Essay on Kuwait Country Assesment

Submitted By ryanclip
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INT-610 Corporate Environment Kuwait Country Assessment

Economic structure, indicators and risk

Kuwait is wealthy and relatively free midsized Middle Eastern economy. According to economic freedom scale Kuwait has and economic freedom score of 76, scoring highest in both trade and investment freedom and lowest with regard to property rights, business freedom, and freedom from corruption (Heritage Fund). Not unlike many Middle Eastern countries, Kuwait’s economy is heavily reliant on income from oil. The country has the 7th largest proven oil reserves in the world, and its state ownership of the oil industry has made Kuwait a very wealthy nation. Nearly 50% Kuwait’s GDP comes from state owned oil exploration, production, and refining companies. Oil dependence has made Kuwait’s economic structure weak and severely undiversified, and lack of diversification leaves Kuwait highly vulnerable to fluctuations in global oil prices (Matabadal). Kuwait’s GDP is equivalent to 165.8 billion in U.S. Dollars and is growing at a rate of 2.3% as of 2013. Exports account for 68% of GDP while imports account for a negative 25% of GDP. Kuwait’s exports are primarily oil and refined products and fertilizers. Kuwait’s main export partners are South Korea, India, Japan, US, China, and Singapore. Exports in 2013 were $112 billion down $9 billion from 2012. Kuwait’s main imports are food, construction materials, vehicles and parts, and clothing. Imports in 2013were $24.42 billion and increase of $2 billion from 2012. Main import partners are the US, China, Saudi Arabia, Japan, South Korea, Germany, India, and the United Arab Emirates. Internal foreign direct investment is an estimated $5.67 billion and investment abroad is estimated at 60.76 billion. Kuwait is open to FDI and provides incentives to foreign investors such as income tax exemptions, exemption from import duties, utilization of state land, protection from expropriation, and employment of foreign labor (Barakat).

The outlook for Kuwait’s economy going into 2015 is positive, yet there are some existent risks that need mention. Of paramount concerns is the nation’s dependence on oil exports. Kuwait’s lack of diversification in exports puts the country at serious risk when oil prices fluctuate. Additionally changes in economic structure to adopt a more diversified approach are slow to come due to a tenuous relationship between the national assembly and the executive branch. Threats of fluctuations in global oil prices have given way to a concentrated effort in recent years to reform Kuwait’s economic structure.

Financial structure, indicators and risk

Kuwait’s financial structure is centered on the Central Bank of Kuwait (CBK) The CBK opened for operation in April of 1969 and serves the following functions for the country of Kuwait (Source CBK).

Issuance of national currency
Maintain Stability of the Kuwaiti Dinar
Support Kuwait’s credit policy
Supervise the States banking system

The Central Banks focuses on maintaining monetary stability through use of direct or indirect monetary policy, and macro prudential instruments including monitoring bank liquidity, bank credit, and introduction and monitoring prudential regulations (CBK). The Central Bank supports several financial institutions including Commercial Banks, Islamic Banks, Specialized Banks, Finance Companies, Investment Funds (Islamic/Conventional), Investment Firms (Islamic/Conventional) and Exchange Companies. The Kuwait Stock Exchange over 200 companies and offers trading in equities, options, and futures. The exchanges sectors include Banks, Basic Materials, Communication, Consumer Service, Drug, Financial Services, Health Care, Industrial, Insurance, Oil & Gas, and Technology. The KSE is amongst the largest and most active equities exchanges in the Arab world, and has proven to be quite volatile at times with significant swings.
Kuwait’s sovereign wealth is managed by the Kuwait Investment Authority. The…