KUWAIT SUSPENDS OFFSET SCHEME; PLANS UNDERWAY FOR ‘MORE MODERATE’ POLICIES
• Relaxed offset scheme would curb procurement delays
• Kuwait remains a lucrative market for American and
• Several procurement opportunities exist within the
MoD and the Armed Forces
• Defence Budget forecast to see stable growth
Kuwait’s Council of Ministers passed a resolution in late
August suspending the offset programme on all government defence and civil procurements. Offset obligations have been cancelled on all current and future procurement programmes. The decision reflects Kuwait’s interest in increasingly easing the procurement process as well as encouraging direct ties with international industries. Although
Kuwait’s offset programme was established to encourage industrial development and job creation through the transfer of economic benefits, it was repeatedly criticised for delaying the procurement process. Anas al-Saleh, Kuwait’s finance minister, told Reuters that many international firms had been critical of the scheme and that it needed to be “revised and then… [implemented] in a more moderate way”. New rules should be ready within six months, he said.
The offset programme was established in 1992 and has been managed by the National Offset Company, a state-owned shareholding company, since 2006.
The resolution passed by the Council of Minister’s effectively cancels the NOC’s contract. This means that the Kuwait Direct Investment Promotion Authority (KDIPA) is not ready to handle offsets at present. Kuwait will need to revise and re-introduce its offset policies.
There have been no details about proposed revisions and reintroduction of offset policies. Any positive move to reduce bureaucracy in the procurement process will be welcomed by Western suppliers who are looking to tap into the defence sector in the small, oil-rich nation. Easing Offset Obligations – good news for Suppliers According to data from NOC, the highest offset obligors in Kuwait from 1992-2008 were the US, UK and France, as they share the closest procurement ties with the country. Offset obligations have been applied to defence contracts worth over 3 m Kuwaiti dinars and civil contracts worth over 10m Kuwaiti dinars. Contractors have been required to provide offset benefits worth 35% of the total monetary value of the supply contract. As with most offset policies, deductions can be made if subcontracts are awarded to Kuwaiti companies or if local goods or services are used.
Kuwait presents defence trade opportunities owing to the modernisation needs of the MoD at the Ministry level, as well as in Kuwait’s Armed Forces. This, in addition to the fact that Kuwait lacks a domestic defence industrial base and has a growing defence budget, makes it a lucrative market for defence suppliers. According to data from Global
Security, “most of the larger sales are handled through the US
Government’s Foreign Military Sales (FMS) program, while the smaller sales tend to be procured on a commercial basis”. It adds that opportunities exist in the areas of information technology – specifically command and control systems integration – and medical hospital management and equipment upgrades, at the MoD level. The three services of the Armed
Forces have numerous requirements, from major platform procurement to upgrades. For example, the Kuwaiti Air Force is thought to have a potential requirement for 18-22 new fighters in order to replace its ageing Mirage fleet. The requirement has existed for over half a decade now; in 2008, negotiations were on-going for the supply of up to 28 Rafales to Kuwait. The deal hit a dead end in 2010 over political issues when Kuwait rejected the Rafale on grounds of cost following intense pressure from Parliament. Over the past few years, the procurement has been a competing ground for the Eurofighter Typhoon and Boeing’s F-15 Eagle and F/A-18 Super Hornet aircraft. Some reports have indicated th