Government Procurement

As the Government is the major purchaser of commodities and services in Kuwait, the government procurement system is exceptionally important for foreign suppliers. Such procurement is governed by basic law No. 37 of August 1, 1964 and subsequent amendments.

This law set up a Central Tenders Committee attached to the Government's Council of Ministers. The law states that Ministries and government departments cannot import commodities or commission works in excess of 1,000 Kuwaiti dinars ($3,380) without a public tender unless the Committee approves an exception in the public interest. It also specifies tender procedures, a number of which are outlined below.

Foreign firms not represented by a Kuwaiti agent or partner under an officially authenticated contract cannot participate in bids. Contractors for public works projects must be prequalified with the classification commission in one of the following categories: Category 1, consultants or contractors able to carry out major construction projects whose initial cost is in excess of 1 million dinars (3,380,000); Category 2, those having the capability to carry out projects not in excess of 1 million dinars; Category 3, local contractors having a capability for work not exceeding 500,000 dinars ($1,690,000); and Category 4, local contractors for projects not exceeding 250,000 dinars ($845,000). Contractors are not entitled to bid on tenders whose value is outside of the category for which they are registered and approved.

Although tenders for many Government purchases are on an open basis for competition. by all Kuwaiti merchants or Kuwaiti representatives of foreign manufacturers, the government procurement law permits the restriction of tenders to selective lists provided by the ultimate end-using government ministry or department.

Invitations to tender are published in Kuwait's Official Gazette, Kuwait Al Youm. The minimum period of validity of a tender is 90 days and the tender specifies the size of the guaranty that must accompany the bid. It generally varies between 5 and 10% of the value of the contract. The deposit is refunded to unsuccessful bidders.

American firms interested in supplying goods and services to Kuwait ministries and departments should maintain effective representation in Kuwait through an aggressive and well qualified local agent. Because of Kuwait's law restricting bids to those channeled through Kuwait firms, the Central Tenders Committee follows a policy of not selling tender documents

to American firms directly, and the U.S. Embassy in Kuwait can no longer assist in obtaining such documents.

Selection of Consultants.-Kuwait's Ministerial decree of August 8, 1971 provided for the establishment of a Consulting Firms Selection Committee under the aegis of the Kuwait Planning Board. This Committee has exclusive authority for the selection of consulting firms required for government ministries, departments and public institutes. The decree provides that the selection of consulting firms be made by inviting offers from such firms. The Committee is empowered to use any of the following selection methods: selecting firms of similar ability and inviting them to compete for the fees; selecting firms of similar ability and inviting them to compete for the design and estimated costs of the project in return for fees determined by the Committee; selecting one consulting firm and inviting it to carry out the work required for the project; selecting national consulting firms only and inviting them to compete for the fees or for the design; and inviting one or more consulting firms to make studies, surveys, evaluation and auditing in return for fees to be negotiated with the selected consulting firms.

Recently, two special changes have been introduced in the tendering process which should be helpful to foreign firms. First, a special arbitration panel has been established to adjudicate any disputes arising between a foreign consultant or contractor and the Government. Under this arrangement, a special three man panel chosen by a neutral party, mutually agreed upon, will hear all complaints and suggest possible solutions. The second modification involves mobilization costs. Previously, any contractor winning a bid had to order and take delivery of all his required capital equipment before he was eligible to receive any payment on his contract. Under the new system, the contractor will receive 15% of his payment merely by showing the competent authority a letter of intent to purchase the necessary equipment. Sixty-five percent of the payment will be made when the equipment arrives and the remainder will be paid upon completion of the project.

Transportation and Utilities

Shipping From the United States

No U.S.-owned shipping lines presently serve Kuwait but the Waterman Lines of New York City has announced plans for such service in the near future. There are regular sailings to Kuwait from the East coast of the United States

by Eastcoast-and Gulf-based shipping lines on a monthly basis. There is no conference agreement for this trade route but shippers operate under the "8900 Lines" rate agreement.

The sailing time from East coast ports to Kuwait around the tip of Africa is normally 30 to 40 days. This time will be reduced by at least 5-6 days when the Suez Canal is reopened and possibly by even more time for vessels proceeding with minimum stops before Kuwait.

Information on air cargo to Kuwait may be obtained from the New York office of Kuwait's wholly government-owned airline. The address is Kuwait Airways, 30 Rockefeller Plaza, New York, New York 10020.

