Business in

KUWAITSPECIAL REPORT 2015

Published by Global Investment I Limited and distributed with The Sunday Telegraph

KUWAIT DIRECT INVESTMENT PROMOTION AUTHORITY

KUWAIT DIRECT INVESTMENT PROMOTION AUTHORITY

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BUSINESS IN KUWAIT 2015

The State of Kuwait is one of the richest countries in the world thanks to its vast oil reserves. Located in the Persian Gulf, this former pearl diving community neighbours - Saudi Arabia to the south, Iraq to the north and Iran to the east. A member of OPEC, with proven reserves of over 100 billion barrels, Kuwait holds the worlds sixth-

largest oil reserves and is one of the top 10 leading oil producers and exporters globally. Kuwaits economy is heavily dependent on oil, which accounts for nearly half of the countrys GDP and 95% of export revenues and government income. Despite the decline in oil prices over the last year, Kuwaiti officials are still committed to increasing oil production from 3 million to 4 million barrels per day by 2020. Furthermore, the government is very aware of heightened tensions and extremism in the Middle East and is fully committed to creating peace and stability in the region whist continuing on the path of economic reform and diversification to transform the tiny Arab State into a prosperous centre for business and finance.

In 2010, His Highness Sheikh Sabah Al Ahmad Al Jaber Al Sabah, the Emir and Head of State, set out his grand vision of transforming Kuwait into a commercial and financial centre by 2035. The gov-ernment has devised a series of National Development Plans (NDP) to address the reforms required and accomplish the Emirs vision. The first NDP which ran from 2010-2014 had mixed results and progress has been slow, with significant delays and bureaucratic processes impacting many of the planned major infrastructure pro-jects. Whilst delays have occurred the government is fully focused on pushing ahead with progress. The second NDP (2015-2020) has begun and over the next 5 years the government will focus on economic reform and the implementation of several long-stalled strategic mega projects. The plan has two objectives: to address the imbalances in the economic reforms by involving the private sector to play a bigger role in development; and to realize the coun-trys strategic vision through the implementation of mega projects

aimed at enhancing and modernising the countrys infrastructure.

Kuwaits 2035 Vision along with a new FDI law aimed at streamlining the business environment and investment process, represent immense opportunity for UK businesses and investors. The UK and Kuwait have always enjoyed strong bilateral relations and over the last two years, have doubled trade and investment from 2 billion to 4 billion. Emboldened with a new strategy and legislation to accompany, Kuwait stands to receive huge benefits by enticing the private sector and foreign investors to participate in its economic development. As a main trading partner, UK companies have a strategic advantage in developing business and positive trade relationships in Kuwait. Over 100 UK companies, franchises and companies with agents are already operating in Kuwait including Shell, BP and PWC.

Countless infrastructure projects are underway, including the new Al Zour refinery, hospitals, housing, an airport expansion, a metro system and a GCC rail line. The government has confirmed the network layout for its new $20 billion metro with construction due to begin in 2017. The three-line system will include 61 stations and cover the entire capital. A 23.7 kilometre line would run from Salwa to Kuwait University, with 19 stations. A 21-kilometre line would run from Hawally, stopping at 27 stations to end in Kuwait City. A third line would stretch 24 kilometre from Kuwait International Airport to Abdullah Al Mubarak area, passing through 15 stations. Such development projects will undoubtedly spur the countrys national economy. While there also remains high levels of opportunity in the defence, education, healthcare and financial sectors. The targeted development projects are part of the States drive to diversify national income sources by means of promoting the private sectors involvement and boosting the competitive edge in other sectors. Whilst there have been delays in project start times, 2015 presents a major step in realising Kuwaits vision of becoming a leading regional financial and commercial hub.

A Grand Vision

Editor: Kuljit Kaler Consultant: Adriaan Vickery

W: globalinvestmenti.comE: info@globalinvestmenti.comT: +44 (0)20 7125 0579F: +44 (0)20 7183 8393

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The views expressed in Business in Kuwait - Special Report 2015 are not necessarily those shared with the publisher, Global Investment I Limited. Wishing to reflect the true nature of Kuwait, the editor has included articles from a number of sources, and the views expressed are those of the individual contributors. No responsibility or liability is accepted by Global Investment I Limited for any loss to any person, legal or physical, as a result of any statement, fact or figure contained in Business in Kuwait - Special Report 2015.

Above: Salmiya, KuwaitFront Cover: Kuwait Chamber of Commerce & Industry building

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Sheikh Dr. Meshaal Jaber Al Ahmad Al Sabah

Dr. Meshaal is currently the Director General of KDIPA, after serving as the Chief of Kuwait Foreign Investment Bureau (KFIB) during 2009 to 2013. He chairs the Council of Ministers Permanent Committee on Streamlining Business Environment in Kuwait, the inter-Ministerial Steering Group for insolvency and creditor/debtor regime, and the special committee to oversee the amendments of Law No. 7 of 2010 regarding the Kuwait Capital Market Authority.

He had been assigned as the Vice Chairman of the National Offset Company (NOC) since 2012, until the Kuwait Offset Program was transferred to KDIPA. He was also a member of the Board of Directors of the Central Bank of Kuwait (2012-2013), and is a member of Kuwait Competitiveness Committee. Between 2003 to 2010 he worked in Kuwaits Council of Ministers in various capacities.

He holds a PHD from the University of Portsmouth (UK), in HR & Marketing Management, a MBA from the Maastricht School of Management and a BA in Political Sciences & Public Administration from Kuwait University. He has provided several presentations at various forums locally and internationally on Kuwaits investment climate and its unique value proposition as well as the incentives and guarantees granted for added value investments.

Kuwait Direct Investment Promotion Authority The Direct Investment Promotion Authority (KDIPA) is a newly established public authority by Law No. 116 of 2013 regarding the Promotion of Direct Investment in the State of Kuwait issued on June 2013, which replaced Law No. 8 of 2001 and its implementing arm Kuwait Foreign Investment Bureau. KDIPA is mandated with the task to attract and encourage direct investment in Kuwait by both foreign and local investors, encouraging them to forge partnerships that foster the objectives of development in light of the countrys overall policy that serves the diversification of national revenue sources, the creation of employment opportunities for the national workforce, and increasing their productivity and professional skills, transfer and settlement of modern technology and production methods. In doing so it offers a host of incentives and guarantees and runs a one stop shop to facilitate procedures. KDIPA Board of Directors is equally represented by public and private prominent personalities, and is chaired by the Deputy Prime Minister and Minister of Commerce & Industry.

