UNCTAD Secretary-General's
High-Level Multi-Stakeholder Dialogue on Commodities
in the context of UNCTAD XII
28-29 January 2008
Managing Resource Revenues for Sustainable
Development and Poverty Reduction
– the Case of Kuwait
By
Dr. Mahmoud A. Mahmoud
Head of Legal & Compliance Department
Kuwait Investment Authority
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD
UNCTAD Secretary-General’s
High Level Multi-Stakeholders
Dialogue On Commodities
In the Context of UNCTAD XII
28-29 January 2008
Room XXIII
Palais des Nations
Geneva
Managing Resource Revenues For
Sustainable Development And Poverty
Reduction –
The Sharing Of Experiences
The Case of Kuwait: Dr. Mahmoud A.
Mahmoud
Head of Legal & Compliance Department
Kuwait Investment Authority
The
Kuwait
Investment Authority
State of Kuwait
January 2008
The Beginnings:
Before oil was found Kuwait was known
as an important commercial center in the
Gulf for trading and commerce.
The discovery of oil constituted an
important turning point in modernization.
Financial surpluses were on the increase and
demanded to find means for their proper
investment and growth to further the public
interest, which enable the creation of the first
Sovereign Wealth Fund in 1953 known as
Kuwait Investment Board in London which
was later renamed as the Kuwait Investment
Office (“KIO”) which is still in function and
part of the Kuwait Investment Authority
(“KIA”) at this time.
The General Reserve: The First Step on the Road:
A law established the General Reserve Fund, under the
management of the Ministry of Finance, and stipulated
the legislative means of its financing from the budget
surplus. The General Reserve consisted, at the time,
of all State investments, which later consisted of the
State ownership in various social and economic
projects, such as the Credit and Savings Bank, the
Kuwait Fund for Arab Economic Development, and
scores of local projects, as well as some foreign
assets of the State.
The Future Generations Reserve:
A prudent step was taken by establishing the Fund For
Future Generations; the assets of which are
commercially invested globally in (1) stocks of reputed
international companies (2) first grade foreign bonds
(3) deposits in major currencies and (4) various
economic projects, under the supervision of economic
and financial experts in Kuwait and prime international
financial institutions. The source of this fund is 10% of
the Revenues from all budget revenues most of which
is from oil production.
The importance of this Fund was paramount
after the Iraqi invasion in August 1990; for it
was the main source of finance for the
liberation and reconstruction. It was the basic
pillar in overcoming the catastrophe which
befell Kuwait.
This was unprecedented in the world where a
country was functioning even under a brutal
occupation.
The Kuwait Investment Authority (KIA):
The significant increase in the amount of
funds allocated for investment was
translated into the formation of the Kuwait
Investment Authority (KIA) to replace the
Ministry of Finance in managing and
developing the financial reserves of the
State.
Law 47/1982 was issued establishing KIA
as an independent legal entity. On behalf
of the State of Kuwait, KIA is authorized
to develop and manage the General
Reserve, and the assets of the Future
Generations Fund as well as any other
funds entrusted to it by the Minister of
Finance.
KIA’s Board of Directors is chaired by the Minister of
Finance. Its membership consists of:
(i)
(ii)
(iii)
the Minister of Oil
the Governor of the Central Bank
the Undersecretary of the Ministry of
Finance
(iv) five other Kuwaitis who are
experienced in the field of finance and
investment.
The non- ex-office members have a tenure of
four years. Further five non-ex offices
members, three of whom should not occupy
any public office. The Board chooses from
within its members a Managing Director to
assume the executive management of KIA. KIA
also has an Executive Committee consisting of
5 members chaired by the Managing Director.
This Committee approves investment
decisions recommended by the concerned
sectors and departments of KIA.
In 2008 KIA undertook a restructuring so
as to discuss its organizational structure
with industry best practice.
1. President & CEO, KIO – London
2. Executive Director, Office of the Managing
Director
3. Executive Director, Operations and
Administration
4. Executive Director, Marketable Securities
5. Executive Director, Alternative Investments
6. Executive Director, General Reserve
7. Head, Debt Settlement Office
8. Director, Legal & Compliance Dept.
KIA develops and manages the General
Reserve and the Future Generations
Fund, in the most appropriate and
feasible investment venues and
products, could be misconstrued as
“political”. On the other hand, it
complements these investments with the
economic base in Kuwait so as to serve
and develop investments.
Goals and Role of KIA:
The KIA’s main role is to transfer a single
non recurring asset, which has a high
volatility and risk, into a diversified
portfolio of financial assets. Therefore,
KIA is a passive long term financial
investor and a stable shareholder.
Conclusion:
Kuwait has the oldest Sovereign Wealth Fund
in the world. It started as the Kuwait
Investment Board in London in 1953. In 1982,
KIA in Kuwait was established as an
autonomous government body responsible for
the management of the assets of the country
namely; the General Reserve Fund and the
Fund for Future Generation.
ƒ This SWF is one of the top five sovereign funds in
the world.
ƒ One big fruit of this SWF was the ability to confront
the Iraqi occupation by financing the war and
reconstruction of Kuwait after its liberation.
ƒ Financing the functions of the State even when
under a brutal occupation.
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