Enabling Policies For National Competitive Advantage In Kuwait

National Science, Technology, and Innovation Policy

Discuss about the Policies Enabling National Competitive Advantage In Kuwait.

This paper focuses on the enabling policies that elevate Kuwait’s national competitive advantage. To begin with, it first explores the policies that stimulate the factor conditions that would attract multinational corporations. Secondly, policies that promote firm strategy, structure and rivalry are discussed. Thirdly, it inquires the enabling policies under the demand conditions in Kuwait. Lastly, the paper delves into Kuwait’s policies encouraging related or support industries as antecedents for national competitive advantage (Fainshmidt, Smith & Judge 2016).

The first policy is the national science, technology, and innovation policy. Under this policy, Kuwait has invested heavily in the progress of science and technology disciplines. The policy encourages responsive innovations to the local population. Already over 80 percent of Kuwaitis use internet technology and 97 percent use credit cards for e-commerce this is an attraction to multinationals. There are e-commerce laws to protect local businesses (International Business Publications [IBP] 2008).

Kuwait has a competitive labour policy enshrined in the Labour Laws, the critical human resource necessary to spur development into the country has been made possible. Over 60 percent of the population consists of expatriates who offer specialized skilled labour. The ministerial decree of 2006 allows expatriates’ invitation documents to be turned into work permits. However, immigration laws restrict work that can be performed by local firms (Elkhafif, Taghdisi-Rad & Elagraa 2016).

A responsive infrastructure policy is a huge attraction to multinationals. The government of Kuwait through the short-term to the mid-term development plan for the year 2016 to 2020 has set aside 2.3 billion Dinars for development of infrastructure suitable to attract multinationals in the fields of human resource, renewable energy, and other related infrastructure. Already Doha and Kuwait City are very urbanized and populated hence a huge market for potential foreign multinationals (Vought 2018).

Lastly, Kuwait has a reformed land ownership policy. Currently, over 95 percent of the land is owned by the Kuwait Government. The land ownership policy seeks to explore public-private partnerships to fully utilize this critical factor of production. The Government seeks to for instance lease the land to multinationals companies to spur growth (Barakat & Batwala 2014).

To begin with, Kuwait has a vibrant fiscal policy. Under this policy, Kuwait has set aside over 51 billion dinars to targeting the attraction of multinationals to diversify the economy of the country by among other things streamlining the ease of doing business to promote competition in select sectors necessary to spur innovation and product improvement(Organization for Economic Co-operation and Development [OECD] 2012).

Labour Policy

The government through the taxation policy encourages small and medium enterprise start-ups and protects local firms by not taxing them on income tax to increase their competitiveness. However, the taxation policy from the year 2016 has been amended to tax foreign companies to the tune of 15 percent on all income earned within the country (Arabian Business 2017).

According to Vought (2018), Kuwait has hatched an ambitious foreign direct investment policy. The government ascended to Law number 8 that allows full ownership of foreign firms in certain sectors of the economy.  Previously, all foreign firms had to include a Kuwait National in order to establish businesses (Hamdi & Sbia 2013)

Lastly, Kuwait has come up with an enterprising SME Policy. In the year 2015, the government approved Kuwait’s National SME fund. There are currently over 30,000 SMEs in Kuwait and contributing to just about 3 percent of the GDP. This fund will catalyze growth in the SMEs sector which in turn will increase local rivalry and ultimately lead to more innovation (Elali & Al-Yacoub 2016).

In order for a country to increase its national competitiveness, there must a local population that is very assertive about the products and services that they demand so as to force the firms to be innovative and continuously improve their products and services (Fainshmidt, Smith & Judge 2016).

Kuwait has an empowering economic policy. Already, Kuwait is the third largest economy in the Middle East with a gross domestic product of approximately $114 billion USD and income per capita of $84,000 USD. This means that the country has a high purchasing parity necessary to promote demand for goods and services (Elali & Al-Yacoub 2016).

To promote e-commerce, the country has supporting electronic transaction policies. Kuwait has enacted Law number 20 that came into effect in 2014 to regulate electronic transactions (Barakat & Batwala 2014). The laws allow for free exchange of goods for cash electronically and facilitate ownership of electronic credit cards. Currently, over 2.4 million transactions are done electronically which has soured demand both inside and outside the country (Elkhafif, Taghdisi-Rad & Elagraa 2016).

Kuwait has both protective and enabling trade policies. The country has an import law that specifies that only fully owned foreign multinationals and Kuwait companies can import goods. Any other importations have to be undertaken by authorized Kuwait agents and distributors. This has given wholly owned multinationals an edge to meet the rising demand for foreign products such as consumable products, fruits, and vegetables (Turki 2014).

Infrastructure Policy

Finally, the country has a very modern foreign policy. In accordance with the Gulf Cooperation Council (GCC), Kuwait has a large market consisting of six Arab member states (OECD 2012). The GCC also bargains for favorable trade terms with the other countries. Following improved trade terms Kuwait now has over 145,000 super-rich individuals with preferential demand for luxury products that can be profitably met by multinationals.

Related or support industries not only enable a country to be competitive based on efficient supplier relationships that reduce the cost of sourcing raw materials, but also introduce an element of competition. Though, firms working in the country benefit from affordable raw materials they have to be wary of their suppliers integrating forward to become direct competitors. For this reason, the firms have to continually improve their products (Fainshmidt, Smith & Judge 2016).