Kuwait recently modernised its FDI law. What key changes and opportunities does the new law present?

The passing of Kuwait new FDI Law No. 116 of 2013 had triggered a new era by instating the establishment of a specialized governmental body, namely KDIPA, in June 2013, that replaced its predecessor Law No.8 of 2001 and its executive bureau (KFIB), which was a division within the Ministry of Commerce & Industry. KDIPA is exclusively mandated with the task of attracting direct investments into Kuwait by both local and foreign investors, and promoting Kuwait as a lucrative investment destination. The new law has brought about several key positive changes that support an enabling investment environment, and are more in line with recent developments in the global FDI industry. Some of those features include shortening the duration of licensing procedures to a maximum 30 days, the establishment of a One-Stop-Shop in coordination with the relevant government entities, streamlining the business environment, the shift to the adoption of the negative list regarding economic sectors that foreign investors are excluded from, providing a host of incentives for eligible investors and widening the scope of granting those incentives to PPP and privatisation projects according to a transparent criteria. The new Law has allowed up to 100% foreign equity for a Kuwaiti company be it a closed share-holding or limited liability or one person; or to operate as a licensed branch or, for the first time, open a representative office for marketing studies, but without engaging in any commercial activity. The executive regulations of the law entered into force December 2014, and that was when KDIPA started accepting applications from interested investors and soft launched its operations.

Is Kuwait on track to reach its 2035 vision and what is KDIPAs role in helping to achieve this vision?

Kuwait is on a steady track to achieve its 2035 vision that focuses on transforming it into a prominent financial and commercial centre, through achieving five strategic goals relating to increasing economic growth with focus on diversification of non-oil production base; increasing the contribution of the private sector including creating the appropriate environment to attract FDI to benefit from the expertise and technology of international companies; supporting human and social development to enhance the Kuwaiti nationals participation in the labour market; advancing conducive population policies; and building up efficient government administration with increased transparency and governance. KDIPA is designated by its establishing law, to be one of the implementing

INVESTING IN KUWAITKuwaits new FDI Law provides investors with a better, more efficient business experience and desirable incentives that make it an attractive investment destination and an ideal gateway to doing business in the region

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BUSINESS IN KUWAIT 2015

KUWAIT DIRECT INVESTMENT PROMOTION AUTHORITY

KUWAIT DIRECT INVESTMENT PROMOTION AUTHORITY

arms of the national economic policy, tasked with attracting direct investment by both local and foreign investors and encouraging forging mutually beneficial partnerships that will eventually play a role in achieving the aforementioned strategic goals. Thus our focus is mainly on enhancing economic diversification, increasing private sector role in the economy, increasing jobs and training opportunities for Kuwaitis, as well as encouraging the transfer and settlement of modern technology.

Oil revenues account for a large part of the Kuwaiti economy. With oil prices experiencing a steep decline, what is the government and KDIPA doing to ensure effective diversification of the economy?

The recent decline of oil prices has further reinforced the exist-ing efforts for the diversification of the Kuwaiti economy, to lessen dependence on crude oil export revenues. These efforts are pro-gressing at various fronts and through different channels. One way is through developing the oil sector downstream value chain by engaging the private sector in industries that caters to service this vital sector. Others are by allowing and encouraging the private sector to enter into new sectors like generating electricity, and re-cycling solid waste, or engaging in the higher end innovation-based activities, especially within the local SMEs sector. To address this issue, we at KDIPA are currently in the process of developing our first strategic plan to identify the qualitative and quantities strategic targets, to enable us to formulate accordingly our promotional and marketing plan that will successfully position Kuwait and brand it, while targeting investors to the key sectors that will enhance the aspired economic diversification.

With so many options for foreign investors to invest and do business, why Kuwait? What are Kuwaits strengths in comparison to the neighbouring GCC countries?

Kuwait is differentiated by several unique attributes, which makes it an attractive destination for potential investors when bench-marked against its neighbours. These attributes include its strategic geographic location, democracy, open economy, a lengthy commercial heritage, rich oil resources, strong macroeconomic performance, high income per capita & purchasing power, low risk & investor grade rating, adequate basic & ICT infrastructure, high level of human development, a prevailing well educated youthful population, friendly environment, and active involvement in the international development & humanitarian arena. Furthermore, there are several economic and special zones in the planning process that will cater to various investors appetite in viable opportunities, supported by an enabling legislative and regulatory framework, and adequate service delivery framework, including launching targeted investment promotion campaigns.

One of the biggest challenges Kuwait faces in attracting FDI is bureaucracy and red tape. What actions are being taken to tackle this issue and improve the ease of doing business?

KDIPA was established with a clear mandate to streamline the busi-

ness environment in Kuwait to enhance the countrys competitive-ness and its ranking in relevant international indices. To address the issues relating to the elimination of artificial bureaucratic barriers, a Council of Ministers decision has designated KDIPA to head the Per-manent Committee for Streamlining Business in the Sate of Kuwait in December 2013. This Committee will be enhancing the needed coordination amongst various government entities, documenting progress in facilitating procedures, and raising awareness on any im-provements that are taking place on the ground within initiatives like e-government or the adoption of timely e-transactions legislation. Furthermore, KDIPA started a Public-Private dialogue earlier this year with various consulting and legal firms, among other stakeholders, to ensure it is engaging everyone and listening to any complaints or remarks that would eventually support its efforts to improve performance, and enhance transparency and consistency in providing public services in general. From its side, KDIPA, will embark on a process to facilitate procedures and provide supporting services to all investors through its Investors Service Centre (ISC) that will eventually evolve into the stated One-Stop-Shop (OSS).

The UK and Kuwait enjoy strong bilateral relations. What sectors are most attractive for British companies and investors looking to do business in Kuwait?

