His Highness Sheikh Sabah Al-Ahmed Al-Jaber Al Sabah (head of state); prime minister His Highness Sheikh Nasser Al-Mohamad Al Sabah (head of government); Council of Ministers (cabinet)
• Legislative – unicameral National Assembly
• Judicial – High Court of Appeal

Kuwait was the first Arab country in the Gulf to have an elected parliament. Moves to change the male-dominated political structure culminated in the granting of full political rights to women in 2005.

Legal System

Civil law system with Islamic law significant in personal matters. Has not accepted compulsory International Court of Justice (ICJ) jurisdiction. (What does this mean?)

Judicial Power in Kuwait is not really independent. The Emir appoints all judges and the Executive branch approves their promotions and renewals of their functions.

People

Over 90% of the population lives within a 500-square kilometer area surrounding Kuwait City and its harbor. Kuwait's 93.3% literacy rate, one of the Arab world's highest, is the result of extensive government support for the education system

• Population: 2,691,158 (including 1,291,354 non-nationals) (July 2009 est.)
• Population growth rate: 3.547%
• Languages: Arabic (official), English widely spoken (used in business and is a compulsory second language in schools)
• Literacy: 93.3%
• Ethnic Make-up: Kuwaiti 45%, other Arab 35%, South Asian 9%, Iranian 4%, other 7%
• Religions: Muslim 85% (Sunni 70%, Shia 30%), other (includes Christian, Hindu, Parsi) 15%

Economy

Kuwait has a small, relatively open economy dominated by the oil industry and government sector. The government sector accounts for more than three-quarters of gross domestic product (GDP). Approximately 90% of the Kuwaiti citizen labor force works in the public sector, and 90% of private sector workers are non-Kuwaitis. Kuwait's proven crude oil reserves of about 100 billion barrels - 9% of world reserves - account for nearly 95% of export revenues, and 90%-95% of government income. Kuwait puts 10% of its annual oil revenue in a Fund for Future Generations in preparation for the transition to the period after its oil resources are depleted.

The financial crisis emanating from the United States and the slowdown of the world economy began to affect the non-oil sector (mainly financial services and properties) in 2008. The sector nonetheless continued to achieve strong growth, estimated at 6.5 percent, albeit sharply down from 9.5 percent the previous year. The oil sector, meanwhile, could only manage a modest expansion, around one percent, limited notably by the slowdown of foreign demand in the second half of the year.

Even if its financial assets abroad suffered from the collapse of the markets, Kuwait is nonetheless starting from a solid financial position and will likely be able to cope with the downturn. The pursuit of a proactive monetary policy by the Central Bank of Kuwait has been credited with ensuring that Kuwait has been shielded from the worst affects of the global financial and economic crisis.

Currency: Kuwaiti dinars (KWD)

Leading Markets (2007): Japan 19.9%, South Korea 17%, Taiwan 11.2%, Singapore 9.9%, US 8.4%, Netherlands 4.8%, China 4.4%

Leading Exports-commodities: oil and refined products, fertilizers

Leading Suppliers (2007): US 12.7%, Japan 8.5%, Germany 7.3%, China 6.8%, South Korea 6.6%, Saudi Arabia 6.2%, Italy 5.8%, UK 4.6%

Leading Imports-commodities: food, construction materials, vehicles and parts, clothing

Top Industries: petroleum, petrochemicals, cement, shipbuilding and repair, water desalination, food processing, construction materials

Top Agricultural Products: practically no crops; fish

Economic Indicators

(e) estimate (f) forecast

Comparative Economic Indicators - 2008

* 2009 estimates
** PPP – Purchasing Power Parity

Credit and Collections

ABC-Amega’s collection experience in Kuwait

Riki-Lee Ritz, Assistant Vice President, International: Kuwait is a member of The Cooperation Council for The Arab States of the Gulf (also known as the Gulf Cooperation Council - GCC). The GCC has six members: Kuwait, United Arab Emirates, The Kingdom of Bahrain, The Kingdom of Saudi Arabia, The Sultanate of Oman, and Qatar. These member states have joined together with four main objectives, the third being:

To formulate similar regulations in various fields including the following: Economic and financial affairs; Commerce, customs and communications; Education and culture.

In the area of economy and commerce, the GCC has achieved a number of common accords, including the:

• Manama Document on the Common Law of Civil Procedures (Proceedings), which incorporates the general provisions of procedure, prosecuting procedures in civil and commercial actions, etc.
• Doha Document on the Common Law of Notary Publics
• Reference Model for the Agreements on Legal and Judicial Cooperation, consisting of 87 articles covering all aspects of legal and judicial cooperation.

Per David Greenberg, Assistant Vice President, International, laws suits in Kuwait are extremely expensive. On a recent base of $500,000, the Kuwaiti attorney quoted fees/expenses of close to $60,000. This amount did not include potential appeals.

Dispute Resolution 

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.

There have been no investment disputes involving American firms in Kuwait in more than five years; commercial disputes are more common. In both cases, the slow pace of Kuwait’s legal system often frustrates American claimants.

Risk Assessment

Weaknesses according to Coface: The economy lacks diversification and private investment has suffered from a dearth of reforms due to Parliament’s opposition. Statistics on economic indicators remain sparse, which hampers risk assessment.