Port Facilities and Shipping

The Shuwaikh Port adjacent to Kuwait City handles general cargo. It has eight berths capable of handling ships up to 600 feet in length with drafts up to 33 feet in addition to considerable space for smaller craft. Rated annual capacity is 1.5 million metric tons. Good progress is being made on the western expansion to an expected 2.5 million ton capacity, scheduled for completion in 1974. The expansion consists of deepening existing berths, dredging a deeper approach channel and 10 new berths, a deeper draft harbor for fishing boats, and a shipbuilding and repair yard.

Another general cargo port is located in the Shuaiba Industrial Area. It has a five-berth pier for cargo vessels up to 15,000 tons, a small boat harbor, and an oil jetty. The oil jetty, which can simultaneously accommodate two tankers up to 70,000 tons, is used by KNPC. Plans for expansion of the port would raise its handling capacity to 1.5 million metric tons per year compared to the present 900,000 tons. Although this port was constructed to serve the industrial area, it is also used to alleviate congestion at Shuwaikh port during peak import periods.

The oil companies operating in Kuwait have their own port facilities. The Kuwait Oil Company port at Mina al-Ahmadi is one of the largest in the world and is able to accommodate supertankers (326,000 deadweight tons) at its Sea Island crude loading terminal. Other oil company terminals include AMINOIL's, located at Mina Abdulla.

There are two shipping companies operating in Kuwait, one privately-owned oil tanker company and one joint Government-private general cargo hauler. A third privately-owned tanker company was recently incorporated.

Road Transport

Land movement along the coast is facilitated by a good highway system, which extends from Saudi Arabia and the Neutral Zone partition line to Mina al-Ahmadi and northwest through Kuwait City. It then proceeds west to Al Jahara and north across the desert into Iraq and the City of Basra. Total mileage of paved roads is about 700. Less developed roads connect the oilfields of northern and southern Kuwait and the Neutral Zone. The U.S. Bureau of Public Roads has been engaged by the Government of Kuwait to provide consulting services relative to construction and maintenance of the road system. There are over 150,000 registered vehicles. In addition to ubiquitous private taxis, the Kuwait Transport Company, owned jointly by the private sector (75%) and the Government (25%), provides public land transport. In 1965, the company initiated its public bus service with a fleet of 100 buses, which has now grown to more than 700. Airlines

In addition to Kuwait Airways, the national airline, Kuwait is served by Lufthansa, BAC, Air France, KLM, Air India, Alitalia, Saudi Air, and Gulf Aviation. Kuwait's international airport has two runways and can handle jumbo jets. A planned new terminal building and other facilities are nearing the contract stage. Utilities

Electricity. In 1972 Kuwait generated 3.3 billion kilowatt hours (kwh) of electric power. Planned new capacity of 800 megawatts, now in the tendering stage, will raise output by about 70% when installed. The first 300 megawatts of this new capacity should be in operation by 1976. Kuwait has one of the lowest per kwh generating costs in the world. Industrial consumers are normally charged about $0.0067 per kwh. Kuwait operates on alternating current, 50 cycles, 220/415 volts.

Water. Kuwait's fresh water supply comes mainly from desalting, although some water is obtained from fresh water wells in the vicinity of Umm al-'Ish and Rawdatain in northern Kuwait. Brackish water fields in southwestern Kuwait have an estimated capacity of 50 to 100 million imperial gallons per day (migd). Kuwait is the world's largest producer of desalinated water, with installed capacity of 52 migd, two units presently under construction will raise capacity to 62 migd and Juwait plans to raise installed capacity by an additional 30 migd by 1982. Fresh water consumption averages about 20 gallons per person per day.

Kuwait City will soon be provided with a piped fresh water system to replace the present truck distribution system. Fresh water at present is sold to the public for about $2.70 per 1,000 imperial gallons and brackish water for about $0.39 per 1,000 imperial gallons.

Communications.-Telephone and telegraph systems are growing rapidly. The number of subscriber lines at the end of 1969 reached over 49,000 and a number of new exchanges have been recently installed throughout the country. The earth satellite station, completed in 1969, provides 20 telephone circuits and 48 telegraphic circuits. Direct telephone and telecommunications service has been established with the United States, England, Germany, Italy, Japan, India, Pakistan, Lebanon, and Bahrain.