It is well known that Kuwait and UK have enjoyed long-standing relations in commercial and investment fields, as well as in health, education, tourism, construction, culture, security and defence sectors, among others. Beyond the traditional thriving merchandize trade relations, Kuwait had also benefited early on from the British oil companies in developing its rich oil resources, and in managing its sovereign wealth fund external investments by the London-based Kuwait Investment office (KIO) more than six decades ago. The formulation of the Kuwait-UK Joint Steering Group is another strong manifestation of the significance of our bilateral relations. This group has concluded its biannual 5th meeting last February issuing a relevant action plan. I reiterate that Kuwait will continue to offer a wide variety of lucrative investment opportunities for the British firms, particularly within the upcoming projects in the second development plan. Our role in KDIPA is to facilitate and clarify required procedures for British firms, as we do for other foreign investors, who are interested to invest in Kuwait or open a branch, in accordance with the criteria and rules set out in our new FDI law.

Finally, what personal message would you like to send our readers about investing in Kuwait?

I would like to assure your readers that the favourable regulatory and legislative developments that occurred in the last few years have made the necessary shift to strengthen Kuwaits stance as a promising investment location. I extend a cordial invitation for them to visit and invest in our country, which is an oasis of security, democracy, and modern living in this region. We at KDIPA, will wel-come them, and will exert all efforts needed to ensure their experi-ence is worthy and their investments are viable and long lasting.

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MarketTalkTax considerations of doing business in Kuwait as a foreign entity

Zubair Patel

PartnerTax & Corporate ServicesKPMG, Kuwait zpatel@kpmg.comTel: +965 222 87000

Zubair has over 18 years of professional tax experience gained in the UK and the Middle East.

He leads the Kuwait Tax & Corporate Services Department for KPMG with his particular focus being clients in the Financial Services, Energy & Natural Resources, Infrastructure, and Retail sector.

He advises major international groups on their corporate set-up as well as on tax planning. Zubair has worked closely with the Ministry of Finance in Kuwait and the KDIPA and has a strong relationship with these authorities.

In respect of the recent developments in the Foreign Direct Investment regu-lations, Executive Regulations to Law No. 116 of 2013 which is the Kuwait For-eign Direct Investment Law (FDIL) were issued by the Kuwait Direct Invest-ment Promotion Authority (KDIPA) in December 2014. Through the incentives provided within the FDIL, it may be possible for UK investors to benefit from the following incentives:

Set up of a 100% foreign owned entity in Kuwait or a 100% branch of a foreign entity (without the need for a local sponsor or agent);

Up to a 10 year corporate tax holiday (however tax compliance through annual tax declarations would still be required); and

Customs duty exemptions.

The process requires an initial submission of a concept paper setting out a high-level summary of the nature of the business / project in Kuwait for which a company is seeking the above incentives.

It is important to note that KDIPA would review the following criteria at the Concept Paper stage:

National Labour Job creation

National Labour Training & education

Technology transfer

Possible increase in National Exports

Help in diversifying source of National Income

Support to Small & Medium Enterprises

Level of Utilisation of National Products and Services

What are the benefits that can be claimed by foreign companies with respect to facilitating international investments in Kuwait?

The Kuwait government recently issued a new enhanced Foreign Direct Investment Law regarding promotion of direct investment in the State of Kuwait. We speak to Zubair Patel, Tax and Corporate Services Partner at KPMG, Kuwait, about what this new law means for foreign investors.

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BUSINESS IN KUWAIT 2015

Where a company does not wish to seek a license for 100% foreign owned entity in Kuwait, the company can submit just an incentive application to apply for the 10-year tax holiday and customs duty exemptions.

KDIPA intends to respond to concept papers within 3 working days providing the initial approval of the application or rejection. Following approval, a detailed application should be completed, and necessary documentation and information should be provided. KDIPA intends to provide its final approval within 30 days from submitting the application. If the application is rejected, a response will be provided to the applicant.

In terms of the activities where the 100% ownership would be granted, the negative list has now been made public where 10 sectors of the economy are specified as excluded from benefiting from the FDIL,including extraction of crude oil and natural gas, real estate projects and defence. In other sectors, KDIPA encourages foreign investors to submit concept papers for the Authoritys review to make a decision on the applications feasibility for a formal application.

Kuwait has a wide network of treaties for avoidance of double taxation. Over 45 have been ratified and are in force, while a number of tax treaties are currently either awaiting ratification or are under negotiation.

Companies incorporated and resident in countries that have effective tax treaties with Kuwait such as the UK may be able to reduce the level of tax imposed under the domestic tax law in accordance with the relevant tax treaty.

Kuwait domestic tax law does not provide for a definition of a Permanent Establishment (PE) or taxable presence.

In practice, under the domestic tax law, the Kuwait Tax Authority (KTA) considers even a single days visit of the companys officials in Kuwait or earning income of Kuwait source irrespective of any physical presence in Kuwait is sufficient in determining a taxable presence.However, under the provisions of a tax treaty between UK and Kuwait (the tax treaty) a PE is created for a UK company if their activities/projects continues for a period of more than 6 months in a 12-month period.

In the absence of a PE in Kuwait, UK companies may be able to claim a full exemption from Kuwait tax of business profits and a reduction of tax on royalties from an effective 14.775% under the domestic tax law to 10%. In addition, where the beneficial owner of dividends is a company that owns directly or indirectly at-least 10% of the voting power of the company paying the dividends, such dividends would be subject to tax at 5% under the tax treaty. Under the domestic tax law, dividends distributed by companies on the Kuwait Stock Exchange are subject to 15%.

Where a PE in Kuwait is established by a UK entity, it may then claim revenue from services performed outside Kuwait and equipment supplied from outside Kuwait are not considered subject to Kuwait tax.

According to Kuwait tax regulations, even where foreign companies believe they are exempt from tax under a tax treaty, they would still be required to submit their tax declaration and claim treaty benefits, which would later be substantiated by the KTA.

In our experience, the KTA is inconsistent in application of treaties and the interpretation by the KTA may differ from international interpretation of these treaties. As a result, dis-putes with the KTA regarding tax treaties usually arise with respect to the existence of a permanent establishment and income attributed to a permanent establishment.

How does the broad Double Taxation Treaty network of Kuwait assist UK companies with respect to their Kuwait tax matters?

Where a company does not wish to seek a license for a 100% foreign owned entity in Kuwait, the company can submit just an incentive application to apply for the 10-year tax holiday and customs duty exemptions.

