ECONOMY
Kuwait has a small, relatively open economy dominated by the oil industry and government sector. 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 45% of GDP, 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. Kuwait’s economy has benefited from high oil prices in recent years, as well the economic activity generated following Operation Iraqi Freedom (Kuwait is a major logistical and transit hub for Coalition operations in Iraq). Non-oil sectors such as banking, financial services, logistics, telecommunications, and construction have enjoyed strong growth in the past three to four years. The global financial crisis affected Kuwait in late 2008, with the Kuwait Stock Exchange--the region’s second-largest bourse--losing almost 40% of its market capitalization during 2008. High oil prices in recent years have resulted in large budget surpluses in 2005-2008.
The Kuwait National Assembly passed a law on December 26, 2007, amending the Income Tax Decree No. 3 of 1955 and setting the current tax range, from 0% up to 55%, to a flat rate 15%.
On January 9, 2008, the Kuwait Government approved the sale of 40% of Kuwait Airways in a domestic public placement and another 35% to a long-term investor within two years. The government will hold 20% and employees will take the remaining 5%.
Oil
In 1934, the ruler of Kuwait granted an oil concession to the Kuwait Oil Company
(KOC), jointly owned by the British Petroleum Company and Gulf Oil Corporation.
In 1976, the Kuwaiti Government nationalized KOC. The following year, Kuwait
took over part of onshore production in the Divided Zone between Kuwait and
Saudi Arabia. Kuwait Gulf Oil Company (KGOC) produces jointly there with Saudi
Arabian Chevron, which, by its 1984 purchase of Getty Oil Company, acquired the
Saudi Arabian onshore concession in the Divided Zone. Saudi Arabia renewed
Chevron's concession in the Divided Zone for another 30 years effective from
February 2009. KGOC also manages offshore production operations, while Aramco
Gulf Oil Company (AGOC) manages the Saudi portion of the offshore Divided Zone.
Kuwait Petroleum Corporation (KPC), an integrated, state-owned oil company, is the parent company of the government's operating companies in the petroleum sector, and includes Kuwait Oil Company, which produces oil and gas; Kuwait National Petroleum Company, which manages refining and domestic sales; Petrochemical Industries Company, which produces ammonia, urea, ethylene, propylene, and styrene and participates in a number of successful joint ventures with Dow Chemical within Kuwait and abroad; Kuwait Foreign Petroleum Exploration Company, which is responsible for exploration and upstream production outside Kuwait (in several developing countries and Australia); Kuwait Oil Tanker Company.; Kuwait Gulf Oil Company, responsible for exploration and production in the Kuwait portions of the offshore and onshore Divided Zone; and Kuwait Petroleum International, which manages refining and retail operations outside Kuwait (in Europe and East Asia).
According to official Organization of Petroleum Exporting Countries (OPEC) figures, Kuwait has approximately 101.5 billion barrels of proven oil reserves, including the Kuwaiti share of proven reserves in the Divided Zone, the fifth-largest oil reserves in the world after Saudi Arabia, Canada, Iran, and Iraq. Kuwait recently began limited production from a 35 trillion cubic feet natural gas field discovered in 2006. By 1993 Kuwait had restored its production capacity to its pre-occupation levels of 2.4 million bpd. Kuwait's current oil production capacity is estimated to be 2.8 million bpd. Kuwait plans to increase its capacity to 3.5 million bpd by 2015 and 4.0 million bpd by 2020. Many analysts question whether these goals are feasible. Oil revenues comprise about 95% of exports and 95% of total government revenues. Kuwaiti export crude averaged about $66/barrel in 2007.
KPC purchased from Gulf Oil Co. refineries in the Netherlands and Italy and service stations in the Benelux nations, Italy, and Scandinavia. In 1987, KPC bought a 19% share in British Petroleum, which was later reduced to 10%. KPC markets its products in Europe under the brand name Q8. In 2006, KPC announced plans to participate in a joint venture to build and operate a refinery and associated petrochemical plant in China. In April 2008, KPC signed a joint venture agreement with Idemitsu Kosan - Japan to hold a 35.1% stake, worth $6 billion, of Vietnam's second refinery.
On May 12, 2008, KPC awarded a $14 billion project to construct a fourth refinery to several international firms. The project would increase refining capacity from the current 930,000 barrels/day to 1.5 million barrels/day by 2012. As of January 2009, the project was stalled in the face of parliamentary opposition.
Social
Benefits
The government has sponsored many social welfare, public works, and development
plans financed with oil and investment revenues. Among the benefits for Kuwaiti
citizens are retirement income, marriage bonuses, housing loans, virtually
guaranteed employment, free medical services, and education at all levels. By
Amiri decree, the government occasionally disburses a portion of its budget
surplus as a grant to all Kuwaiti citizens. In 2006, an Amiri grant of 200
Kuwaiti dinars (approximately $700) was paid to every citizen who applied. In
2007, the government implemented a debt forgiveness scheme for Kuwaiti citizens
amounting to just over U.S. $1 billion. Foreign nationals residing in Kuwait do
not have access to these welfare services. The right to own stock in publicly
traded companies, real estate, and banks or a majority interest in a business is
limited to Kuwaiti citizens and citizens of Gulf Cooperation Council (GCC)
states under limited circumstances.