Kuwait has a Government-owned AM and FM radio station and television network. The radio station broadcasts over 120 hours weekly, while the television network broadcasts approximately 54 hours weekly.

Natural Gas

Kuwait's natural gas is produced in association with oil; there are no independent gas fields. The bulk of natural gas consists of methane (75%) and ethane (12%), with smaller amounts of propane, butane, and pentane. Natural gas production totaled 581 billion cubic feet in 1973 (down over 10 percent from 1972). Natural gas is used for reinjection into oil fields, for electric power generation, for water desalinization, and as a feedstock for the production of petrochemicals and fertilizers. Such applications, however, utilize less than 40 percent of the gas produced; the remainder is flared.

Advertising and Research

Advertising Media

The use of advertising to promote sales is slowly gaining in importance as the local market undergoes a maturing process. Several major trading companies have started employing active public relations and advertising campaigns to promote consumer and industrial products. Listed below are the major types of advertising facilities in Kuwait.

Press.-Newspaper advertising is by far the most commonly used form of media. The most important Arabic language dailies include "AlSiyassah" and "Al-Rai al-Aam" which feature general interest news. Both of these newspapers publish an English-language companion version

known respectively as The Kuwait Times and The Daily News. Al-Qabas, another Arabic daily, features economic and commercial news. In addition to the major dailies, there are several Arabic language weekly magazines catering to special interest groups. Advertising rates1 in the above-mentioned publications range from about $2.75 to $5 per front page columncentimeter depending upon the importance and readership of the publication. Rates for space on the inside page vary between $2 per columncentimeter for the Arabic dailies and $1.75 for the English press.

U.S. companies should not overlook the facilities of the Kuwait Chamber of Commerce, which prints a monthly bulletin. The Chamber will publish, free of charge, notices of interest from foreign firms. A letter requesting publication which gives fullest possible details about the goods or services and terms involved in the offer to establish business contacts should be sent to the Secretary of the Chamber, P. O. Box 775, Kuwait.

Movie Theaters.-There are nine movie houses in Kuwait which are owned and managed by the Kuwait National Cinema Company on a monopoly basis. Movies are a popular form of entertainment for both the Arab and Western population. Most screenings are preceded by a 15 to 20 minute period of advertisements. The rate for 30 second film spots varies from about $56 to $85; 90 second spots range from $140 to $205.1

Television. At the present time, Kuwait has one television channel, which is state owned and operated by the Ministry of Information. The use of this media as an advertising tool is gaining in popularity. Rates are dependent upon the length and timing of the ad. A 10 second ad costs. between $60 and $80 while a 60 second placement runs from $240 to $290.1

Billboard and Poster Advertising. Billboards and posters are used, on a limited basis, to promote products. The rate for large billboards is approximately $1000 and includes the price of production and installation. Charges for posters are set by the Kuwait Municipality. Special Exhibits.-In order to capitalize on consumer interest in new products, several merchants have successfully held single product line exhibitions at one of Kuwait's local hotels. These are prepared in coordination with the firm's foreign partner who arranges the display of the products or equipment. In addition, many coun

1 Price data as of early 1973.

tries hold special trade fairs to demonstrate their chief exports and indicate their interest in the local market.

Advertising Agencies

There are presently several well-established advertising houses operating in Kuwait. Many are affiliated with larger Beirut-based establishments. A growing number of the larger Kuwaiti trading establishments are beginning to retain advertising firms on a full-time basis to help them promote their foreign agency lines as well as their own corporate image.

Market Research and Trade Organizations

Market research and analysis has not been used extensively until recently. With the expansion and diversification of Kuwait's economy, the need for better marketing tools has become increasingly evident. A few firms are starting to provide the services on a full-time scale.

By far the most important institution presently engaged in this activity is the Kuwait Chamber of Commerce and Industry (P. O. Box 775, Kuwait). Through its monthly bulletin, frequent public lectures, and well-stocked library, the Chamber endeavors to keep its members abreast of recent market developments-both domestic and foreign.

Another key organization is the Kuwaiti Contractors Union (P.O. Box 5712, Kuwait). Organized in 1966, the Union's membership consists of nearly all of Kuwait's private contracting and construction houses. The Union publishes a monthly publication in Arabic called The Contractor.

