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Kuwait
Foreign Investment
From the very beginning, government officials were keenly aware
that oil was a depletable asset, that the country had few other
resources, and that preparations had to be made for the day when
there would be no more oil. As soon as the government began to
receive oil revenues, officials spent less than the treasury received,
leaving a surplus in the state's general reserve to be invested.
Because of limited domestic investment opportunities, most investments
were made abroad. World Bank (see Glossary) economists estimate
that about 25 percent of revenues were placed in foreign assets
during the 1950s, although the Kuwaiti government's published
data have always been vague about reserves as well as about some
other economic variables.
In the 1950s and 1960s, Kuwait began investing overseas in property
and businesses in Britain. In 1952 Kuwait established an office
in London, staffed with experienced British investment counselors
who guided the government's placement of funds. In the same year,
Kuwait created investment relations with a large New York bank.
Because of the vastly expanded oil revenues of the 1970s, Kuwait's
overseas investment program grew tremendously. In 1976 the government
established the Reserve Fund for Future Generations, into which
it placed an initial US$7 billion. It resolved to invest 10 percent
of its revenues annually in the reserve fund. Money from the fund,
along with other government revenues, was invested in overseas
property and industry. In the 1970s, most of these funds were
invested in the United States and in Western Europe: in German
firms (such as Hoechst and DaimlerBenz , in each of which Kuwait
owned 25 percent), in property, and in most of the United States
Fortune Five Hundred firms. In the 1980s, Kuwait began diversifying
its overseas investments, placing more investments in Japanese
firms. By the late 1980s, Kuwait was earning more from these overseas
investments than it was from the direct sale of oil: in 1987 foreign
investments generated US$6.3 billion, oil US$5.4 billion. The
Financial Times of London estimated Kuwait's overseas
investments in early 1990 at more than US$100 billion, most of
it in the Reserve Fund for Future Generations.
The Iraqi invasion proved the importance of these investment
revenues. With oil revenues suspended, the government and population
in exile relied exclusively on investment revenues, including
sales of investments for sustenance, for their share of ongoing
coalition expenses and for postwar reconstruction and repair of
the vital oil industry.
Data as of January 1993
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