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It may come as no surprise that Kuwaits economy is heavily dependent on petroleum export revenues, which account for nearly 60% of its gross domestic product and about 94% of total export revenues, according to OPEC and IMF data. A member of the Organization of the Petroleum Exporting Countries (OPEC), Kuwait was the worlds 10th largest petroleum and other liquids producer in 2013. However despite being the

second smallest in land area among the OPEC member countries, Kuwait exports the fifth-largest volume of crude oil and condensates following Saudi Arabia, the United Arab Emirates, Iraq, and Nigeria.

While there is comprehensive energy legislation in Kuwait, the web of government entities, not to mention companies, can be difficult to navigate. Energy policy is set by the Supreme Petroleum Council, overseen by the Ministry of Petroleum and is executed by the Kuwait Petroleum Corporation. The Kuwait Petroleum Corporation (KPC) manages domestic and foreign oil investments. KPC has several subsidiaries all focused on various international markets and product lines. One of the leading members of the group is The Kuwait Oil Company (KOC), the upstream subsidiary of KPC, which was taken over by the Kuwaiti government in 1975 and manages all upstream development in the oil and natural gas sectors. KOC aims to increase crude output and develop some of its oilfields including Burgan, the worlds second largest.

KPC announced a 51 billion capital spending plan over five years (2015-20) for the upstream sector (27 billion) and the downstream (24 billion) sector. In efforts to continue economic reform and funding for large infrastructure projects, this plan encompasses some of the delayed projects that were part of the five-year national development plan expiring at the end of 2014. Kuwait intends to upgrade its production and export infrastructure, expand exploration, and build downstream facilities, both domestically and abroad. This effort is expected to boost total oil production capacity to 4 million barrels per day (bpd) by 2020, and it is projected that the production capacity would be maintained through 2030. Kuwait currently produces around 3 million bpd and

exports around two-thirds of that output. Kuwaits oil production capacity is around 3.2 million bpd and plans to raise output are proceeding despite a fall in oil prices since mid-2014.

Kuwait also receives oil revenue from the Partitioned Neutral Zone (PNZ) which was established in 1922 to settle a territorial dispute between the country and Saudi Arabia. The PNZ encompasses a 6,200 square-mile area that contains an estimated 5 billion barrels of oil and 1 trillion cubic feet of natural gas. Oil production capacity in the PNZ was 520,000 barrels per day in 2013, all of which was divided equally between Saudi Arabia and Kuwait. Onshore production in the PNZ is primarily focused on the Wafra oil field, which began producing oil in 1954. Wafra is the largest of the PNZs onshore fields with approximately 3.4 billion barrels in proved and probable reserves.

To diversify its oil-heavy economy, Kuwait has increased efforts to explore and develop its non-associated natural gas fields, which currently make up a small portion of its natural gas production. Greater natural gas production would increase Kuwaits supply for its struggling electricity sector, which frequently cannot meet demand in peak times. Kuwait has increased the share of natural gas in its primary energy consumption from 34% in 2009 to 42% in 2012, while the remaining share, consisting solely of petroleum and other liquids, has declined.

Despite Kuwaits constitutional ban on foreign ownership of its resources and revenues, the government has taken measures to increase foreign participation in the oil and natural gas sectors through technical and service contracts. Several tenders that have been awarded under Kuwaits ETSA (Enhanced Technical Service Agreement) law have faced opposition from Parliament. However there is strong consensus these concerns will be alleviated by the Royal Family this year in an effort to push through further infrastructure development plans. These actions, along with increased oil production and an active sovereign-wealth fund, the Kuwait Investment Authority, will ensure Kuwait a dynamic future.

Enhancing Production In 2015, Kuwaits oil infrastructure will be further developed to reach a staggering goal of 4 million barrels per day by 2020

Image courtesy of Kuwait Petroleum Corporation

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BUSINESS IN KUWAIT 2015

Encouraging Entrepreneurship & Innovation

Kuwaits government aims to limit its role in the economy through a series of privatisation reforms and by encouraging and providing incentives for small and medium sized enterprises (SME). Ku-waits total population was estimated at 3.9 million in 2014 by their Public Authority for Civil Informa-tion. The oil rich country is growing at a rate of

1.7%, mostly due to strong immigration. The total population of Kuwait is made up of roughly 70% expatriates adding neces-sary skilled workers to a country with a tiny employment pool. However a key driver of these proposals is the large youth pop-ulation - 51% of todays Kuwait is under the age of 21, while roughly 95% of Kuwaitis in the workforce are employed by the public sector. Kuwaits Public Authority for Civil Information re-cently disclosed that there are around 290,000 government employees; excluding the military personnel and expatriates, while over 19,000 citizens are on waiting list for employment at the Civil Service Commission (CSC). Kuwait plans to curtail this over reliance on public sector jobs by initiating a series of priva-tisation reforms and further encouraging the role of the private sector and SMEs.

Privatisation means the transfer of ownership or management of a project or industry from the government to the private sector for the purpose of increasing competition and innovation. This in turn would bring forth capital flow to the market, by generating additional foreign investment and job opportunities. In 2013 Kuwait moved forward with its plans to privatise Kuwait Airlines, the government is currently seeking to sell 35% control in the national carrier set to be renamed Kuwait Airlines Corporation. The government, through the Kuwait Investment Authority, the countrys sovereign wealth fund, will own 20 percent of the new company, while 40 percent of the stock will be sold to the public. Airline employees will own the remaining 5% of shares. The government is offering key incentives for international companies with a solid track record in airline management, and remains steadfast in its commitment to make the airline a symbol of a successful privatisation process.

In 2015 Kuwait Investment Authority is to sell its shares in Kuwait Investment Company. The KIA owns 76.2 percent of Kuwait Investment Company, a financial investment firm with a market capitalisation of 171 million. Investors appear to be betting that

new ownership for Kuwait Investment Co. could improve its management, attract fresh interest in the firm and boost trading liquidity in the stock. Meanwhile KIA has pledged to reinvest any profits from the sale of Kuwait Investment Co. and shares of other locally listed companies back into the Kuwait Stock Exchange. According to Thompson Reuters data, the KIA also owns 24.1 percent of Kuwait Finance House, which has a capitalisation of 8 billion, and 24.6 percent of telecommunications operator Zain with a capitalisation of 6.5 billion. If as expected the KIA sells shares in these giant institutions at a later date the market will go into an absolute feeding frenzy for these profitable stocks.