Credit

Availability of Credit

There is an abundance of capital in Kuwait. The government, either directly or through non-bank institutions it controls, is a major source of investment capital. A recently organized stock exchange is assuming increasing importance, however, as a source of equity capital. The principal lending operations of commercial banks in Kuwait are short-term financing of foreign trade (mostly imports) and local business operations. The average interest rate on bank loans is about 7%. A large proportion (perhaps as much as three-fourths) of the total resources of Kuwaiti commercial banks is invested in foreign assets. Consumer financing is discussed

above in the section Distribution and Sales Channels.

Government Financing.-The government stimulates the development of industries. considered important to Kuwait's economic development by direct equity participation with local private capital. Examples of such industries are listed above under Distribution and Sales Channels (joint-stock companies).

Investment capital is also made available through two government-controlled investment companies and a government-owned lending institution: (1) the Kuwait Investment Company, which has authority to lend to both domestic and foreign enterprises: (2) the Kuwait Foreign Trading, Contracting, and Investment Company, which invests only in foreign enterprises; and (3) the Credit and Savings Bank, which channels government funds into domestic projects. The latter accepts deposits and grants loans for real estate, agriculture and industry; medium-term loans for private home building and the financing of government-sponsored low rent housing have been major elements of its operations.

The Ministry of Finance and Oil, with the approval of the Cabinet, is empowered to extend direct government loans to national companies from the State Reserve at 3 percent interest under provisions of Law No. 49 of 1966.

Banking System.-The Central Bank of Kuwait organizes and controls the commercial banking business under authority of the banking law of 1968. All banks in Kuwait must be 100% Kuwaiti owned. Five commercial banks and a real estate bank comprise the banking system:

Al-Ahli Bank of Kuwait

P.O. Box 526

Bank of Kuwait and the Middle East P.O. Box 71

Commercial Bank of Kuwait

P. O. Box 2861

Gulf Bank

P.O. Box 3200

National Bank of Kuwait P.O. Box 95

Kuwait Real Estate Bank P.O. Box (unknown)

Investment in Kuwait

Extent of Foreign Investment

Foreign investment, as well as the bulk of domestic investment, has been in the oil indus

try. Kuwait's largest producer and onshore operating company, the Kuwait Oil Company (KOC), is presently owned jointly by Gulf Oil Corporation and British Petroleum (BP), but the Government of Kuwait enacted a law in May 1974 to purchase 60% of the ownership. Kuwait's offshore concession is held by the Kuwait-Shell Petroleum Development Company, Ltd., owned by the Shell Oil Company. Exploration by Kuwait-Shell is suspended, however, pending settlement of conflicting Saudi Arabian, Kuwaiti, and Iranian border claims in the offshore area. The American Independent Oil Company (AMINOIL), recently acquired by R. J. Reynolds Industries, Inc. is Kuwait's onshore concessionaire in the Kuwait-Saudi Arabia Neutral Zone, sharing production equally with Saudi Arabia's concessionaire, Getty Oil Company. The Japanese-owned Arabian Oil Company holds the combined Kuwait-Saudi Arabia offshore concession in the Neutral Zone. Spain's state-controlled HISPANOIL is part owner along with KNPC of the Kuwait-Spanish Petroleum Company, which is currently exploring concession areas relinquished by KOC.

Examples of other major foreign investments include a fertilizer plant owned jointly by the Kuwait Petrochemical Industries Company, BP, and Gulf; a Kuwaiti-Danish plant for mixing marine paints, a Kuwaiti-American plant for production of oil well drilling mud; a KuwaitDanish Dairy plant; and the Kuwait Hotel Company, which has American participation.

Government Policy on Investment

Kuwait's vast oil wealth endows it with one of the highest levels of per capita income in the world. Constantly increasing income from oil has resulted in a far reaching program of social welfare. The Government also actively encourages the investment of more of the country's wealth in new industries within Kuwait in order to broaden the economic base beyond its natural concentration in petroleum and petro-chemicals.

In addition to providing legal incentives to private investment and financing necessary infrastructure facilities, the Government uses joint participation with private capital as an important means of promoting the development of new industrial interprises. From the private investor's viewpoint, Government participation not only provides financial resources but also opens the door to future contracts in the public sector, which is the major consumer of the nation's output of services. The Government, either directly or through its various shareholding entities, is a partner in some of the country's most important industrial enterprises.