Role of Property Rights & Prices System in Kuwait Development

The economy of the Kuwait is based heavily on the petroleum products. According to World Bank data Kuwait is among the world’s richest countries with respect to per capital. Kuwait is also second richest country in the gulf region in terms of Per Capita. However the Kuwait economic freedom score stands at 62.2 which need improvement. The economic freedom score has decline 2.9 points in recent years. Furthermore the efforts of Kuwait’s government to further diversify the economy did not give positive results. The public sector has employed 76% of its citizens who live in Kuwait which means that Government needs to boost its private sectors and provide suitable climate for business (Laulainen, 2013).

The property rights in Kuwait are highly respected however only those citizens are allowed to purchase land in the country who are citizen of the Gulf countries. The legal system in Kuwait need provisions so that the issues which the Foreigners face can be address efficiently. The rules regarding the property rights have significant impact on economic efficiency & Development. If Kuwait only allow limited people to invest in the property then Efficiency of the economy will decline instead of growth. Below is the graph which is showing the property rights in the Kuwait (Melville, 2017)

Source: https://www.heritage.org/index/visualize?cnts=kuwait&type=8

In Future If Kuwait wants to develop its economy even further and wants to improve the efficiency of the Economy than it will have to focus on the laws regarding the property rights. Currently the those individuals are restricted to purchase the land who does not belong to GCC countries which means that people from other countries will unable to invest appropriately in the property sector unless amended in the rules and regulation is made accordingly. The payment and pricing system in different countries are established by keeping the economic situation in mind. In Kuwait Discounts and payment in installment are common marketing approaches (Heritage.org, 2018).

In Kuwait Marketing promotions, free services after purchase of goods, warranties and commercial discounts are part of the pricing system of Kuwait. If the products are imported from a country which is not the part of GCC than then 5% duty will be charged on such products which means that duty will be included in the evaluation of price. Currently there is no value added tax however in future the value added tax is estimated to be implemented which would have significant impact on the prices of the products. It is expected that the amount of value added tax would be round about 5%. There are various factors which have to be considered while determining the price of the goods such as taxes (Heritage.org, 2018).

Economic Changes Instituted by Kuwait

Over the years the economy of Kuwait has experienced immense growth. The economy of Kuwait is heavily based on petroleum sector. However Over the years the other sectors has also started contributing in the economy which means that the economy of Kuwait has begun diversifying steadily over the years. The oil sector has major contribution in economy of Kuwait and much of the revenue of the Government is generated through oil related exports. The second major contribution in the economy of Kuwait is from financial sector. The financial industry of Kuwait is growing rapidly over the years and in future it can be said that financial industry of Kuwait will become a major contributor in its economy (Export.org, 2018).

The transport and tourism sector of Kuwait also contributes in its economy however there is lot of room for future improvement. In Kuwait people are majorly employed by public sector which means that Government have to take initiative to support the private sector. The policies of the government are a major issue who have made doing business difficult in the country. The registration of business requires huge amount of time which is causing problem for the businessmen. The political situation is also a major reason for low investment in the country. If Kuwait wants to attract huge amount of investment then it would have to create political stability in the country. The factors such as political factors, environment factors and economic factors have to be stable in order to attract investment (CHERUNILAM, 2010).

Over the years Kuwait has taken initiatives to improve its economy however those initiatives did not prove effective. Kuwait first have to improve its political situation so that it can attract investors in the country. Moreover the country should diversify its economy so that its heavy dependence on oil exports come to an end. The economies which rely heavily on the oil exports have to face certain difficulties when the oil prices decrease. The revenues face dramatic decline and it became difficult for the country to manage its expenses efficiently. Therefore diversification of the economy help the countries to manage certain economic shocks.

The GCC countries heavily rely on oil exports therefore when changes in oil prices occur the countries face issue because the economies are heavily dependent on oil prices. The GCC countries are now moving toward diversification by focusing on other sectors which include finance, tourism, transportation and entrepreneurship. UAE is heavily investing to become a major tourism hub. Kuwait on the other hand wants to become a major financial center in the region. Although Kuwait is not the largest economy in the region but Kuwait has the potential to grow its economy in future (Heritage.org, 2018).