In April 2013 the parliament in Kuwait passed law 98/2013, the establishment of the Kuwait National Fund for SMEs De-velopment. The Fund was established to develop and support the entrepreneurial ecosystem in Kuwait. The objectives are concise: Developing the national economy by implementing policies for job creation and diversification of national income sources in order to alleviate the financial burdens off govern-ment budget; Raise awareness on the benefits of enterprise, and coordinating and promoting initiatives of SMEs; Providing national data and technical assistance to SMEs; Assisting in developing business models and financial feasibility to SMEs; Developing training and development programs through sup-port institutions; Developing and implementing funding pro-grams for SMEs; Increasing enterprise competitiveness and providing maximum support with minimum interference in the SMEs business; Supporting local products and innovation by encouraging the development of local intellectual property.

His Highness Sheikh Sabah Al Ahmad Al Jaber Al Sabahs vi-sion to diversify Kuwaits national economy and turn the country into a commercial and finance hub is well under way. This will be a key foundation in achieving Kuwaits economic diversification plan, a project that is already being heralded in the region and beyond. In fact as recently as December 2014 the leaders of Kuwaits Fund for National Development and the UAEs Khalifa Fund for Enterprise Development held discussions on ways to collaborate, coordinate and exchange experiences to support and promote Small and Medium Enterprises in both countries. If these encouraging signs continue, Kuwait and the GCC region will experience the rise of the entrepreneur much faster than expected.

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An Ideal EntryAgencies provide a tried and tested mechanism for doing business in Kuwait

Nazih Abdul HameedAl Markaz Law Firm

Senior Associate

nazih@markazlaw.com

Tel: +965 2246 4640

Mr. Nazih Abdul Hameed is a Senior Associate in the Firms Corporate Advisory Department. He joined Al Markaz Law Firm in January 2010 and holds over 18 years of PQE between UK and Kuwait.

Kuwait has been experiencing rapid-paced economic and technological growth. Mega project tenders are being advertised by public bodies along with a call for bidding by contractors and technical experts in the private sector. Naturally such an economic climate is most attractive to international investors. This article intends to highlight a business mechanism that all international investors, not qualifying under the For-eign Direct Investment law may wish to consider as a suitable means to commence their business in Kuwait expeditiously. This mechanism is known as Agency under Kuwaiti Law.

Agencies are essentially the contractual agreement between a principal (the international investor) and an agent (a local entity), whereby the principal grants the agent the authority to represent them and act on their behalf in regards to certain matters agreed upon by the parties in the agency agreement.

Currently in Kuwait agencies serve as a very useful tool for international investors wish-ing to engage in local projects and having a local partner providing legal and commercial advantages in order to either execute projects unilaterally or as in most cases jointly un-dertake projects resulting in mutually lucrative business objectives. International institu-tions often choose to engage in such a relationship with a Kuwaiti agent, because, not-withstanding the Foreign Direct Investment law, non-Kuwaitis cannot carry on business directly in Kuwait and the agency format offers a quick method to conclude and acquire a legal presence in Kuwait in comparison to the time required for the incorporation of a new company. The time efficiency with which an agency can be established acts as an additional factor towards making this legal vehicle an attractive option for international in-vestors. The particularities in the agency agreement may vary in terms of the quantity and nature of the tasks assigned to the agent, the scope of the mandate given to the agent and whether the agent is granted exclusivity or not.

The relationship between the agent and principal may be a mere tool to comply with legal formalities, or it may result in a contract similar to a supplier/distributor contract, or indeed a more complex relationship akin to an actual partnership.

The Commerce Law No. 68 of 1980 and Law No. 36 of 1964 regarding Commercial Agen-cies regulate agencies in terms of the application of certain statutory rights and registration requirements respectively.

One of the statutory advantages within the Law of Commerce is that it guarantees the agents right to remuneration in case of termination or non-renewal. It also holds the agent generally responsible for any damages to the principals belonging that were under his possession and moreover, it obliges the agent to inform the principal about the progress achieved in the transactions, anticipated under the agreement. These are obligations im-posed on the agent in addition to those that may be contained in the agency agreement.

Current legislation also places formal conditions on the contract itself, like:

-The need for the agreement to be in writing;

-The scope of the agency; and

-Registration of the agency agreement at the Ministry of Commerce and Industry within two months from its conclusion in order for it to be considered an enforceable document

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BUSINESS IN KUWAIT 2015

Enviable Financials

guaranteeing the agent its rights and consequently a formal agreement that will prevent the courts of Kuwait from denying jurisdiction. However, there is precedent that the need for registration is not an absolute condi-tion for the enforceability of an agency agreement but in all cases it is recommended that agency agreements be registered owing to the requirement of public bodies for submission of an agency registration certificate as one of the qualification documents for bidding for any public projects.

Many factors will determine the success of the relation-ship between the principal and its agent, such as:

-The proven professionalism of the parties, their skills, reputation in the market;

-Their ability to fulfill their committed obligations in a timely manner; and,

-Finally, the terms drafted in the agreement will deter-mine the success of the relationship from the date of its signature and subsequent registration to the com-mencement of activity.

The agency agreement will serve as the main document defining the obligations, rights and liabilities of the parties and will be regarded as the core legal document to be referred to in case of any dispute. The agency is usually in consideration for a set fee for the agents sponsorship, the use of his commercial license, and any other general and commercial tasks that the agent undertakes as de-scribed in the signed contract or alternatively may be in the form of a set percentage of the revenues generated from the projects and business undertaken by the par-ties pursuant to the agency agreement. Certain statutory restrictions are in place on both the principal and the agent. The principal may not terminate the contract with-out fault on the part of the agent. In case of such termina-tion the principal will be obligated to indemnify the agent for the detriment incurred by him due to the termination. Likewise the agent is obligated to indemnify the principal for the detriment incurred by him due to his relinquish-ment of the agency at an inopportune time, or without reasonable excuse. These statutory provisions are de-signed to create a fair balance of guaranteed protections for both the local agent and the international investor.