Industry
and Development
Industry in Kuwait consists of several large export-oriented petrochemical units, oil refineries, and a range of small manufacturers. It also includes large water desalinization, ammonia, desulphurization, fertilizer, brick, block, and cement plants. The U.S. and Kuwaiti governments signed a Trade and Investment Framework (TIFA) agreement in 2004. Kuwait and the other GCC nations signed a free trade agreement with Singapore in 2008. Kuwait does not attract significant foreign direct investment (FDI), largely due to bureaucratic obstacles and a business culture that often disadvantages foreign firms.
Agriculture
Agriculture is limited by the lack of water and arable land. The government has experimented in growing food through hydroponics and carefully managed farms. However, most of the soil which was suitable for farming in south central Kuwait was destroyed when Iraqi troops set fire to oil wells in the area and created vast "oil lakes." Fish and shrimp are plentiful in territorial waters, and large-scale commercial fishing has been undertaken locally and in the Indian Ocean.
Shipping
The Kuwait Oil Tanker Company has 24 crude oil, liquefied petroleum gas, and
refined product carriers and is the largest tanker company in an OPEC country.
Kuwait also is a member of the United Arab Shipping Company.
Trade,
Finance, and Aid
The Kuwaiti dinar is currently pegged to an undisclosed basket of currencies; prior to 2007 the currency was pegged to the U.S. dollar. As of December 31, 2008, one U.S. dollar was equivalent to 0.276 Kuwaiti dinar.
High oil prices in 2008 have ensured a budget surplus for fiscal year 2009 (ending March 31). As of January 2009, the government predicted a budget surplus of U.S. $34.1 billion for FY 2009, based on revenues of U.S. $64.4 billion for the first nine months of the fiscal year.
The government’s two reserve funds, the Fund for Future Generations and the General Reserve Fund, are both managed by the Kuwait Investment Authority (KIA). Prior to the onset of the global financial crisis in mid-2008, the KIA’s aggregate holdings were estimated at more than a quarter of a trillion dollars. The KIA’s losses since mid-2008 are unknown at this stage. KIA’s assets are invested in stocks, bonds, and real estate in the U.S., Europe, and Southeast Asia. Kuwait is reportedly considering increasing its investments in Asia, with a specific focus on China and India. Generally, Kuwait is considered a conservative investor.
Kuwait has been a major source of foreign economic assistance to other states through its Kuwait Fund for Arab Economic Development (KFAED). The fund is an autonomous state institution created in 1961 on the pattern of western and international development agencies, and it is chaired by the Kuwaiti Foreign Minister. In 1974, the fund’s lending mandate was expanded to include all non-Arab developing countries. According to the most recent statistics, the fund’s paid capital amount is $7 billion. Total loan disbursement extended is $15 billion. The fund has granted 742 loans since its inception, and has extended technical assistance on 203 occasions to different countries and organizations in Africa, Asia, Europe, and Latin America. KFAED is responsible for administering the disbursal of at least $500 million in concessionary loans to Iraq in support of reconstruction efforts.
Kuwait has provided aid to Egypt, Syria, Jordan, Morocco, and the Palestinian Authority. During the Iran-Iraq war, Kuwait also gave significant aid to the Iraqis. KFAED issued loans and technical assistance grants of approximately $14 million during its fiscal year 2005. Kuwait provided significant assistance during Operation Iraqi Freedom by establishing the Humanitarian Operations Center for Iraq. Following the Israel-Lebanon conflict in 2006, Kuwait pledged $300 million for humanitarian aid and deposited $500 million in the Lebanese Central Bank.
At the 2003 Madrid Conference, the Government of Kuwait pledged $1.5 billion in assistance to Iraq. KFAED is responsible for disbursing and overseeing as much as $560 million of that assistance through grants. In 2005, KFAED contributed $50 million to Pakistan earthquake relief, pledged $500 million for Hurricane Katrina relief, and made significant contributions to tsunami relief efforts.
GDP (official exchange rate, 2007 est.): $111.3 billion.
Real GDP growth rate (2007 est.): 4.6%.
Natural resources: Oil, natural gas, fish.
Agriculture (about 0.5% of GDP): With the exception of fish, most food is imported. Cultivated land--1%.
Industry (about 48% of GDP): Types--petroleum extraction and refining, fertilizer, chemicals, desalination, construction materials.
Services (about 52% of GDP): public administration, finance, real estate, trade, hotels, and restaurants.
Trade (2007 est.): Exports--$61.43 billion f.o.b.: oil (93%). Major markets--Japan 20.4%, South Korea 16.2%, Taiwan 10.8%, Singapore 9.7%, U.S. 9%, Netherlands 5.3%, China 4.1% (2006 est.). Imports--$19.4 billion f.o.b.: food, construction materials, vehicles and parts, clothing. Major suppliers--U.S. 14.1%, Japan 7.8%, Germany 7.7%, Saudi Arabia 6.8%, China 5.7%, United Kingdom 5.4%, Italy 4.6% (2006 est.).
