Economy of Kuwait

Finance

Kuwait has a leading position in the financial industry in the GCC; the abyss that separates Kuwait from its Gulf neighbors in terms of tourism, transport, and other measures of diversification is absent in the financial sector. The Emir has promoted the idea that Kuwait should focus its energies, in terms of economic development, on the financial industry.

The historical preeminence of Kuwait (among the Gulf monarchies) in finance dates back to the founding of the National Bank of Kuwait in 1952. The bank was the first local publicly traded corporation in the Gulf. In the late 1970s and early 1980s, an alternative stock market, trading in shares of Gulf companies, emerged in Kuwait, the Souk Al-Manakh. At its peak, its market capitalization was the third highest in the world, behind only the U.S. and Japan, and ahead of the UK and France.

Kuwait has a large wealth-management industry that stands out in the region. Kuwaiti investment companies administer more assets than those of any other GCC country, save the much larger Saudi Arabia. The Kuwait Financial Centre, in a rough calculation, estimated that Kuwaiti firms accounted for over one-third of the total assets under management in the GCC. The relative strength of Kuwait in the financial industry extends to its stock market. For many years, the total valuation of all companies listed on the Kuwaiti exchange far exceeded the value of those on any other GCC bourse, except Saudi Arabia. In 2011, financial and banking companies made up more than half of the market capitalization of the Kuwaiti bourse; among all the Gulf states, the market capitalization of Kuwaiti financial-sector firms was, in total, behind only that of Saudi Arabia.

In recent years, Kuwaiti investment companies have invested large percentages of their assets abroad, and their foreign assets have become substantially larger than their domestic assets.

Kuwait is a major source of foreign economic assistance to other states through the Kuwait Fund for Arab Economic Development, an autonomous state institution created in 1961 on the pattern of Western and international development agencies. Over the years aid was annually provided to Egypt, Syria, and Jordan, as well as the Palestine Liberation Organization. In 1974, the fund's lending mandate was expanded to include all developing countries in the world.

Oil

In 1934, the Emir of Kuwait granted an oil concession to the Kuwait Oil Co. (KOC), jointly owned by the Anglo-Persian Oil Company (later British Petroleum Company) and Gulf Oil Corporation In 1976, the Kuwaiti Government nationalized KOC. The following year, Kuwait took over onshore production in the Divided Zone between Kuwait and Saudi Arabia. KOC produces jointly there with Texaco, Inc., which, by its 1984 purchase of Getty Oil Co., acquired the Saudi Arabian onshore concession in the Divided Zone.

In the Offshore Divided Zone, the Arabian Oil Co. – 80% owned by Japanese interests and 10% each by the Kuwaiti and Saudi Governments – has produced on behalf of both countries since 1961. The original concession agreements will expire in January 2003; negotiations to replace the concession with a technical service agreement should be completed in 2002.

The Kuwait Petroleum Corporation (KPC), an integrated international oil company, is the parent company of the government's operations in the petroleum sector, and includes Kuwait Oil Company, which produced oil and gas; Kuwait National Petroleum Co., refining and domestic sales; Petrochemical Industries Co., producing ammonia and urea; Kuwait Foreign Petroleum Exploration Co., with several concessions in developing countries; Kuwait Oil Tanker Co.; and Santa Fe International Corp. The latter, purchased outright in 1982, gives KPC a worldwide presence in the petroleum industry.

KPC also has purchased from Gulf Oil Co. refineries and associated service stations in the Benelux nations and Scandinavia, as well as storage facilities and a network of service stations in Italy. 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 Q8 and is interested in the markets of the United States and Japan.

Kuwait has about 94 billion barrels (14.9 km³) of recoverable oil reserves. Estimated capacity, before the war, was about 2.4 million barrels per day (380×10^³ m³/d). During the Iraqi occupation, Kuwait's oil-producing capacity was reduced to practically nothing. However, tremendous recovery and improvements have been made. Oil production was 1.5 million barrels per day (240×10^³ m³/d) by the end of 1992, and pre-war capacity was restored in 1993. Kuwait's production capacity is estimated to be 2.5 million barrels per day (400×10^³ m³/d). Kuwait plans to increase its capacity to 3.5 million barrels per day (560×10^³ m³/d) by 2005.

