Kuwait's FDI: Attracting and Retaining Foreign Direct Investments

This report provides a comprehensive analysis of foreign direct investment (FDI) in Kuwait, exploring strategies for attracting and retaining investments. It begins with an overview of Kuwait's economic performance and its efforts to establish economic openness. The report applies the Diamond of National Advantage to identify key determinants for attracting and maintaining FDI, including factor conditions, demand conditions, supporting industries, and firm strategy. It then delves into specific recommendations, such as improving the political system, supporting KDIPA laws, maintaining competitiveness in resources, minimizing trade barriers, supporting Kuwait's culture, and improving the education sector. The report also outlines four basic policies to enhance the capacity of Kuwait's industries to innovate and upgrade, including funding business programs for research and development, stimulating rivalry among firms, subsidizing production activities, and adopting a good education system. The report concludes by emphasizing the opportunities available for foreign investors in Kuwait and the importance of government efforts to foster economic diversification and growth. The assignment includes a detailed discussion of how Kuwait can attract and retain FDI, supported by relevant references. The report highlights Kuwait's economic strengths, challenges, and strategic recommendations for future growth.

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FOREIGN DIRECT INVESTMENT IN KUWAIT
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Discussion on how Kuwait can attract and retain foreign direct investments; an application
of the Diamond of National Advantage
Kuwait is among the best performing nations in the Middle East and North Africa region in
terms of economic growth. It has been ranked position 6 out of the 14 nations in the region in
terms of economic performance (The Emergence of Modern Kuwait 2017, p.25). Kuwait has
been trying its best to establish openness in its economic and improve its economic freedom. The
2018 Index has ranked Kuwait position 81 with a score of 62.2 of economic freedom. The
overall economic performance score of Kuwait is above the expected average economic
performance in the regional and world levels. Kuwait is ranked position 8 in the world in terms
of exports and number 10 in terms of oil production. Kuwait has a small population of 4.2
million and its expansion and various other factors have made it a centre of attraction for foreign
direct investments.
Kuwait has been doing well in terms of foreign direct investments but still much needs to be
done to foster diversification and economic growth of Kuwait. According to the Diamond of
National Advantage, foreign direct investment in a country can be attracted and maintained by
taking into consideration four determinants which include the nation’s factor conditions, demand
conditions, presence of supporting industries and the firm’s strategy, structure and rivalry
(Diamond of National Advantage 2015, p.1). Kuwait has been identified as one of the nations
above the expected Middle East averages in terms of the ease of doing business in the nation by
the World Bank and has been ranked position 96 worldwide.
According to the Diamond of National Advantage there are several ways in which the
government of Kuwait can attract and maintain foreign direct investments as discussed below.

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The government of Kuwait should improve its political system. Over the past years the political
system of Kuwait has been unstable (Neither autocracy nor democracy but ethnocracy 2015,
p.114). A good example is during the year 2006 when protests were all over Kuwait against the
monarchical government of the al-Sabah family. The same was witnessed during the year 2012
when the al-Sabah Emir annulled the election results in favor of the al-Sabah family but protests
were held and later in 2013 Sunni pro-government candidates took over the leadership. This
political instability has contributed much towards preventing foreign direct investments in the
nation as no one can risk investing in an unstable government. Since the year 2013 after the
government was taken over by the Sunni pro-government candidates, the political environment
has been relatively stable and foreign investments have been increasing (Voluntary associations
in Kuwait 2011, p.199). Further improvement in the political system can lead to a very stable
political system hence attracting and retaining more foreign investors.
The government of Kuwait should continue to support the laws of foreign direct investments
formulated by the Kuwait Direct Investment Promotion Authority (KDIPA) (Direct foreign
investment and the law in developing countries 2013, p.382). The KDIPA was formed in 2013 to
foster foreign direct investments in the country. The Kuwait government through the KDIPA has
implemented a law to reform foreign direct investments in the nation. The law has been allowing
foreign investors to own much of the capital holdings with a possibility of owning them up to
100 percent provided their investments target the major planned government development
projects such as infrastructure which includes communications, power energy and water among
others. Further support of the above signed law will see an inflow of many foreign investors as
they can own their capital fully.

