Identifier
Created
Classification
Origin
05KUWAIT113
2005-01-09 07:38:00
UNCLASSIFIED
Embassy Kuwait
Cable title:  

KUWAIT 2005 INVESTMENT CLIMATE STATEMENT

Tags:  ECON KTDB KU OPIC USTR 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 08 KUWAIT 000113 

SIPDIS

STATE FOR EB/IFD/OIA
STATE PLEASE PASS TO USTR
STATE PLEASE PASS TO CIMS NTDB WASHDC

E.O. 12958: N/A
TAGS: ECON KTDB KU OPIC USTR
SUBJECT: KUWAIT 2005 INVESTMENT CLIMATE STATEMENT

REF: 2004 STATE 250356

UNCLAS SECTION 01 OF 08 KUWAIT 000113

SIPDIS

STATE FOR EB/IFD/OIA
STATE PLEASE PASS TO USTR
STATE PLEASE PASS TO CIMS NTDB WASHDC

E.O. 12958: N/A
TAGS: ECON KTDB KU OPIC USTR
SUBJECT: KUWAIT 2005 INVESTMENT CLIMATE STATEMENT

REF: 2004 STATE 250356


1. Per reftel, included below is the full text of Embassy
Kuwait's 2005 Investment Climate Statement.


2.
--------------
INVESTMENT CLIMATE STATEMENT
--------------


OPENNESS TO FOREIGN INVESTMENT
--------------

The Council of Ministers approved the implementing
regulations for its new Direct Foreign Capital Investment
Law-Law No. 8/2001- passed by the National Assembly on March
11, 2001, through Resolution No. 1006/1/2003 on November 1,

2003. The legislation authorizes foreign-majority ownership
and 100 percent foreign ownership in certain industries
including: infrastructure projects (water, power, waste water
treatment or communications); investment and exchange
companies; insurance companies; information technology and
software development; hospitals and pharmaceuticals; air,
land and sea freight; tourism, hotels, and entertainment;
housing projects and urban development. Projects involving
oil discovery or oil and gas production are not authorized
for foreign investment and must be approved by a separate
law.

The Direct Foreign Capital Investment Law promotes foreign
investment in Kuwait; authorizes tax holidays of up to ten
years for new foreign investors; facilitates the entry of
expatriate labor; authorizes land grants and duty-free import
of equipment; provides guarantees against expropriation
without compensation; ensures the right to repatriate
profits; and protects the confidentiality of proprietary
information in investment applications, with penalties for
government officials who reveal such data to unauthorized
persons. New investors will be protected against any future
changes to the law. Full benefit of these incentives,
however, will be linked to the percentage of Kuwaiti labor
employed by the new venture. The investor will also be
obliged to preserve the safety of the environment, uphold
public order and morals, and comply with instructions
regarding security and public health. While the Direct
Foreign Capital Investment Law is on the books, foreign
companies still report numerous delays in getting approval to
operate in Kuwait and the law does not appear to have changed

the investment climate all that much. (The Minister of
Finance did not renew the term of the Assistant
Undersecretary who is in charge of the Direct Foreign
Investment Office). Some reports claim that the Minister
will cancel or change it into an authority after a recent
report by the Economic Reform Committee describing it as
complete failure).

Foreign firms still may not invest in the upstream petroleum
sector, although they are permitted to invest in
petrochemical joint ventures. Implementing legislation
brought before Parliament in January 2004 would allow for
limited, controlled investment in the petroleum sector. This
law was submitted specifically to allow for investment in and
development of Kuwait's northern oilfields, but may be used
to allow for other investment in the petroleum sector in the
future.