Reserve funds

The Kuwait Investment Authority (KIA) is Kuwait's sovereign wealth fund specializing in foreign investment. The KIA is the world's oldest sovereign wealth fund. Since 1953, the Kuwaiti government has directed investments into Europe, United States and Asia Pacific. As of 2015, the holdings were valued at $592 billion in assets. It is the 5th largest sovereign wealth fund in the world.

The KIA manages two funds: the General Reserve Fund (GRF) and Future Generations Fund (FGF). The GRF is the main treasurer for the government. It receives all state revenues and all national expenditures are paid out of this fund. The KIA does not disclose its financial assets in public, but it is estimated that the KIA has $410 billion in assets as of February 2014.

The KIA was the main source of capital for the Kuwaiti government during the Gulf War. The Kuwaiti government relied on the KIA to pay for coalition expenses and postwar reconstruction. The KIA was worth $100 billion prior to 1990, KIA funds were depleted to $40–$50 billion after the Gulf War.

Future Generations Fund

The Future Generations Fund (FGF) was created in 1976 by transferring 50% from the general reserve fund at that time. The FGF is a saving funds for future generations. 25% of all state revenues are annually transferred to the fund.

All of the FGF is invested abroad, with an estimated 75% invested in the US and Europe and the rest in emerging markets, mainly China and India.

Tourism

Tourism accounts for 1.5 percent of the GDP. In 2015, the tourism industry generated nearly $500 million in revenue. Most tourists are GCC citizens from neighboring countries. The modest level of tourism is partly attributable to difficult visa requirements and prohibition. The Kuwaiti government has set the goal of boosting the number of tourists to 1.2 million by 2020.

Agriculture

Agriculture accounts for 1% of Kuwait's economy and 8% of the gross domestic product. The agricultural sector provides fruit and vegetables for sale in the country's supermarkets. 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 largescale commercial fishing has been undertaken locally and in the Indian Ocean.

Science and technology

To date, Kuwait has registered 384 patents, the second highest figure in the Arab world. Along with Egypt and Saudi Arabia, Kuwait has been the Arab region’s main driving force behind S&T output at the international level. Kuwait produces the largest number of patents per capita in the Arab world and OIC. The government has implemented various programs to foster innovation resulting in patent rights. Between 2010 and 2015, Kuwait registered the highest growth in patents in the Arab world.

Entrepreneurship

In the past five years, there has been a significant rise in entrepreneurship and small business start-ups in Kuwait. The informal sector is also on the rise, mainly due to the popularity of Instagram businesses. Many Kuwaiti entrepreneurs use the Instagram-based business model.

Transport

Kuwait has an extensive and modern network of highways. Roadways extended 5,749 km (3,572 mi), of which 4,887 km (3,037 mi) is paved. There are more than 2 million passenger cars, and 500,000 commercial taxis, buses, and trucks in use. On major highways the maximum speed is 120 km/h (75 mph). Since there is no railway system in the country, most people travel by automobiles.

The country's public transportation network consists almost entirely of bus routes. The state owned Kuwait Public Transportation Company was established in 1962. It runs local bus routes across Kuwait as well as longer distance services to other Gulf states. The main private bus company is CityBus, which operates about 20 routes across the country. Another private bus company, Kuwait Gulf Link Public Transport Services, was started in 2006. It runs local bus routes across Kuwait and longer distance services to neighbouring Arab countries.

There are two airports in Kuwait. Kuwait International Airport serves as the principal hub for international air travel. State-owned Kuwait Airways is the largest airline in the country. A portion of the airport complex is designated as Al Mubarak Air Base, which contains the headquarters of the Kuwait Air Force, as well as the Kuwait Air Force Museum. In 2004, the first private airline of Kuwait, Jazeera Airways, was launched. In 2005, the second private airline, Wataniya Airways was founded.

Kuwait has one of the largest shipping industries in the region. The Kuwait Ports Public Authority manages and operates ports across Kuwait. The country’s principal commercial seaports are Shuwaikh and Shuaiba which handled combined cargo of 753,334 TEU in 2006. Mina Al-Ahmadi, the largest port in the country, handles most of Kuwait's oil exports. Construction of another major port located in Bubiyan island started in 2007. The port is expected to handle 1.3 million TEU when operations start.