The agency mechanism is one of the most widely used formats in Kuwait and presents an ideal formula for in-ternational investors seeking to commence business activities and/or operations in an expeditious manner.

The Kuwaiti banking sector repre-sents a unique opportunity for in-vestors. Flushed with liquidity, the industry enjoys both an above-av-erage capitalisation and formidable support from a government that so often succeeds in posting a yearly budget surplus in excess of 20bn. By implementing a 71bn National Development Plan, the govern-ments strategy to stimulate the economy and diversify away from hydrocarbon revenue is leading the countrys financial services sector on to greater things.

The financial sector in Kuwait contin-ues to provide opportunities for in-ternational investors seeking growth. Large scale infrastructure projects are estimated to offer significant re-turns, while there are a total of 100 investment companies managing assets in the billions. Local invest-ment firms like Kuwait Financial Centre Markaz and KAMCO offer decades of market knowledge and competitive insight.

The retail banking sector continues to be an established leader in the region and also benefits greatly from Kuwaits large infrastructure pro-jects. In the last couple of years the sector has also brought solid returns for traditional banks. Out of the 10 largest local banks (not including 9 international banks), the National Bank of Kuwait, the first bank in the Arabian Gulf region, has by far the most assets estimated to be in ex-cess of 32 bn. Gulf Bank and Bur-gan Bank continue to increase the competitive landscape with custom-ised products for the local market. These most highly-acclaimed banks excelled on their speed of service and card deliveries in the past year. While the majority of Kuwaiti banks reduced their NPL ratios and in-creased profitability in 2014.

Kuwaits banking sector is a tightly regulated market, and with the cen-tral bank having recently introduced new governance standards, based primarily on the Basel III agree-ments, the regulatory stringency

compares favourably to more de-veloped western markets. Kuwaits Islamic banks complying with new regulatory standards is seen as a relatively straightforward process, given that the Islamic banking model requires strict adherence to sound financial principles, effec-tively putting them one step ahead of their conventional counterparts.

Kuwaiti investors were introduced to stock trading with the creation of the National Bank of Kuwait in 1952 as the first Kuwaiti shareholding company. In the following decades, the government of Kuwait issued a number of laws and rules to regulate stock-trading activities, culminating in August 1983 with the issuance of an Amiri Decree establishing Ku-wait Stock Exchange (KSE). KSEs market capitalisation has consist-ently been one of the largest of Arab markets, with two hundred compa-nies totalling over 28 billion Kuwaiti Dinar (KWD) which is equivalent to 100 billion in market value. The market capitalisation to GDP ratio is approximately 100%, making the KSE deeper than many of its regional peers.

In 2009, KSE signed a partnership contract with NASDAQ OMX, under which the exchange is implementing the X-stream trading system, and the SMARTS surveillance system. The KSE is also benefitting from a transfer of knowledge and experi-ence from NASDAQ OMXs wide long experience in all aspects of modern commercial markets. The SMARTS surveillance system was implemented in May 2010, and the first phase of the implementation of X-stream in May 2012.

The advantageous position of Ku-waits finance sector will certainly al-low for large infrastructure projects to be achieved. Diversification will have positive implications for both retail and investment banks, plus add a new class of stocks to the KSE. If the current trends continue Kuwait is on track to once again become the regions key Financial Centre.

The Kuwait banking sector is highly capitalised offering sound investment opportunities

12

Inside PerspectiveA Conversation with Frank Baker, British Ambassador to Kuwait from February 2010 to July 2014, a period of phenomenal growth which saw UK exports to Kuwait rise from 250 million to 3.5 billion

More British companies than ever before are entering the local market, with a series of successes in retail, education and training, financial services, defence, healthcare and life sciences, over and above the successful ongoing and expanding presence in the predominant oil and gas sector.

Kuwait National Petroleum Co. (KNPC) has awarded AMEC, the London based international engineering and project-management company a 330m consultancy contract for building a new 15,000 barrels per day oil refinery at Mina Al Zour. Petrofac, provider of oilfield services to the international oil and gas industry, has re-ceived an award for Kuwait Oil Companys (KOC) GC29 gather-ing centre valued at approximately 475m to be completed over 3 years. Petrofac has also been awarded a share (1.2bn) of KNPCs Clean Fuels Project, a major investment to upgrade Mina Ahmadi and Mina Abdullah refineries. The upgrade work will increase the amount that the refineries can process per day by 264,000 barrels to 800,000, with the aim to increase the conversion of fuel oil into higher value products.

Furthermore Kuwait Petroleum Corp (KPC) has signed a five year LNG supply deal with BP, worth an estimated 2 billion, as it seeks to meet rising energy demand to power air conditioning through the hot summer months. Then there is Kuwait Airways decision to lease and purchase 25 Airbus aircraft, 15 with Rolls Royce engines - A considerable boost to UK manufacture, with the wing assem-blies being designed, engineered and produced in the UK.

There have also been some major successes achieved by Britains leading consultancy firms. Mott MacDonald has been appointed by the Kuwaiti Governments Public Authority for Industry (PAI) to design a new sea water pumping plant in the Shuaiba Industrial Area. The contract value is believed to be in the order of 75 mil-lion. Parsons Brinckerhoff is providing design services on the First Ring Road project, as well as preparation of contract documents and tender review. The firm is currently providing construction su-pervision services in association with a local partner, on the devel-opment of a complex 1.7 mile stretch of highway surrounding the Jahra Gate intersection using a network of new roads, depressed roads in troughs and tunnels, elevated roads, and bridges. URS/Scott Wilson has won a strategic role to provide the design audit and construction supervision for the 815 million Mubarrak com-mercial sea port contract on Boubyan Island, a four year contract.

In the health care sector, Great Ormond Sreet Hospital is working with the Ministry of Health designing and delivering a programme that enhances services for children and young people with cancer. TPP are collaborating with the new KOC Hospital at Ahmadi, providing IT systems, and others are heavily involved in the provision of management consultancy in the new Government

hospitals programme.