Kuwait's economy has been dominated by the state and the
nationalized oil industry since the early 1970s despite
efforts by the government to divest. The government acquired
major holdings in private Kuwaiti firms -- particularly banks
and insurance companies -- following stock market crashes in
1979 and 1982. After liberation from Iraq (early in 1991),
the government passed a debt settlement law and purchased
outstanding debts emanating from the stock market crashes and
the Gulf War. Between 1995 and 1998, the government
successfully divested over 50 percent of its equity holdings
in private firms by selling off its full holdings in 28 firms
and portions of holdings in 17 other firms, earning some US
$3.2 billion. The program was suspended in 1998 because of
weakness of the Kuwait Stock Exchange, but resumed in May
2001 when the Kuwait Investment Authority sold 113 million
shares (about 24 percent) of the Mobile Telecommunications
Company (MTC). There were six times as many prospective
buyers as could be accommodated. The sale fulfilled the
government's intention to reduce its equity in MTC from 49
percent to 25 percent.

The Kuwait Stock Exchange (KSE) is the second largest bourse
in the Arab world after Saudi Arabia's NCFEI. KSE lists 113
Kuwaiti companies and 2 companies from other Gulf States. It
reopened in 1992 following the Gulf War and has a market
capitalization of US $61 billion (KD21.745 billion) as of
December 2004. The index grew 389 percent between 1994-2003
as the government divested itself of private holdings. The
National Assembly ratified the "Indirect Foreign Investment
Law" in August 2000, allowing foreigners to own 100 percent
of all listed shareholding companies, except banks. Foreign
investors require Central Bank's approval to own more than
five percent of a Kuwaiti bank, and are limited to a maximum
ownership of 49%. The banking sector was opened under the
Direct Foreign Investment Law and the Central Bank has
already granted one foreign bank, BNP Paribas, a license to
operate. Other foreign banks have expressed interest and
will likely apply for licenses in 2005.

On July 9, 2001, the Kuwaiti government announced an
ambitious five-year privatization program, which closely
resembled past initiatives. The plan outlined a wide range
of activities, but with little detail. The first year called
for privatizing some gas station outlets and part or all of
Kuwait Airways, which has operated at a loss since 2000.
Year two initiated privatization of post office, telegraph,
and telecommunication services. Years three and four will
complete the telecommunication privatization and initiate the
privatization of the Ports Authority and Public Transport
Company. The fifth and final year targets the power and
water sectors, as well as Kuwait's Petrochemical Industries
Company (PIC). Kuwait's National Assembly has made clear
that any privatization program will have to insulate
consumers from significant rate increases and protect the
jobs of Kuwaiti employees. Little of the 2001 five-year plan
has been implemented. Kuwait Airways is still operating at a
significant loss and is still a government entity. While
both mobile telephone companies in Kuwait are private, none
of the other communication services have yet been privatized,
though talk is increasing of privatizing landlines. The
ports and transport sector have not been privatized either.
The energy and power sector has seen the most progress in
privatization. Forty of the 120 government-owned gas
stations have been privatized, with plans to privatize the
rest in two additional rounds. The outcome will be three
competing gas station companies, with gas still subsidized by
the government and set in a price range. The
government-owned lubrication oils plant was privatized in
2004 as were the coke smelter operations. Kuwait's PIC is
now operating a joint private venture with Dow Chemicals
called Equate, and the operation has proven to be a
successful, profitable model of both privatization and
foreign investment.

Build, Operate and Transfer (BOT) projects are gaining
increasing acceptance in Kuwait, with BOT projects proposed
in the power, wastewater, real estate development and
transport sectors. After nearly four years of deliberation
the Sulaibiya Waste Water Treatment BOT contract was signed
in May 2001. The winning consortium, which includes U.S.
firms, projects revenues of US $390 million over 10 years.
The project will process 50 million gallons of wastewater
daily to be used for irrigation.

There have also been selected real estate BOT projects by
privately owned Kuwaiti companies. The first-class US $132
million Sharq Mall, owned by the National Real Estate
Company, contains retail outlets, restaurants, theaters, and
entertainment concessions. More recently, the Fifth
Waterfront Development Project constructed Marina Mall. This
US $162 million BOT is owned by the United Realty Company and
features high-end retail, eating, and entertainment outlets.
A future BOT is planned for a central incinerator in the
Shuaiba Industrial Area, a project which stipulates foreign
participation with at least 25 percent equity.

