Recent Developments

Current Economic Situation

The oil sector plays a dominant role in Kuwait's economy. Oil exports account for about 95% of merchandise export earnings, more than 80% of government revenue, and over 50% of nominal GDP. Major manufacturing industries in the country are related to oil, such as oil refining and petrochemicals. Blessed with surging oil prices, Kuwait's economy has been growing robustly in recent years. Real GDP rose by 3.5% in 2007, followed by a 5% growth in 2006.

Kuwait abandoned its currency peg to the US dollar in May 2007 and instead pegged the Kuwaiti dinar to a trade-weighted basket of currencies, reportedly due to the dollar's weakness. Since then, the dinar has appreciated to around 0.265 dinars to US$1 from 0.3 dinars.

Aside from its oil industries, the finance industry of Kuwait is prominent among the Gulf nations. The Kuwait Finance House (KFH) and National Bank of Kuwait (NBK) are leading financial institutions in the region. NBK was the first bank in the Gulf to launch a Eurobond in 2002, which was worth US$450 million. In December 2007, KFH Malaysia partnered with Kuwait's Al-Aman Investment Co to setup a Shariah-compliant equity fund with a target size of US$150 million, eyeing investment opportunities in Southeast Asia, India and China. However, Kuwait faces fierce competition from the incumbent financial centre, Bahrain, as well as the fast growing emirate of Dubai of the UAE.

The National Assembly amended the 1968 banking law in January 2004, relaxing restrictions on foreign banks setting up operation in Kuwait, but with certain limitations. For example, foreign banks could open one branch only, and it is required that over half of their local workforce be Kuwaitis. Since then, BNP Paribas, HSBC, Citibank and some other foreign banks, including those in the Gulf, have opened branches in Kuwait, focusing on services like wealth management and investment banking.

The Kuwaiti government is moving forward to diversify its economy. A major move was to invest in infrastructure projects. Major initiatives included residential and tourist resort developments in Failaka and Bubiyan Islands, as well as a number of projects to develop the Subiya peninsula, including the construction of a highway linking the peninsula to Kuwait City. It was estimated that the value of outstanding construction projects reached US$274 billion as of January 2008, with nearly 80% of the sum invested in non-oil and gas projects.


Trade Policy

Kuwait is a member of the World Trade Organisation (WTO) since 1 January 1995, and maintains a rather liberal trade regime. Imports are subject to few controls except for imports such as arms and ammunition, explosives, radioactive materials, drugs, pesticides and insecticides. Importation of fireworks, oxygen, certain steel pipes, firearms, narcotics, alcoholic beverages, air guns, pork, pornographic and subversive materials and used vehicles over five years old is prohibited.

Import licences are required for all commercial imports, and they are only issued to registered importers. To be eligible for registration, an importer must be a Kuwaiti citizen, a firm in which all partners are Kuwaiti citizens, or a limited liability company with a majority of Kuwaiti interest.

The tie between Kuwait and its fellow members of the GCC is strong. In November 1999, the GCC agreed to form a customs union, which took effect from January 2003 to zero-rate the goods traded within the GCC. On the other hand, the accord establishes a single external tariff of 5% applying on 1,500 imported items from non-member countries. As a result, Kuwait's customs duty is calculated on the CIF value at the rate of 5% for most Hong Kong products. It also provides a list of items that can be imported duty-free. Under the accord, goods imported into the GCC area can be freely transported subsequently throughout the region without paying additional tariffs.


Hong Kong's Trade with Kuwait

Hong Kong's total exports to Kuwait grew by 3.8% to US$58 million in 2007, after growing by 5.2% in 2006. Major export items in 2007 included watches and clocks (19% of total), jewellery (13.2%), telecommunications equipment and parts (12.8%), and toys, games and sporting goods (7.5%).

On the other hand, Hong Kong's imports from Kuwait decreased by 65.6% to US$71 million in 2007, after falling by 5.8% in 2006. This was mainly due to a continued decline in oil imports from Kuwait. In 2004, Hong Kong imported US$334 million worth of oil from Kuwait, and in 2007, the number declined to zero. Of the major imports in 2007, polymers of ethylene in primary forms topped the list (70.1% of total), followed by other plastics in primary forms (10.5%) and non-ferrous base metal waste and scrap (8.8%).

Re-export of China-origin products to Kuwait increased moderately to US$48 million in 2007 from US$47 million in 2006, up 1.7%. Major items included telecommunication equipment and parts (14.1% of total), watches and clocks (13.4%), jewellery (11.6%), and toys, games and sporting goods (8.9%).

On the other hand, re-exports of Kuwait-origin to China decreased by double-digit to US$47 million in 2007, down 14.4% from US$55 million in 2006. This was due to a decrease of oil imports from Kuwait. Other re-exports of Kuwait-origin included polymers of ethylene in primary forms (84.1% of total) and other plastics in primary forms (13.1%).

^ Since offshore trade has not been recorded by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

¹ Kuwait, Bahrain, the UAE, Oman, Qatar and Saudi Arabia
² Shariah-compliant investments are those invested in accordance with Islamic principles.