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Kuwait - Military Budget

In the military sector, Kuwait maintains one of the highest defense spending rates per capita in the world. Kuwait spends a relatively high percentage of its GDP on defense, as of 2012 about 5.3% of GDP, over $7,000,000,000, ranking 15th in the world. With Kuwaits increased drive to have a greater role in regional and international affairs both in the military and crisis assistance spheres, its military spending and defence procurement priorities have grown to match this role. Kuwaits ambition to acquire modernised military capabilities and technology requires the development of efficient, effective and ultimately interoperable logistics systems and strategies. The development of joint logistics systems and strategies will enable both Kuwait and its allies to manage their acquisitions and ensure their effectiveness at rest and when deployed.

Between 2001 and 2004, Kuwait spent $2.3 billion on arms deliveries, with the United States as its major supplier. The combination of post-war economic growth and a strong demand for U.S. products yields many business opportunities for U.S. firms in both the commercial and defense sectors. Kuwait has no domestic defense production firms. Consequently, the MOD relies on many foreign firms to meet its defense needs.

In August 1990, Saddam Hussein invaded Kuwait. The Kuwaiti government needed the United States and many coalition partners to liberate the country from Iraq. Today, the Iraqi government offers little threat to Kuwait. However, an Iraqi civil war could create severe security conditions along the border. An ascending Iran could also flex its military muscles by threatening to close the Strait of Hormuz and attempt to create a regional hegemony.

The nation has spent much of its oil revenues diversifying its economy. The government has developed economic trade zones to lure business from Asia, Europe, and other areas. A new economic trade hub, Silk City, will cost an estimated $75 billion to complete. Increased trade and commerce may require additional security to assure companies and financial institutions that their investments are safe. Defense spending can provide a visible demonstration of Kuwaits assurance of security.

The FY 96/97 proposed appropriation for the Ministry of Defense (MOD) was KD 459 million (approx. $1.517 billion) to cover routine operations. The Ministry of Finance budget also includes a supplementary Defense Enhancement budget ofKD 400 million ($1.32 billion) for FY 96/97. Therefore, the Kuwait Defense budget has two separate items. Established in 1992, the Defense Enhancement budget is funded at US$ 10.5 billion. These funds are to be spent over 10 years on major equipment and strategic military purchases.

Strong oil prices in 2002 generated a significant budget surplus that continued through 2003. Although government expenditures increased about 8%, Kuwait's fiscal surplus in 2003 was 18% of the GDP. Defense spending remained constant at about 5 percent of GDP. Defense spending was approximately 11 percent of the FY 2003-2004 budget. The Ministry of Defense budget listed in the official government-issued FY 2003-2004 report is 643,623,000 Kuwaiti Dinar (USD 2,123,965,800); the national budget listed for FY 2003-2004 is 5,828,000,000 Kuwaiti Dinar (USD 19,232,400,000). Kuwaits military spending declined significantly after 2004, once US forces had ousted Saddam Hussein from power in Iraq.

Major defense trade opportunities exist in the MOD at the Ministry level, as well as in Kuwait's Land Forces, Air Force, and Navy. Most of the larger sales are handled through the U.S. Government's Foreign Military Sales (FMS) program, while the smaller sales tend to be procured on a commercial basis. At the MOD level, opportunities exist in the areas of information technology, specifically command and control systems integration, and medical hospital management and equipment upgrades.

In the Kuwait Land Forces (KLF), opportunities exist for American firms to supply trucks, artillery, and light armored vehicles; to remove and/or refurbish ordnance; to refurbish artillery; to integrate command and control systems; and to maintain tanks, trucks and other KLF vehicles. Within the Kuwait Air Force (KAF), opportunities exist for American firms to supply helicopters and unmanned aerial vehicles; to maintain fighter aircraft; and to integrate command and control systems. In the Kuwait Naval Forces (KNF), opportunities exist for American firms to supply ships, electronic combat systems, missiles, and to integrate command and control systems.

With the exception of FMS sales, all major procurements are done on a commercial basis. For commercial purchases above KD 5,000 ($17,000), Kuwait uses a competitive selection (tender) process. This process requires vendors to respond to an invitation for bids, submit a bid package, and comply with a schedule and formal contracting rules and specifications. This process, however, does not apply to strategic military purchases which are handled through the Military Procurement Committee. Price and satisfaction of MOD technical requirements are important factors in MOD's evaluation process. Information on financing, including the vendor's use of export credit financing, is also required.

MOD has several internal committees that are responsible for the technical evaluation of bids. The Assistant Undersecretary of Defense for External Supply is responsible for the administrative aspects of purchasing military equipment and services. The majority of defense procurements are done on a government-to-government basis, but a substantial number of procurements are done commercially.

The MOD prohibits the payment of commissions to defense agents. Agents, however, may charge U.S. suppliers set fees for specified services, as long as the amount of the fees does not vary with the size of the sale. U.S. companies have found it practical and convenient to have a local agent/representative provide them with market intelligence and take care of necessary formalities in the procurement process. Tenders, bidders' conferences, awards and re-tenders are announced in the Official Gazette of the Government of Kuwait (Al Kuwait Al Youm), which is available in English translations.

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