Foreign-owned firms and the foreign-owned portions of joint
ventures are the only businesses subject to corporate income
tax, which applies to domestic and offshore income.
Corporate tax rates can be as high as 55 percent of net
profits, but the government has put forward legislation to
reduce the maximum rate to 25 percent. New foreign investors
can be exempted from all taxes for up to 10 years under the
new Direct Foreign Capital Investment Law. As of January
2004, the new draft taxation law lowering the corporate tax
rate to 25% on all sectors was still held up in Parliament.

Kuwaiti firms are not subject to the corporate income tax,
but those registered on the Kuwait Stock Exchange
(shareholding companies) are required to contribute 2.5
percent of their national earnings to the Kuwait Foundation
for the Advancement of Science (KFAS). The National
Employment Law levies an additional 2.5 percent tax that will
fund a program granting Kuwaitis working in the private
sector the same social and family allowances provided to
Kuwait's government workers. Kuwait levies no personal
income tax.

Tax exclusions -- besides those offered under the new Direct
Foreign Capital Investment Law -- for business expenses are
limited and Kuwait's tax code is often ambiguous. For
example, deductions are only three percent for agent
commissions and head office expenses (mainly for turnkey
supply and installation-type contracts).
The licensing authority of the Ministry of Commerce and
Industry screens all proposals for direct foreign investment.
In the past, this authority has encouraged high-tech
industries over sectors viewed to be saturated, such as the
hotel industry. The Foreign Capital Investment Committee
(FIC),chaired by the Minister of Commerce and Industry and
including representatives from the private and public
sectors, will authorize investment incentives put forth under
the new Foreign Investment Law on a case-by-case basis.
Foreign companies have reported numerous delays in gaining
authorization, some waiting up to 18 months for approval.

CONVERSION AND TRANSFER POLICIES
--------------

After 27 years of linking the Kuwaiti dinar (KD) exchange
rate to a basket of currencies, Kuwait decided to peg the
dinar to the US dollar under a flexible peg from the
beginning of 2003. The move is in preparation for the
adoption of a single GCC currency in 2010. The Central Bank
of Kuwait (CBK) will retain a band of plus or minus 3.5
percent in order to ensure a smooth evolution of the historic
behavior of the KD that has traded within the specified band
since liberation. Since 1997, the KD has fluctuated within a
3 percent band against the dollar. There are no restrictions
on current or capital account transactions in Kuwait beyond
the requirement that all foreign exchange purchases be made
through a bank or licensed foreign exchange dealer. Equity,
loan capital, interest, dividends, profits, royalties, fees
and personal savings can all be transferred in or out of
Kuwait without hindrance. Under the new Foreign Investment
Law, investors are also permitted to transfer all or part of
their investment to another foreign or domestic investor.

*Source: National Bank of Kuwait Economic & Financial Review,
June 2003.

EXPROPRIATION AND COMPENSATION
--------------

There have been no recent cases of expropriation or
nationalization involving foreign investments in Kuwait.
Nevertheless, as a safeguard, the new Direct Foreign Capital
Investment Law guarantees against expropriation or
nationalization except for the public benefit in accordance
with existing laws; in this case, compensation will be
provided without delay for the "real economic value of the
project at the time of expropriation." When foreign
companies were nationalized in the past, as with Kuwait's oil
industry in the 1970s, the foreign interests were compensated
promptly and effectively.

