Importance of diversifying Kuwait’s economy, encouraging investment
By Ghadeer Ghloum
KUWAIT: Kuwait is known for its large oil reserves that fuel the state’s economic security. However, with rising global uncertainties and the urgent need to mitigate environmental concerns, it becomes a necessity to shift towards diversification, especially since oil is non-renewable. Kuwait Times interviewed Kuwaiti economist Salman Al-Naqi for his perspective on going beyond oil and gas in Kuwait, and his opinions on encouraging investments in the non-oil sector. “Kuwait has various economic strengths, such as a strong currency, relatively moderate inflation, large financial buffers, a strategic geographical location and well-educated local human capital.
However, the dilemma Kuwait faces towards economic transformation can be attributed to the local regulatory and administrative environment,” Naqi said. Naqi further elaborated on the challenges that Kuwait faces in its economic development. “The constraints of achieving the ambitious old vision to turn the state into a regional financial and trade hub are illustrated clearly through the lack of certain policies in the commercial and financial sectors, as well as the barriers to doing business. Finite investment opportunities and monopolies in some sectors discourage the pathway to implementing this vision.
As a result, optimal investments are restricted to real estate and the stock market. The COVID-19 crisis revealed the absence of supportive policies for businesses, particularly for small and medium size enterprises (SMEs), which has caused significant setbacks among entrepreneurs,” he said. “Meanwhile, the government has taken serious steps to eliminate business barriers and bureaucratic patterns. The current mid-term government plan highlights important objectives such as launching free economic zones and focusing on financial technology.
The former will boost trade activities and attract foreign enterprises, while the latter is intended to foster the financial sector and create a specialized model within the region for the proposed vision of the financial hub. The government should utilize the budget surplus from oil exports to increase its capital spending on new projects and reform existing policies to facilitate higher growth rates in the economy, consequently expanding the scope of businesses,” Naqi added. Thus, promoting technology driven industries and heading towards investing in sectors beyond the state’s dependence on oil results in a thriving economy.
Acknowledging the inherent risks of an overwhelmingly oil-dependent economy, Naqi spoke about the importance of broadening Kuwait’s economic horizons. He emphasized on the significance of encouraging foreign direct investments (FDI) and the opportunities that it provides, besides the challenges it faced in the past, which hindered FDI progression in Kuwait. “Before the oil era, Kuwait was a prominent regional destination for foreign investors engaged in trading and re-exporting commodities.
They benefited from low tariffs and Kuwait’s strategic location. However, since the 1960s and due to political turmoil, foreign investors have faced numerous restrictions, including high taxes and constraints in the immigration system. These challenging conditions have reduced the flow of foreign capital into Kuwait and reduced its attractiveness. Boosting FDI inflows is the most critical element of the broad strategic vision for economic transformation,” Naqi pointed out. “While there have been notable official efforts in this regard, some past obstacles persist.
Tax discrimination is one of these barriers, as taxation on foreign corporate profits is 10 percent higher than that imposed on local counterparts in Kuwait. Furthermore, reforms are needed in immigration and travel frameworks to incentivize foreign investors and facilitate their mobility. Foreign investments will reduce the financial burdens on the public sector in Kuwait by generating new jobs for nationals and promoting public-private partnership projects in efficient and cost-effective ways. Additionally, the national workforce will benefit from the spillover effects of acquiring new technology and skills from foreign entities,” Naqi concluded.
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