Coface Country Rating: A2 – The political and economic situation is good. A basically stable and efficient business environment nonetheless leaves room for improvement. Corporate default probability is low on average.

Coface Business Climate Rating: A3 – The business environment is relatively good. Although not always available, corporate financial information is usually reliable. Debt collection and the institutional framework may have some shortcomings. Intercompany transactions may run into occasional difficulties in the otherwise secure environments rated A3.

Ducroire Delcredere Political Risk Rating: 2 – very low risk
Ducroire Delcredere Commercial Risk Rating: B – moderate risk

Other Risk Ratings:

• AA (Fitch)
• Aa2 (Moody’s)
• AA- (S&P)

The Belgian Export Credit Agency (ONDD)

• Political Risk Rating: 2 (scale of 1-7) for export transactions
• Commercial Risk Rating: B (scale of A, B and C)

Business Climate

Kuwait is actively promoting itself as a base for foreign investors in the region, although with limited success so far. The Government is also looking at wider economic reform, including moving some of the 95% of Kuwaitis who work in the state sector to the private sector.

Economic Freedom: According to the 2009 Index of Economic Freedom, Kuwait's economic freedom score is 65.6, making its economy the 50th freest in the 2009 Index. Kuwait is ranked 5th out of 17 countries in the Middle East/North Africa region, and its overall score is well above the world average.

Transparency of 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.

Patents and Trademarks: In Kuwait, patents and trademarks must be registered in the Trademark Control and Patents Office in the Ministry of Trade and Industry (MTI).

Conversion and Transfer Policies: Kuwait decided to peg the dinar to the US dollar under a flexible peg from the beginning of 2003. 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.

Corruption: Corruption and bribery is perceived to be increasing in Kuwait according to the 2009 Global Corruption Barometer, a study conducted by Transparency International.

Crime, Violence and Terrorism: Kuwait has faced a recent spate of militant violence. Security forces have clashed with Islamist militants, some of whom are alleged to have links with al-Qaeda. The authorities say extremist groups have plotted attacks on Western targets.

For more detailed information on these topics, visit the 2008 Investment Climate Statement – Kuwait, of the U.S. Department of State.

Business Protocol

Since Kuwaitis prefer to do business with those with whom they have a personal relationship, they spend a great deal of time on the getting-to-know-you process.

Business Cards: Business cards are given to everyone you meet. Have one side of your card translated into Arabic.

Business Attire: Kuwaitis judge others based on appearances, so dress and present yourself well. Business attire is conservative. Men should wear lightweight, good quality, conservative suits, at least to the initial meeting. Women should avoid giving offence and refrain from wearing revealing or tight fitting clothing. Although they do not need to wear skirts that reach the ground, skirts should cover the knee and sleeves should cover the elbow and fasten at the neck.

Names and Titles: Titles are important. Use the honorific "Mister" and any academic or political title and the first name. Do not use only the first name until expressly invited to do so. The title "Sheikh" denotes that someone is a member of the royal family. It is also used for old men. Personal naming convention ex: The name of Suleyman Al-Ahmed Al- Mustafa Al-Sabah means Suleyman, son of Ahmed, grandson of Mustafa of the Sabah family/tribe.

Conversation: Kuwaitis respect education, so carefully mention if you have an advanced degree, especially if it is from a prestigious university.

Greetings: Physical greetings (handshaking, hugging) should only be between members of the same sex.

Meetings: You must be patient since impatience is viewed as criticism of the culture. Meetings are generally not private unless there is a need to discuss matters confidentially. Expect frequent interruptions. Others may wander into the room and start a different discussion. Do not try to bring the topic back to the original discussion until the new person leaves. Kuwaitis are event rather than time-driven. The event of getting together is more important than the timeliness of the meeting or the outcome. Decisions are reached slowly. If you try to rush things, you will give offence and risk your business relationship.

Negotiations: Business will only be discussed once an atmosphere of trust and friendship has been established. Kuwaitis are shrewd negotiators who are especially interested in price. High-pressure sales tactics will work against you.

Contracts: Although negotiating is done in English, contracts are written in Arabic. If there is both an English and Arabic version, the Arabic will be the one followed.

Articles of Interest on Kuwait

National Bank of Kuwait (NBK) named ‘Best Bank in 2009’ by Euromoney
AME Info, June 11, 2009

Kuwait elects first women MPs
Aljazeera.net, May 17, 2009

Sources for further information on doing business in Kuwait

The Arab Investment & Export Credit Guarantee Corporation – export credit insurance (site is in English and Arabic)

Doing Business 2009, Country Profile for Kuwait – 81 page PDF of The International Bank for Reconstruction and Development and The World Bank: includes information on all aspects of trading with or doing business in Kuwait, as well as statistical comparisons with other comparative economies.

Doing Business in Kuwait, Ali & Partners Law Firm (offices in Middle East including Safat, Kuwait)

Embassy of the United States, Kuwait City, Kuwait

*****

Subscribe to the Credit-to-Cash Advisor
Monthly e-Newsletter -- It's Free

This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including XXXX. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources.

Economic Indicators: Variety of sources including the CIA World Factbook, Coface Country Rating, Economist Country Briefings, Federation of International Trade Associations (FITA) Country Profiles.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Historical Exchange Rates: OANDA.com The Currency Site.