UK involvement in education and training, both in terms of delivery and structural input, remains high on the agenda. The British Coun-cil, amongst others, plays a significant role in an active market for English language training. UK involvement in core business train-ing, health and safety, and specialist training, particularly for the oil and petrochemical industry, is supplemented by consultancy and standards input. In this regard there is ongoing involvement in de-veloping the government schools inspection regime.

the Kuwaiti-UK bilateral relationship is firmly founded on a shared history of cooperation, friendship and mutual success.The Kuwait Investment Authority is seeking to invest as much as 3.5bn directly over the next 3 to 5 years in infrastructure assets, mainly in the UK. Supported across government were numer-ous visits from UK Ministers following up on discussions during the Emirs State Visit to Britain in 2012, and agreeing on further opportunities for bilateral cooperation and positive support for UK exporters. Last year, Baroness Warsi came to discuss Islam-ic Finance a potentially fruitful area for KuwaitBritish coopera-tion. Lord Deighton came to talk about Kuwait investment into the UK. Earl Howe visited to highlight opportunities for the UK in the healthcare sector. The Lord Mayor of the City of London, Boris Johnson made two visits to promote the City of London as Eu-ropes premier financial centre. Lord Marland came to help boost the trade relationship through the jointly chaired Kuwait Britain Business Council. A memorable visit by Boris Johnson, host to 250,000 Kuwaiti visitors a year to London served to illustrate the overall message that the Kuwaiti-UK bilateral relationship is firmly founded on a shared history of cooperation, friendship and mu-tual success and it continues to go from strength to strength.

All these visitors have worked hard to promote the UKs commer-cial expertise across the board, stressing the ability and desire of British companies to help Kuwait deliver on its National Develop-ment Plan. The Kuwait British Business Council, established during the State Visit of His Highness the Emir in November 2012 and co-chaired by Lord Marland and Mohammed AlShaya is currently considering ways to encourage small and medium enterprises highlighting the potential for cooperation between Kuwaits new SME fund and a similar initiative in the UK. SMEs will play a key role as Kuwait moves to boost its private sector and to provide mean-ingful opportunities for its young people, and as the UK strives to strengthen growth in its manufacturing sector.

13

BUSINESS IN KUWAIT 2015

While there was some concern at the start of 2015 that a continuation of low oil prices would halt Kuwaits infrastructure plans for the year, the government is set to award roughly 31 billion worth of projects. Last year, Kuwait awarded 16.1 billion worth of contracts. It was almost four times as much as in 2013 and more than the last three years combined. Public Private Partnerships are a main factor in driving the next 5 years of Kuwaits National Development Plan and a key reason international investors, espe-cially from the UK, are keen to participate.

In 2014, Kuwaits Parliament introduced a new law to regulate all Public Private Part-nerships (PPP) in hopes to accelerate the involvement of the private sector in Kuwaits projects market. Under the law, the Partnerships Technical Bureau (PTB) will be super-seded by the Kuwait Authority for Partnership Projects (KAPP), an independent govern-ment body that will be vested with greater executive powers in order to more effectively manage all PPP projects. Through this legislation the government has reaffirmed their commitment to move forward with major infrastructure projects even though oil prices are expected to remain low.

Following the release of Kuwaits new five-year development plan (2015-2020) in the summer of 2014 and the recently announced annual plan for the 2015/16 fiscal year, 30 projects of strategic and economic importance have been earmarked for investment spending. Two high profile projects the new oil refinery (Al-Zour) is estimated at 8.8 billion, while the long-delayed Clean Fuels project, estimated at a cost of 10.1 bil-lion have already received the go-ahead, with contracts signed to commence work on some of their constituent packages. Contracts this year will also include expansions at Al-Sabah, Farwaniya, and Al-Adan hospitals, the construction of the Jaber Al-Ahmed Cultural Center and the refurbishment of the historic Al-Salam Palace.

The newly formed Kuwait Authority for Partnership Projects (KAPP) is scheduled to roll out several power generation projects over the next two years including the Al-Khiran IWPP, the Al-Abdaliya Integrated Solar Combined Cycle Power Plant and phase 2 of the Al-Zour North IWPP. Kuwait also revived the Metro and National Railroad projects last year, though no award is expected before 2016. Under the PPP model, Kuwait is hoping to award the Umm Al-Hayman Wastewater Treatment Plant contract, worth an estimated 979 million, in the fourth quarter of 2015. KAPP is also looking to award the desalination plants at Al-Zour North: Phase 2 and Al-Khiran IWPPs by 2016.

The infrastructure development plan at Kuwait International Airport (KIA) currently stands to be a 3.9 billion project. The country aims to expand capacity to handle 20 million passengers per year and become a major passenger and cargo hub for the region. The new passenger terminal was designed by a team led by the UKs Foster and Partners.

Bilateral trade between the UK and Kuwait has doubled from 2 billion to 4 billion in the last 2 years as Kuwait continues to be one of Britains most significant trade partners. Over 100 UK companies, franchises and companies with agents are already operating in Kuwait. Examples include major oil and gas companies like BP and Shell to estab-lished consultancies like PWC and Grant Thornton, to leading international retailers such as Boots and Coffee Planet. Kuwaits growth, even with depressed oil prices, is still expected to top 3% GDP this year, making the country a stable and profitable strategy for Foreign Direct Investment.

Enhanced market entry

supportsoft landing

Opportunity Knocks

The Kuwait Britain Business Centre (KBBC) is a new venture, backed by UK Trade & Investment (UKTI) with the high profile CEO forum, the Kuwait Britain Business Council, chaired by Lord Mar-land of Odstock and prominent Kuwaiti businessman Mohammed Alshaya, act-ing as the board of this new Kuwaiti company.

The KBBC is being set up in response to the UK Governments desire to further develop the services offered to UK exporters over-seas and will become one of a worldwide network of 40 similar organisations provid-ing standardised support to UK companies looking to win business abroad. This initia-tive will be delivered with the support of the British Chambers of Commerce in the UK acting as a National Partner and providing a global accreditation standard to which each of the new organisations established around the world can aspire.

The KBBC will deliver new and expanded services for British Exporters while remain-ing committed to delivering the Volume Services or day to day activity on behalf of UKTI in Kuwait. This will allow the UKTI team working out of the British Embassy Kuwait to focus on areas of higher potential value for a wider number of UK companies. KBBC services will include; touch-down/incubator space and soft landing services, full market research capability before UK companies decide to visit and complete support for market visits when they do. KBBC will de-velop and retain a database of preferred suppliers that can support the development of UK companies into Kuwait.