DISPUTE SETTLEMENT
--------------

The Foreign Investment Law stipulates that Kuwaiti courts
alone are responsible for adjudicating any disputes involving
a foreign investor and other parties, although arbitration is
permitted. Few contracts in Kuwait contain clauses specifying
recourse to traditional commercial and political negotiation.
According to the Central Bank of Kuwait, the Kuwaiti
judicial system recognizes and enforces foreign judgments
only when reciprocal arrangements are in place. Kuwait is a
signatory to the International Center for the Settlement of
Investment Disputes (ICSID, i.e. the Washington Convention).
There have been no investment disputes involving American
firms in Kuwait in over five years; commercial disputes are
more common. In both cases, the slow pace of Kuwait's legal
system often frustrates American claimants.

Kuwait has a developed legal system and a strong trading
history. It has a civil code system influenced by Islamic
law. As a traditional trading nation, Kuwait's judiciary is
familiar with international commercial laws. Kuwait has been
a GATT member since 1963 and has signed a WTO agreement.
Kuwait, however, is not a signatory to the WTO Government
Procurement Code.

A feature of Kuwaiti law which U.S. business should be aware
of is the application of travel bans which may be applied
against individuals who have civil or criminal cases
registered against them. The ban prevents individuals from
departing Kuwait until the pending matter is settled or
acceptable guarantees are offered. There have been
indictments in which former Kuwaiti business partners have
managed to have travel bans imposed on former U.S. partners
for allegedly violating Kuwaiti civil law. Though very
infrequent, such cases highlight the need to take extra care
before entering into long-term business relationships in
Kuwait.

PERFORMANCE REQUIREMENTS/INCENTIVES
--------------

Government Procurement Requirements

Law No. 37 of 1964 (Articles 43 and 44) specifies the use of
local products when available and prescribes a 15 percent
price advantage for local firms in government tenders.

Boycotts

Kuwait publicly announced in June 1993 the end of enforcement
of the secondary and tertiary Arab League boycotts of Israel.
Although there are occasional reports that some tender
requests contain boycott clauses reportable under U.S.
anti-boycott laws, these usually result from clerical errors
or the use of outdated forms. Kuwait has stated that it will
wait for Arab League action before eliminating the primary
boycott of Israel.

Shipping Requirements

The Kuwaiti government has insisted that cargoes for
government projects originating in U.S. ports will no longer
be prevented access in favor of the United Arab Shipping
Program.

Participation In Research And Development

There are no specific restrictions on foreign participation
in government-financed or subsidized research and
development, but little activity of this kind has occurred to
date. The Kuwait Institute for Scientific Research (KISR)
has expressed interest in working with foreign firms. The
government would welcome programs that provide expertise
unavailable locally, but these are likely to be evaluated on
a case-by-case basis.

Visa and Work Permit Requirements

Kuwait has a stringent visa regime and most work permits
require a local sponsor. The Foreign Investment Law,
however, may redress this problem for new investors.
Reciprocal changes between the U.S. and Kuwait--particularly
the introduction of a 10-year multiple entry visa--have
benefited U.S. business travelers. Visa requirements for
citizens of 34 nations, including the United States, were
relaxed in 2004 allowing for application for a visa at the
airport upon arrival. Foreign-born U.S. citizens, especially
those of Middle Eastern descent, sometimes experience
difficulties with visa and residency applications. Any
problems experienced by potential U.S. visitors should be
referred to the American Embassy or to the Bureau of Consular
Affairs, Department of State.

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------

Rights to private ownership and establishment are respected
in Kuwait, although foreigners face selected restrictions.
Licenses from the Ministry of Commerce and Industry are
required for the establishment of all new companies, and
government authorization is required for any incentives
offered by the new Foreign Investment Law. As stated above,
foreign ownership is restricted or prohibited in some sectors
of the economy, and non-GCC citizens may not own land in
Kuwait.

Kuwaiti law severely restricts the types of collateral to
which creditors may have recourse in the event of default by
a borrower. Banks may not foreclose on residential real
estate property or personal possessions in the event of
default, although they may sue the borrower for the balance
due under the loan contract. Borrowers typically pledge a
portion of their future severance benefits as collateral for
a bank loan.