One policy encouraging related industries is the Kuwait 2035 master plan. Accordingly, Kuwait has set aside a trust fund to catalyze investments in healthcare, public administration and, infrastructure among other areas which seek to create a diverse economy that depends less on oil economy as it currently depends on over 90 percent of its GDP from oil. This will attract many multinational companies in the construction and support industries while protecting local firms (Vought 2018).

The country has a futuristic tourism policy. To diversify its Economy Kuwait has set aside over one billion USD for the sole purpose of boosting tourism by over 62 percent thus attracting over 400,000 tourists in less than 6 years. This will encourage tourism support industries such as transport, hotel and catering and tour firms and cultural attraction centers where both local and multinational firms can invest (Arabian Business 2017).

A comprehensive industrial policy in Kuwait establishes the Free Trade Zones at the port of Shuwaikh. Its main goal is facilitating value addition for export products. Within the zone, several related companies complement each other from supply of raw materials to the shipping of finished products. Companies established in the FTZ have to incorporate majority Kuwaitis to protect local firms (Husain et al. 2016).

The market liberalization policy brings more competition to the market by allowing both multinationals to compete with local firms albeit in select sectors. Kuwait has also liberalized SMEs by creating laws that allow them to operate from homes (Elali & Al-Yacoub 2016).

Reduction of interest rates to ease access to credit

Land Ownership Policy

Many firms do have business ideas that can be capitalized to spur more production thus increasing the chances of employment in the country. This can be done by the Central Bank of Kuwait by regulating the capped interest and base lending rates of the commercial banks by applying subsidies or quotas (Toreev 2016). The effect will be easily available credit that can be used by many firms in the manufacturing or start-up SMEs to create employment opportunities. Already, in many countries such as the United Arab Emirates, SMEs makeup over 90 percent of all investments in the country and employ over 40 percent of the workers (OECD 2012).

Investments in infrastructure

The propensity of infrastructure to offer direct employment to the workforce is unquestionable. Statistics suggest that investing one billion dollars in infrastructure creates direct employment to 20,000 people. This is a solid strategy especially because governments are some of the biggest spenders in infrastructure through public-private partnerships (Husain et al. 2016).

Investment in agriculture

Agriculture throughout the world has employed numerous people in the workforce. In Kuwait, many firms are involved in agriculture by use of hydroponics and employing reliable biotechnology. The firms that practice agriculture can be given subsidies to accelerate production and employment of more people (Toreev 2016).

Tax reduction for firms hiring a specified workforce

As an incentive to promote employment, companies can be offered tax holidays, tax exemption or rebates by the government if they employ a specified number of people. This will increase the morale of companies to hire more people in order to enjoy tax exemption. This will also increase their purchasing parity hence make them reliable consumers who can provide a ready market for companies products and therefore create a sustainable cycle of production and consumption(Hamdi & Sbia 2013).

Conclusion

In conclusion, this paper examines the various ways in which Kuwait increases its national competitive advantage by employing a variety of policies. Those policies have been discussed at length to show how the country can attract foreign multinationals while at the same time protecting and nurturing the local firms. By extension, the paper finally explores four strategies that can be used to create employment by firms in Kuwait.

References

Arabian Business (2017). Kuwait’s tourism industry to be worth $1 billion by 2027. [online] Arabian Business. Available at: https://www.arabianbusiness.com/kuwait-s-tourism-industry-be-worth-1-billion-by-2027-668115.html [Accessed 25 Apr. 2018].

Barakat, A. and Batwala, A. (2014). Foreign Direct Investment Report: Kuwait – Overview of FDI in the Jurisdiction. [online] International Financial Law Review. Available at: https://www.iflr.com/Article/3306914/2014-FDI-Report-Kuwait.html [Accessed 24 Apr. 2018].

Elali, W. and Al-Yacoub, B. (2016). Factors affecting entrepreneurial intentions among Kuwaitis.World Journal of Entrepreneurship, Management, and Sustainable Development, 12(1), pp.18-34.

Elkhafif, M., Taghdisi-Rad, S., and Elagraa, M. (2016). Economic and trade policies in the Arab world. London: Routledge, pp.52-62.

Fainshmidt, S., Smith, A., and Judge, W. (2016). National Competitiveness and Porter’s Diamond Model: The Role of MNE Penetration and Governance Quality. Global Strategy Journal, 6(2), pp.81-104.

Hamdi, H. and Sbia, R. (2013). Re-Examining Government Revenues, Government Spending And Economic Growth In GCC Countries. Journal of Applied Business Research (JABR), 29(3), p.737.

Husain, A., Fraker, F., Burton, E., Young, K. and Abdulla Al Absi, A. (2016). Economic Reform and Political Risk in the GCC: Implications for U.S. Government and Business. Middle East Policy, 23(3), pp.5-12.

International Business Publications (2008). Kuwait telecom laws and regulations handbook. Washington DC: International Business Publications, pp.26-77.

Organisation for Economic Co-operation and Development (2012). Competitiveness and Private Sector Development: Policies to Support Women’s Entrepreneurship Development in the MENA Region. Paris: OECD Publishing, pp.72-76.

Toreev, V. (2016). Youth Employment Strategies. Sociological Research, 55(2), pp.138-147.

Turki, B. (2014). The Kuwait Fund for Arab Economic Development and Its Activities in African Countries, 1961–2010. The Middle East Journal, 68(3), pp.421-435.

Vought, A. (2018). International Policy Digest: The “New Kuwait”. [online] International Policy Digest. Available at: https://intpolicydigest.org/2017/02/14/the-new-kuwait/ [Accessed 24 Apr. 2018].