Social, Cultural, Political & Economic Factors effect on Kuwait

The social, cultural, economic and political factors have significant impact on the Kuwait economy. The political factors contain the government policies and the rules and regulations which the government makes for the regulation of the business. If the government policies facilitate the business the economy of the country will grew because more investor will going to invest in the business due to the favorable business polices. If the government does not support the businesses and make such policies which create restriction for businesses than the investors does not invest in such country and the business environment does not remain suitable for performing business. In Kuwait due to unfavorable business policies and political instability the economy of the country has suffered problem (Robinson, Henry, Pirie, Broihahn, & Cope, 2015).

The economic factors include change in inflation rate, tax rate, foreign exchange rate and other factors that have direct impact on the performance of the organizations. When the inflation rate or tax rate increases the purchasing power of the customers changes due to which the sales of the organizations disturbs. When the sales of the organization disturbs than the profitability of the businesses face significant decline which ultimately have impact n the overall economy. Currently the economic condition of Kuwait is stable and the businesses can perform their activities without any major economic issue (Sercu, 2009).

Another factor which have significant impact on the performance of the economy are the social and cultural factors. The social factors consist of the customers’ needs and preferences. The organization have to realize the latest trends that exist in the market. If the organizations are not going to realize the trend in the market then they cannot provide those goods which the customers ate looking for. Therefore the social factors have huge impact on the success and failure of the business and ultimately on the economy of the country. The cultural factors also play significant role in development of economy. Over the years Kuwait has taken initiatives to improve its economy however those initiatives did not prove effective. Kuwait first have to improve its political situation so that it can attract investors in the country (Robinson, Henry, Pirie, Broihahn, & Cope, 2015).

Political Riskiness of Investment in Kuwait  

Kuwait is that country in which easy access to foreign investment as well as the foreign capital is also started in country. But in the country direct assessment of foreign investment is needing to be developed. The law regarding to foreign direct assessment came into force in 2003 and according to this law foreign ownership is allowed in different sectors of country. This law is very effective as it reduces the taxes and grab the attention of investors to invest in Kuwait which also enhance the employment in Kuwait as well as nationality of Kuwait is achieved.  The law related to foreign investments was enacted in 2013 and in 2015, these laws were implemented at all levels. However, after the year of 2015, other laws are introduced for the protection and safety of other sectors. According to the national development plan, the country Kuwait attracts the investors to invest for the development of infrastructure within the country. 

After the opening of stock market in Kuwait for non-Kuwaitis, several decisions have been taken regarding to these stocks as the foreign investment enter the banks and petrochemical industries. The laws were developed in 2008 by the foreign investor to reduce the taxes on profit and earned more profit for the country. However, in 2004, the oil companies near to blocked and to resolve this problem country discuss the oil related issues. Moreover, by supplying direct and independent stock market within the country that create the friendly environment that improve the economy of country. According to the report of 2018, World Bank stated that Kuwait is ranked on 96th number on the basis of economy. 

Kuwait Country Risk in 5 years   

However, Kuwait continue foreign direct investment according to the law of foreign direct investment. Moreover, due to lack of revenue generated from oil industry, it is necessary to shift the dependency on oil and promote other sectors that improve the performance of country. So, foreign direct investment is the way that diversify the need of economy on different sectors which are play important role in the development of country. However, law of foreign direct investment is implemented only those who is beneficial for the country. The foreign direct investment that allow the foreign investment as it provide the efficient method. Additionally, foreign direct investment includes the variety of employment in different sectors which is the pathway that enhance the performance and growth of organization. The idea of foreign direct investment is come from the China and U.S.

According to the report of 2018, most reducing factor that reduce the economy of country as it only depends on the oil which is then the low economy of country. The flow of income is decreased in 2017due to lack of variety of employment. This reduction which is occurred during the 2012, which is not recoverable in short term. Moreover, this reduction is increases day by day which was 28% in 2016 an it is further increased year to year.