TRANSPARENCY OF THE REGULATORY SYSTEM
--------------

Kuwait has not developed effective antitrust laws to foster
competition, and its bureaucracy often resembles that of a
developing country. Kuwait's open economy has generally
promoted a competitive market. When government intervention
occurs, however, it is usually to the benefit of Kuwaiti
citizens and Kuwaiti-owned firms.
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------

Kuwait has a free, but inefficient, capital market where
credit is allocated on market terms. Foreign investors can
obtain credit through local banks. With the help of
government subsidies, the financial markets -- and
particularly the commercial banks -- operated throughout the
1980s primarily to collect funds for the re-lending to
favored customers. Payment discipline was lax and real
economic losses common. Under a bank stabilization program
introduced in 1992, the Central Bank of Kuwait purchased all
of the outstanding domestic credits of Kuwait's commercial
banks while eliminating all guarantees for profits, equity,
and liabilities other than the banks' deposit liabilities.
Henceforth, all losses would stay with the banks, which would
be responsible for the management of all their assets and
liabilities. In addition, the Central Bank improved bank
supervision, resulting in a fairer and more efficient
distribution of credit throughout the Kuwaiti banking system.
Each of Kuwait's six commercial banks reported continued
earnings growth in 2002.

BANK ASSETS
--------------

Kuwait's banks have not yet released their 2004 annual
reports. The assets of Kuwait's commercial banks on December
31, 2003 were: (in '000s)


BANK KD U.S. $ equivalent
National Bank of Kuwait 5,439,105 18,190,987
Gulf Bank 2,483,522 8,306,094
Commercial Bank of Kuwait 2,198,250 7,352,006
Al-Ahli Bank 1,480,077 4,950,090
Burgan Bank 1,920,300 6,422,408
Bank of Kuwait and the Middle East 1,495,447 5,001,495
TOTAL 15,016,701 50,223,080

(US $1 equals KD 0.291 as of Jan. 1st, 2005-CBK)


The quality of local banks varies from blue chip, world-class
to weak. Some bank assets have been non-performing in the
past. The balance sheets of some local banks are heavily
weighted toward lower-yielding government bonds. Legal,
regulatory, and accounting systems are opaque but are
generally consistent with international norms. The Central
Bank of Kuwait requires annual reports from local banks to
meet international accounting standards. U.S. businesspeople
are advised to seek local legal and financial advice for
complicated investments and transactions.

There are few defensive measures to protect against hostile
takeovers, which are rare in Kuwait. There is no evidence of
private sector or government efforts to restrict foreign
participation in industry standards-setting consortia or
organizations. U.S. suppliers often have trouble, however,
complying with specifications that are
technologically-tailored to other (usually European,
especially U.K.) suppliers. In addition, American suppliers'
preference for turnkey projects often does not mesh with
Kuwait's preference to split projects into a series of
separately-tendered smaller projects.

Finally, U.S. investors should be aware that family, clan,
and tribal ties throughout the business community and
government can restrict foreign participation, investment,
and control of domestic enterprises. Kuwait is a very big
small town.

POLITICAL VIOLENCE
--------------

Politically Motivated Damage to Projects and/or Installations
The potential for terrorist actions throughout the Persian
Gulf region remains high, and the Government of Kuwait
continues to take aggressive steps to ensure domestic
security. Between October 2002 and January 2004, there were
four terrorist attacks targeting Americans in Kuwait, killing
two Americans and wounding four others. There have been no
incidents since.
CORRUPTION
--------------

The often-lengthy procurement process in Kuwait occasionally
results in accusations of attempted bribery or the offering
of other inducements by foreign bidders. This is a crime in
Kuwait and there are currently several investigations and
trials underway involving current or former government
officials accused of malfeasance. There have been no
convictions for bribery, however, since the end of the Gulf
War. In 1996, the government passed Law No. 25, which
requires all companies securing contracts with the government
valued at KD 100,000 (US $336,000) or more to report all
payments made to Kuwaiti agents or advisors while securing
the contract. The law similarly requires entities and
individuals in Kuwait to report any payments they received as
compensation for securing government contracts.