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Kuwait should continue upholding its competitiveness in terms of crucial resources to
businesses. These resources include land, labor, power and water. Kuwait has been offering the
above crucial resources relatively cheaper as compared to other nations such as Saudi Arabia
(Natural resource endowment 2014, p.651). Labor laws in Kuwait do not extort employers by
threatening them or setting unreasonable minimum wages (Labor standards and international
competitive advantage 2013, p.15). The government of Kuwait has been subsidizing the power
tariffs by a huge percent of 86 percent especially that of the industrial and residential users. This
has been a good move as the Kuwait has been preferred for foreign investment more so based on
these crucial resources subsidization. The government should continue doing so or even do much
better in order to continue attracting and maintaining foreign direct investments.
Although Kuwait has been identified as the easiest country to do business in Middle East, it
should minimize its trade barriers to encourage foreign investment in the nation. The government
of Kuwait has made it uneasy to start business in Kuwait. The time required to register a new
business has been increased and also various lengthy procedures are required in order for a
business to be legalized in Kuwait (Governing the market 2014, p.97). Any mistake in the event
of registering the new business becomes a trade barrier in the country. This has been
discouraging foreign direct investment in the country and the requirements should be made easy
and if possible eliminated totally to attract more foreign investors to join the economy of Kuwait.
Kuwait should continue supporting its hospitable culture and if possible improve it. Kuwait has
an excellent culture which combines traditionalism with modernity. About 65 percent of the
population of Kuwait consists of young people below the age of 30. This population forms a
bigger demand more so for the foreign products of high technology. The government should

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encourage consumption of this population by offering them jobs so as to have income to spend
(Clusters and the new economics of competition 2016, p.77). The high demand among the young
generation has highly been attracting foreign investment in Kuwait and any improvement can
bring much better results.
The government of Kuwait should improve its education sector. There has been mismatch in
skills required by companies and those of educated young generation of Kuwait. Despite the
government having invested much in the education system and even forming the government’s
Integrated Education Reform Programme, the job seekers skills still do not meet the required
standards in the job market. This has seen many foreign companies employing foreign workers
depriving the youngsters of Kuwait potential jobs. The government should improve the quality of
education so as for high skilled labor force to be available to foreign investors locally in order to
minimize the investors’ hiring costs. This will attract more foreign investors to join the economy
of Kuwait.
In a nutshell, the economy of Kuwait has various opportunities available for foreign investors.
The government should try its best to attract foreign direct investments to utilize the available
opportunities in order to foster diversification and growth of the economy of Kuwait.
Four basic policies that government of Kuwait should adopt to
enhance the capacity of its industries to innovate and upgrade
The government of Kuwait should fund business programs to undertake
research and development (Entrepreneurship and dynamic capabilities 2016, p.917).
The government of Kuwait should encourage various businesses in various

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sectors of the economy to form groups and undertake research on various
ways in which they can improve their products or methods of production and
also come up with new products according to the prevailing consumer tastes
and preferences in the market. The government should provide funds or
rather meet part of the costs in support the research activities as most of
them are expensive and businesses may fear to incur the huge costs and
choose not to undertake the research activities.
The government of Kuwait should stimulate rivalry among the firms in
various industries of Kuwait (Location, competition, and economic development 2010,
p.15). Rivalry between firms in various industries brings competition among
the firms. There various ways in which the government of Kuwait can
stimulate competition among firms in various industries. The government
can formulate policies which limit cooperation of firms in the markets to
avoid the monopolization of markets or remove some barriers to entry into
the local industries to encourage foreign investment. The stimulated
competition among the firms makes the firms to find ways to come up with
cheap high quality products in order to win market share. As a result the
firms innovate or upgrade their productivity to remain competitive in the
market.
The government should subsidize production activities among different firms
in its industries. Some of the production methods of businesses are costly
although they produce quality commodities. Some businesses may choose to

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use poor production methods to lower their costs of production. Government
involvement in the production activities in form of subsidies encourages
businesses to use production methods which give quality output and even
upgrade to better production methods as part of the production costs are
catered for by the government.
The government should adopt a good education system. The government of
Kuwait should invest towards improving its education system which has been
poor for the last years (Government Expenditure on Education 2018, p.802). Students
should be properly trained and educated on various opportunities of
research. A good education system equips learners with adequate skills in
their areas of expertise and this means that job seekers are highly skilled
and posses the necessary skills required in the job market. A highly skilled
labor force gives a quality output and sorts for various ways in which
production can be improved to maximize profits and minimize costs.
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