Business | Opinion
Kuwait embarks on a drive to strengthen economy
These days Kuwait is celebrating the combined anniversary of independence and liberation. Some 17 years ago the US led coalition forces of many nations in liberating Kuwait from the invading forces of Iraq.
- By Dr Jasim Ali, Special To Gulf News
- Published: 01:13 February 24, 2008
These days Kuwait is celebrating the combined anniversary of independence and liberation. Some 17 years ago the US led coalition forces of many nations in liberating Kuwait from the invading forces of Iraq.
Yet, what makes this year's celebrations more special is efforts exerted to strengthen the country's economic fortunes. Amongst other measures, officials have reformed the tax system and uncovered a massive plan to upgrade the oil sector.
Hereafter, a flat 15 per cent tax will be applied on profits of foreign firms operating in Kuwait.
The old progressive tax structure charged companies between five per cent and 55 per cent. Also, the amendment makes it clear that no taxation is applied on foreign firms on earnings made while trading at the stock market. Still, like the old tax regime, the new tax law prohibits applying income taxes on foreign individuals working and living in the country. Kuwaiti firms and nationals continue to enjoy a tax heaven.
Officials hope that the move will entice international firms to invest in the country. According to the World Investment Report 2007 issued by the World Conference on Trade and Development (UNCTAD), Kuwait attracted $110 million of foreign direct investments in 2006, the worst amongst the regional countries.
With regard to the petroleum sector, state-owned Kuwait Petroleum Corp (KPC) intends to invest $51 billion in upgrading production and refinery expansion. This is a sizable amount, as it exceeds the $39 billion earmarked for total governmental spending in 2007-08. The development indicates that Kuwait is serious about utilising its budgetary surpluses. Surpluses of the past two fiscal years amounted to more than $42 billion.
The plan calls for increasing sustainable production from current level of 2.7 million barrels per day to four million barrels per day by 2020. Kuwait deserves to enhance its oil production capacity by bringing it in line with its claimed reserves.
By one account, Kuwait is estimated to have about 10 per cent of proven oil reserves in the world. With sustainable production capacity of 2.7 million barrels per day, Kuwait supplies 3.4 per cent of global demand for crude oil.
The authorities are determined to open up the upstream energy sector to international oil firms. Known as Project Kuwait, the scheme aims at generating an additional 500,000bpd from four fields located in the north and west. The development requires an investment of $8.5 billion.
Successive parliaments had failed to endorse Project Kuwait on the grounds that the Kuwaiti constitution bars foreign ownership of the country's hydrocarbon resources. Strangely enough, some MPs feel that it is not essential whatsoever to expand production due to firm oil prices in the international markets.
Oil Development Company (ODC), a subsidiary of KPC, argues that the country lost opportunities of making maximum benefits from strong oil prices by failing to implement Project Kuwait several years ago. ODC has warned that the actual cost of carrying out the project could escalate in the years ahead.
Other elements of the development include developing a new refinery with estimated capacity of 615,000 barrels per day by 2012. Named Al Zour and located near the border with Saudi Arabia, the refinery will be developed at a cost of $12.6 billion.
Expanding the oil sector is comprehensible. The sector accounts for more than 80 per cent of treasury revenues and 40 per cent of GDP.
- The writer is a Member of Parliament in Bahrain.
More from Business Opinion
More from Business
Business Editor's choice
-
Saudi-Bahraini economic ties hit new high
Whilst press reports continue speculating on a possible new political structure defining ties between Saudi Arabia and Bahrain, facts on the ground confirm ever- stronger economic ties between the two neighbours
-
Cupid targets the Fed with early tweets
Declarations range from pure romance to cute overtures and racier fare
-
Do unemployment figures flatter to deceive?
Jobseekers and recruiters give out mixed signals ranging from optimism to downright despair even as official data show recovery