BILATERAL INVESTMENT AGREEMENTS
--------------

Kuwait has signed investment agreements with Germany, France,
Italy, Russia, China, Romania, Poland, Hungary, Turkey,
Malaysia, Pakistan, Switzerland, Malta, Finland, Ethiopia,
Croatia, Tajikistan, Austria, Bulgaria, Kazakhstan, Morocco,
Mongolia and the Czech Republic. In the past few years,
Kuwait has signed a bilateral investment agreement with
Pakistan and a free trade agreement (FTA) with Jordan.
Kuwait has initialed agreements on bilateral investment with
Denmark, Belgium, the Netherlands, Thailand, Ukraine, Latvia,
Lithuania, Lebanon, Bosnia/Herzegovina, and India. Kuwait
began talks with Singapore on a Free Trade Agreement in
December 2004.

Trade and Investment Framework Agreement

Kuwait signed a trade and Investment Framework Agreement
(TIFA) with the United States in February 2004. The TIFA is
the first step in developing economic reform and trade
liberalization criteria to strengthen the U.S. - Kuwait
economic relationship and to work toward an eventual Free
Trade Agreement. At the first bilateral TIFA Council
meeting, held in May 2004 in Washington, D.C., it was agreed
that the TIFA process would provide for periodic technical
discussions. Several areas in particular stand out as
needing further attention: intellectual property rights,
standards-related issues, and service and investment
requirements. Technical experts on both sides continue to
work on these areas. The U.S. Embassy in Kuwait, the Kuwaiti
Embassy in Washington, the USTR, and the Kuwaiti Ministry of
Commerce and Industry are working on bringing all sides
together for the next TIFA Council Meeting in the first half
of 2005.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
--------------

In 1989, Kuwait concluded an agreement with the U.S. on
investment guaranty programs, which facilitated the extension
of programs from the Overseas Private Investment Corporation
(OPIC) to Kuwait. Kuwait is also a member of the
Multilateral Investment Guarantee Agency (MIGA). Currently
there are no OPIC programs in Kuwait.

LABOR
--------------

Kuwait has a diverse labor force. Kuwaiti nationals occupy
most of the top management positions in the private and
government sectors. Unemployment among Kuwaitis is less than
two percent, but is rising as a result of a growing influx of
young Kuwaitis into the labor force (20,000 to 25,000
annually). The new entrants are reluctant to enter the
private sector and cannot be absorbed by the government,
where underemployment remains a serious problem. Kuwaitis
are outnumbered in the work force by expatriate laborers of
diverse backgrounds. While there are a number of American
and Western European workers in Kuwait, particularly in
high-skilled positions, the vast majority of expatriate
workers are low paid laborers from other Middle Eastern
countries, South Asia, and the Philippines. Prior to the
Gulf War (1991),Palestinians occupied many of the country's
middle-management positions. Since the war, workers of other
nationalities, often Egyptians or South Asians, have filled
most of these positions. Since liberation, the Government of
Kuwait has adopted inconsistent policies intended to limit
and discourage the resident expatriate population. The
government has instituted a quota system on work permits,
restricted the transfer of workers from one sponsor to
another within the private sector, and levied new fees on
expatriate workers and their families in order to raise the
cost of employing foreign workers. At the same time,
however, the government has reduced the minimum salary
required for expatriates (in some business categories) to be
eligible to bring their families to Kuwait, lowering it from
400 KD a month to 250 KD a month.

