Kuwait is a small Middle East country that has vast crude oil reserves. The country has approximately 100 billion barrels of crude oil reserves. Kuwait’s crude oil reserves account for approximately 7% of the world’s reserves. Petroleum accounts for 48% of the country’s GDP. In addition, it accounts for approximately 90% of the government’s revenues and 95% of export revenues. The Kuwaiti Dinar (KWD) is the legal tender of the country. In 2012, the GDP of Kuwait was $165.9 billion. In 2012, the GDP of the company grew by 6.1%. Kuwait generally has a budget surplus. In 2012, the country had revenues of $106.9 billion and expenditures of $69.18 billion. The government had a budget surplus of $37 billion. Kuwait’s government uses two reserve funds to invest the budget surplus. These include the Fund for Future Generations and the General Reserve Fund. The government invests the surplus in stocks, bonds, fixed yield instruments, and real estates in the U.S., U.K. Japan, France, and Southeast Asia (Lehman 150).
The creation of the National Bank of Kuwait in 1952 enabled investors to trade in stocks. Thereafter, the government passed several laws to regulate the trading of stocks. This culminated in the formation of the Kuwait Stock Exchange (KSE) in August 1983. The duty of the KSE is to regulate and organise trading activities. In 2010, the government established the Capital Markets Authority to take over some of the previous functions of the KSE (Al-Bashir 43).
Kuwait is an Islamic country. Therefore, its laws conform to the teachings of the Quran. Kuwait’s economic model focuses on wealth distribution. The conventional economic model focuses on wealth creation. It is the duty of wealthy Kuwaitis to offer a certain percentage of their income to the needy. The government does not prohibit financial institutions from engaging in conventional business activities.
The Central Bank of Kuwait (CBK) is the main body that regulates Kuwait’s monetary sector. The CBK requires all financial institutions to have anti-money laundering measures. In addition, it requires the financial institutions to circulate guidelines of their money laundering procedures. The CBK also regulates the financial transactions of all financial institutions to protect the public (Stella and Lönnberg 31).
The Capital Markets Authority (CMA) is the independent body that regulates the KSE. The government established the CMA is 2010. The Capital Markets Law (CML) mandates the CMA to regulate the KSE. The CMA requires companies to obtain consent from the agency prior to undertaking mergers or acquisitions. In addition, the CMA requires parties that buy more than 30% of the voting rights of a company that is listed in the KSE to make a similar offer to all shareholders of the company. The CMA strives to reduce insider trading in the KSE. Parties that engage in insider trading risk facing stiff penalties (Al-Bashir 43).
Kuwait strives to attract foreign direct investments into the country. Several laws regulate foreign direct investments into the country. According to article 23 of the Kuwaiti Commercial Code, foreigners cannot have majority shareholding of a company in Kuwait. Foreign investors should have a Kuwaiti partner who has equity holding of at least 51%. However, ‘Law No. 8 of 2001’ permits 100% foreign ownership of firms in certain approved sectors. The parliament passed this law to attract foreign investors into the country (Jones 199).
Global Industry Classification Standard (GICS) is the major tool that helps in classification of industries in various sectors. MCSI and Standard & Poor’s are the companies that developed the GICS. According to the GICS, the financial sector comprises of banks, real estate, insurance, and investment companies. Provision of loans and management of finances are some of the major activities of companies in the financial sector. On the other hand, the non-financial sector comprises of industrial, food, and service companies. These companies provide various products and services that are vital in the economy (Knetch 159).
The financial sector accounts for the largest share of market capitalisation and stock turnover of the KSE. On the other hand, the non-financial sector accounts for a small share of the market capitalisation of the KSE. As of 2010, there were 29 companies in the industrial sector that were listed in the KSE. 61 companies in the service sector were listed in the KSE. 6 companies in the food sector were listed in the KSE (Masood 28).
The petroleum sector is the major segment in the industrial sector. Kuwait Pipes Industries & Oil Services is one of the major companies in this segment. Ship building is also a major economic activity in Kuwait. Heavy Engineering Industries & Ship Building Co. is one of the major companies that engage in ship building and other heavy engineering works. The assets of the company are worth more than KWD 81 million. Cement manufacturing is also a major economic activity in Kuwait. Kuwait Cement Company is one of the major companies that engage in the manufacture of cement. The assets of the company are worth more than KWD 258 million.
The service industry is a major activity in the non-industrial sector. Telecommunications, hospitality, transport and education are some of the major segments in this sector (Masood 29). In 2010, Zain was one of the major companies in the service industry. The company engaged in the provision of the telecommunication services. The assets of the company were worth KWD 3.7 billion. Zain was the largest company in the KSE in terms of market capitalisation. National Mobile Telecommunications is one of the main competitors of Zain. In 2010, the assets of the company were worth more than KWD 1 billion. City Group Company is also a major company in the service sector. Transport is one of the major activities of the company. The assets of City Group Company are worth KWD 58 million. Kuwait Hotels Company is one of the companies in the hospitality industry that is listed in the KSE. In 2010, the assets of the company were worth KWD 15 million.
The food sector is the smallest sector of the non-industrial segment. Only six companies in the food sector are listed in the KSE. Kuwait Food Company is the major company in this sector (Masood 30). The assets of the company are worth more than KWD 625 million. Danah Al-Safat Foodstuff Co. is one of the major companies in the food sector that is listed in the KSE. In 2010, the assets of the company were worth KWD 46 million. Kuwait United Poultry Company is another company in the food sector that is listed in the KSE. The company engages in the production of poultry products. The assets of the company are worth more than KWD 15 million.
Works Cited
Al-Bashir, Muhammad. Global sukuk and Islamic securitization market: Financial engineering and product innovation, Danvers, MA: BRILL, 2011. Print.
Jones, Declan. The Report: Kuwait 2008. Oxford: Oxford Business Group, 2008. Print.
Knetch, Matthias. Diversification, industry dynamism, and economic performance: The impact of dynamic related diversification on the multi-business firm, London: Springer, 2013. Print.
Lehman, Davids. Kuwait telecom laws and regulations handbook, Washington, DC: International Business Publications, 2008. Print.
Masood, Ahmed. Kuwait: Financial system stability assessment – update, Washington, DC: International Monetary Fund, 2010. Print.
Stella, Peter and Åke Lönnberg. Issues in central bank finance and independence, issues 2008-2037, Washington, DC: International Monetary Fund, 2008. Print.