By Reaven D’Souza
Executive Managing Editor
The latest World Investment Report (WIR) 2024, shows that foreign direct investment (FDI) to Kuwait increased significantly in 2023, growing from $758 million in 2022 to $2.1 billion last year. This surge in capital flow by 177 percent, albeit from a low base, is all the more impressive given that the WIR 2024, paints an otherwise dismaying picture of global FDI flows in 2023.
The latest WIR, which is published annually by the United Nations Conference on Trade and Development (UNCTAD), notes that amid an economic slowdown, rising geopolitical tensions, and climate-related crises, global FDI fell by 2 percent to USD 1.3 trillion in 2023, while capital flows to developing countries dropped by 7 percent to reach $867 billion.
Many analysts consider the substantial increase in capital flows to Kuwait as a reflection of the growing confidence among global investors and institutions in the economic and political transformations being undertaken in the country. Since taking his constitutional oath in December 2023 as Amir of Kuwait, and even before as the country’s Crown Prince since October 2020, His Highness the Amir Sheikh Meshal Al-Ahmad Al-Sabah has been giving fresh insight, impetus and direction to Kuwait’s economic, social and political growth.
In accordance with the latest directives and guidance of His Highness the Amir, the new government led by His Highness the Prime Minister Sheikh Ahmad Al-Abdullah Al-Sabah has been driving an economic and social renaissance in Kuwait. The government has prioritized the implementation of stalled development plans, programs, and reforms, with the focus being on the country’s economic and social growth, as well as the continued welfare of citizens.
The government’s commitment to reforms and to the country’s economic and social development were reiterated last week at the Cabinet’s regular weekly meeting headed by His Highness the Prime Minister. During the meeting, the Cabinet assigned the Minister of Finance and Minister of State for Economic Affairs and Investment, Dr. Anwar Ali Al-Mudhaf, to present the finance ministry’s perspectives on the reforms needed to ensure the financial sustainability of the state and maximize its non-oil revenues.
The Cabinet also set up a committee, headed by the Minister of Finance and including the Minister of Public Works, the Minister of Commerce and Industry, and the Minister of Electricity, Water, and Renewable Energy, to prepare a draft government plan of action and set priorities and review the key initiatives of the plan to be implemented according to a clear timetable.
The formation of the committee comes in light of the government’s commitment to implementing the directives of His Highness the Amir on achieving national aspirations, and ensuring sustainable development for the country and its people. Adherence to the perspicacious directions of Kuwait’s leadership becomes all the more important given the prevailing sluggish world economy, and expectations of only a mild growth in global GDP this year.
A recent report by the International Monetary Fund (IMF) on Kuwait’s potential growth noted that the economy is projected to contract by a further 1.4 percent in 2024, with oil production falling by another 4.3 percent due to the need to comply with the quota cut mandated by the Organization of Petroleum Exporting Countries (OPEC) and its allies in January. Meanwhile, the non-oil sector is expected to expand by 2.0 percent as domestic demand growth picks up.
Economic analysts point out that although Kuwait has a large wealth fund, a low debt-to-GDP ratio and surplus budgets when oil prices are high, the massive annual public sector spending on wages and subsidies results in a situation that rapidly turns for the worse during periods of extended low oil prices. The oft-repeated scenario of fiscal constraints during oil price declines underlines the criticality of diversifying the hydrocarbon-reliant economy and boosting the non-oil sector.
However, diversifying the economy and promoting the non-oil sector would require the government to introduce insightful initiatives and interventions aimed at stimulating the economy, decreasing public sector dominance of the market, increasing private sector participation in projects and development, and incentivizing companies to provide meaningful job opportunities for nationals.
Encouraging the private sector to engage in non-oil activities and in creating employment for citizens would necessitate enhancing the skills and capabilities of young nationals so as to enable them to participate productively in the labor market. Economic diversification also calls for the government to create a business and investment ecosystem that attracts foreign direct investment to the country.
As the UN investment report made clear, the challenging global investment climate in 2024, fueled by geopolitical crises, protectionist policies, fragmenting trade networks, and regional realignments, is disrupting the world economy, undermining stability and predictability of global investment flows, and exacerbating an already sluggish international FDI flow. Under these prevailing conditions, countries, both developing and developed, will have to work extra hard to lure foreign investments.
While the WIR 2024 points to an overall challenging prospect for international FDI flows this year, it also adds that under the right global economic conditions, modest growth for the year remains a possibility. Some of the positive economic initiatives needed to revive global investment flows include an uptick in economic growth, as well as an easing of financing conditions and investment facilitation efforts in national policies of countries and in international agreements.
The report also adds that while many developing countries will continue to struggle to attract foreign investments into sectors that are vital to their sustainable development this year, there are signs that investments are growing in several global value chain-intensive manufacturing sectors, especially in regions and countries with strong fiscal stability, good governance and easy access to major markets.
In this regard, Kuwait’s strategic location, and the significant untapped potential in various sectors of the economy, can attract investment by foreign entities and local investors. This includes the construction, real estate, transport and logistics sectors, and in the hydrocarbon ecosystem. In addition, Kuwait’s Vision 2035 development plan calls for major investments from public and private sectors in several strategic industries.
Among the industries chalked for potential foreign investment in Vision 2035 are information and communications technology, renewable energy, electricity and water, tourism, healthcare and education. Vision 2035 also calls for public private partnerships in development of the mega Northern City project, the Mubarak Al-Kabeer Port, and several green-field residential cities across the country.
Kuwait’s lack of FDI in the past had been largely blamed on the country’s inherent challenges, including its overreliance on oil, high levels of bureaucracy, and a complex legal system that made for a less-than-friendly business and investment environment. In particular the political landscape that led to instability of governments and hindered implementation of necessary economic and financial reforms was a downer that drove away many international investors.
However, since His HIghness the Amir has taken over the reins of the country, and the new government has moved swiftly to prioritize and implement economic and social development,there has been a marked shift in perceptions about Kuwait’s investment potential. In addition to the country’s sizable external assets and robust financial stability, the major incentive for increased interest among investors in Kuwait is the prevailing political stability.
The recent untangling of the perpetual political gridlock, which stymied economic, fiscal and structural reforms in the past, is being seen as a significant draw for global investors to Kuwait. The government’s ability to introduce necessary reforms in a timely manner, irrespective of the economic and social pinches that some of these reforms may entail, will determine how global FDI flows to Kuwait in future.