The KBBC will work in close cooperation with the British Embassy Kuwait and UKTI as well as forming relationships with other business support and networking organisa-tions and businesses already established in Kuwait, as well as Kuwaiti public and pri-vate sector organisations. The Kuwait Brit-ain Business Council are also keen that this new initiative provides benefits for Kuwaiti businesses looking for advice and support in developing business relationships and op-portunities in the UK.

Increased trade activity and Public Private Partnerships continue to be attractive propositions for UK business

14

Healthy Business

It is no secret that GCC countries have been in-vesting heavily in healthcare infrastructure. In fact two Abu Dhabi based healthcare groups, Al Noor Hospitals and NMC Health, are both trading favourably on the London Stock Exchange. Saudi Arabias 2013-2014 budget allocated funds for 19 new hospitals, in addition to the current 102 hos-pital facilities under construction in the Kingdom.

Meanwhile Kuwaits Ministry of Health plans to invest more than 4.8 billion in hospitals and medical towers to upgrade out of date infrastructure and provide better care and access. The extreme increase in healthcare in-vestment and spending is not without reason. While the population is growing and young (50% of local popu-lation under 25) much like Western countries, Kuwait has a growing obesity and diabetes problem. Diabe-tes is somewhat rampant throughout the region with a large portion of the Kuwaiti population affected by the disease . As a consequence, new centres of innovation like the Dasman Diabetes Institute have been estab-lished with a bold mission to fight this epidemic and de-velop pioneering solutions for the industry worldwide.

In 2014 the Kuwait Ministry of Health continued their ambitious reform agenda as part of the governments wider National Development Plan. Since 2014, the gov-ernment has started to tender an estimated 4.8bn, starting with the establishment of the Kuwait Health

Assurance Company, a 750-bed health maintenance organisation. There

are also plans to establish a Private Health Insurance

Company for Kuwati nationals. A broad

range of Public-Private Part-

nership opportunities are expected, these will include a new rehabilitation and physical medicine hospital as well as roughly 5,800 hospital beds across 9 different facilities. While some will be expansions on current medical centres the majority will be newly built with the Central Tender Committee authorising all design and build efforts.

The Ministry of Health maintains a long term vision for the countrys healthcare system that includes separa-tion of the regulator from provider and payer functions, with a strong emphasis on improving quality and private sector participation as was done successfully by region-al neighbours. To this effect the formation of the Kuwait Health Assurance Company and Private Health Insur-ance Company are so vital for health system finance in Kuwait. For the first time Kuwaits 2014-2015 healthcare budget was above 1.5 billion KwD (3.4bn) not taking into account the aforementioned capital expenditure projects. The Kuwait Health Assurance Company will ultimately help to refinance the healthcare cost of the expat population in Kuwait, while The Private Health In-surance Company will address the financial healthcare needs of the national population. The government of Kuwait is increasing cooperation with the private sec-tor in an attempt to curb increases in public healthcare spending.

Kuwait enjoys a growing expat population which is the main reason for the introduction of the Kuwait Health Assurance Company. At the same time Kuwait nationals, much like their neighbours have historically taken a more global outlook to solving their personal healthcare needs. The region has typically been known to spend upwards to 8.15 billion on sending patients abroad for surgeries, cancer treatment, and physiotherapy. A concentrated effort to meet the needs of both their citizens and expat workers, coupled with investment in healthcare infrastructure will aid Kuwait and its regional allies achieve robust healthcare reform. There remains strong indication from the government of Kuwait that an independent healthcare regulator, tentatively referred to as the Kuwait Health Authority, will be put in place to lead policy development, licensing, quality assurance and any overseas healthcare functions. Kuwaits bold National Development Plan will only be accomplished

with major social and economic masterstrokes, no sector being as important as healthcare.

**A special thanks to Dr.Mussaad Al-Razouki of Kleos Healthcare Corporation for contributing information to this article.

Regional healthcare industry offers promising returns

The Dasman Diabetes Institute (DDI) is the leader in establishing change in Kuwait in the fight against diabetes. The Institution, a subsidiary of the Kuwait Foundation for the Advancement of Sciences (KFAS), was established in 2006 and developed as a central focal point for fighting the epidemic, integrating a more holistic approach towards the disease. The idea was to build a center in which research, educational initiatives, and clinical services are encompassed under one roof. In 2013, the Dasman Diabetes Institute was acknowledged by the European Commission as the premier diabetes center and, in 2014, the Institute was recognized as the reference center for the entire Gulf region.

At the Core of the Institute lie these four principles, dedication, innovation, collaboration, and excellence. Its mission to prevent, control and mitigate the impact of diabetes requires that every aspect of research, training, treatment and education is performed with the highest standard of these four principles.

DEDICATION The dedication of each staff member to implement the mission and vision of the Institute is the essence of the place. The infrastructure and resources provide the ability to progress at the most effective and efficient manner, providing the change needed to tackle the challenge of diabetes and its related complications. This requires a communal, unified effort in working towards a common goal.

INNOVATION From novel research ideas to unique technological developments, the Institute is at the forefront of innovative developments. Its focus is to provide the population and future generations with the tools and resources to grow into a thriving, healthy population, reversing the increasing numbers in diabetics within the population.

COLLABORATIONHere at the Institute, networks are established that consist of some of the most esteemed institutions, including the UK, such as the University of Cambridge, Oxford, Dundee, and UCL, bridging knowledge from around the globe and harvesting it for the betterment of Kuwait. Together, with such collaborations, provide the pathway to a successful future, one of which drives the people towards a healthier tomorrow.

EXCELLENCE The Institute hired and trained the finest doctors and nurses with a collection of state-of-the-art equipment to ensure that a certain standard is met and followed, guaranteeing its patients first-class treatment. With dedicated employees, innovative thought, collaborations with renowned institutions and excellence from the Accreditation Canadas Gold Standard, the Institute verifies to its patients, and the future, that the fight to manage and stop diabetes is well on its way to success.

DASMAN DIABETES INSTITUTELeading the change in minimizing the impact of diabetes Founded by Kuwait Foundation for the Advancement of Sciences in 20062006

OUR MISSION: To prevent, control and mitigate the impact of diabetes and related conditions through effective programs of research, training, education, and health promotion and thereby improve quality of life.

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