In Kuwait Economic Development v/s Singapore

In the Arab Gulf states, this new modern era is not introduced which is necessary for the development of the economy of country. So, it is necessary to aware about the different circumstances that are opposite to the actual policy.

Therefore, most of the Gulf States developed according to the demand of the time and customers. Moreover, these countries develop their industrial sectors to improve the economy. According to the report of 2009of world bank that focus on the improvement in the economy of countries by investing in different sectors. Furthermore, the report also discusses the sustainable economy of country of Kuwait which is not overcome by the competitors.

As the report of the world bank, among the most-friendly business environment Kuwait is on 67th number due to its strong economy. Moreover, Saudi Arabia and UAE also has high rank among the GCC countries. Furthermore, Kuwait is ranked on 37th due to provide flexibility in starting the business and it requires only 35 days for the completion of all necessary procedures. On the other hand, different countries have different procedures as well as days according to the procedure which is implemented.

The wealthiest country is Singapore as well as Singapore has more Gini coefficient as compared to other developed countries. in the Singapore the status of income is not equally distributed according to the report of statistical department of Singapore. According to Oxfam in October, Singapore has committed to reduce the inequality in the income that may disturb the economy of country and its reputation as the country achieve good economic reputation among the world. Moreover, in Singapore, different harmful practices take place like ineffective tax practices, do not consider the right of poor labor. This practice disturbs the economy and reputation of Singapore due to the practices of harmful activities. After the report of Singapore, the government stated that to analyze the real scenario of Singapore that thy prefer to spend on education, health, improving employment that improv the performance of country efficiently. Moreover, Singapore also reduce the income inequality.

Monetary Union with GCC Region

As the decision of gulf cooperation council, the currency of country had pegged with the dollars of U.S. and this practice would be done in 2010 which is the pegging of currency into U.S dollars. However, de facto peg is opposite of the currencies that reducing the transaction cost as well as the implementation of monetary policy that develop strategies for the smooth transaction and cost-effective practices.

Therefore, the decision of Kuwait not disturb the projects related to currency and develop complications which affect the activities of project. So, enhance the efficiency of currency develop effective strategies and decisions that has positive impact on the economy of country. The peg of currency is likely affected the Kuwait and Kuwait develop its own effective strategies and arrangement that united the six countries of GCC on a single currency strategy and reduce the peg of currency into U.S dollars.

Moreover, effective decisions and strategies developed by countries that improv the development of the country among other developed countries without taking any kind of financial aid. Kuwait plays important role to improv the growth rate of country efficiently. The Kuwait developed its effective strategies and implementation of these strategies established its remarkable position among other Gulf state countries.

The peg of currency into U.S dollars is not efficient for the Kuwait because it established its own rules. And finally, they decided to develop effective strategies that improve the currency project as well as reduced the peg of currency into U.S dollars. As well as Kuwait created arrangements that joined the six countries of GCC at a platform that reduced the peg of currency.

References of Kuwait Country Risk Analysis in International Finance

CHERUNILAM, F. (2010). INTERNATIONAL BUSINESS: TEXT AND CASES. PHI Learning Pvt. Ltd.

Export.org. (2018). Kuwait - Pricing. Retrieved from https://www.export.gov/article?id=Kuwait-Pricing

Heritage.org. (2018). Kuwait. Retrieved from https://www.heritage.org/index/country/kuwait

Laulainen, J. N. (2013). The Aspiring Traveler's Handbook: A Preparation Guide to International Travel. Budget-Minded Traveler.

Melville, A. (2017). International Financial Reporting: A Practical Guide (6 ed.). Pearson Higher Ed.

Robinson, T. R., Henry, E., Pirie, W. L., Broihahn, M. A., & Cope, A. T. (2015). International Financial Statement Analysis, Third Edition (CFA Institute Investment Series) (3 ed.). John Wiley & Sons.

Sercu, P. (2009). International Finance: Theory into Practice. Princeton University Press.