Kuwaiti workers have the right to organize and bargain
collectively, but Kuwaiti law prevents the establishment of
more than one union per functional area or more than one
general confederation. Foreign workers, who constitute the
vast majority of the work force, are permitted by law to join
unions as non-voting members after five years of residence in
Kuwait. The right to strike is also recognized for private
sector workers, though that right is limited by provisions
calling for compulsory negotiation and arbitration in the
case of disputes. Kuwaiti labor law prohibits anti-union
discrimination.

Separate Kuwaiti labor laws set work conditions in the public
and private sectors, with the oil industry treated
separately. Forced labor is prohibited and the minimum age
for employment is 18 years. Youths as young as 14, however,
may work part-time in some non-industrial positions. A
two-tiered labor market ensures high wages for Kuwaiti
employees while foreign workers, particularly unskilled
laborers, receive substantially lower wages. There is no
minimum wage for the private sector; in the public sector,
the current effective minimum wage is KD 226 (US $741) per
month for Kuwaiti bachelors and KD 301 (US $987) per month
for married Kuwaitis--compared to KD 90 (US $295) for
non-Kuwaitis. The basic labor law also limits the workweek
to 48 hours, provides for a minimum of 14 days of leave per
year, and establishes a compensation schedule for industrial
accidents. Current labor laws do not apply to domestic
servants. The State Department's annual Human Rights Report
and Trafficking in Persons Report highlight the vulnerability
of domestic servants to exploitation. The Ministry of Social
Affairs and Labor announced a draft law to give domestic
servants some of their rights like limited number of weekly
work hours, minimum salary, and a weekly holiday.

The International Labor Organization's (ILO) Committee of
Experts has reiterated its long-standing criticisms of the
discrepancies between the Kuwaiti Labor Code and ILO
Conventions 1, 30, and 87 regarding hours of work and freedom
of association. Areas criticized by the ILO include the
prohibition to establish more than one trade union for a
given field; the requirement that a new union have at least
100 workers; the regulation that workers must reside in
Kuwait for five years before joining a trade union; the
denial of the right to vote and to be elected for foreign
trade unionists; the prohibition against trade unions
engaging in any political or religious activity; and the
reversion of trade union assets to the Ministry of Social
Affairs and Labor in the event of dissolution. A new labor
law has been under consideration for over 10 years.

FOREIGN TRADE ZONES AND FREE PORTS
--------------

In July 1995, the National Assembly passed Law No. 26
authorizing the Ministry of Commerce and Industry to
establish free trade zones in Kuwait. In May 1998, the
privately-owned National Real Estate Company signed a
contract with the Ministry to operate, manage, and market the
50 square-kilometer Kuwait Free Trade Zone (KFTZ) at Shuwaikh
port, which was inaugurated in November 1999. Many
restrictions faced by foreign firms, such as corporate taxes,
do not apply to offices or plants within the KFTZ. Some 90
percent of space within the KFTZ has been leased; the
majority of firms operating in the zone are Kuwaiti.

FOREIGN DIRECT INVESTMENT STATISTICS
--------------

Kuwaiti public investments abroad consist of portfolio
investments held by the Kuwait Investment Authority, direct
investments of other government entities, as well as those
held by private Kuwaitis. The amount of investments of the
KIA is a state secret, but is estimated at more than US $80
billion. Details about non-KIA investments -- such as the
Kuwait Petroleum Corporation's interests in oil production,
refining, and distribution -- are equally murky. The
holdings of private Kuwaitis, in both direct and portfolio
investments, are believed to be some US $100 billion. Other
major investors in Kuwait include the Japanese-owned Arabian
Oil Company which holds the Kuwaiti offshore concession in
the Partitioned Neutral Zone (PNZ),and Dow Chemical which
has a 45 percent stake in the US $2 billion Equate project, a
petrochemical joint venture with the Petrochemical Industries
Company (PIC) that began operation in 1997. (Although the
U.S.-owned Saudi Arabian Texaco is headquartered on the
Kuwait side of the PNZ, it operates under a Saudi concession
for Saudi Arabia's share of the onshore oil resources in the
PNZ.)
LEBARON