Kuwait's largest listed company said yesterday it would move the headquarters of its international operations unit to Bahrain, a setback to efforts to diversify its economy and attract foreign investors.

Mobile operator Zain, whose biggest shareholder is the Kuwaiti government, said it would move international operations abroad from early next year.

Kuwait, a major OPEC producer, wants to wean its economy off oil to emulate the success of neighbours like Bahrain or the United Arab Emirates, which are financial and tourism hubs.

Kuwait's largest listed company said yesterday it would move the headquarters of its international operations unit to Bahrain, a setback to efforts to diversify its economy and attract foreign investors.

But the government has instead been stuck in a standoff with parliament dominated by Islamists, moderate opposition and independent politicians, leaving many economic bills such as a reduction in taxes on foreign firms parked in the house.

While Zain called the move a purely commercial decision to bundle its foreign operations, Chief Executive Saad al-Barrak is known as an outspoken critic of some policy decisions.

"Kuwait is the only country in the Middle East and Africa that does not have an authority to regulate the telecommunications sector," he said in a recent interview.

Analysts said Zain's move showed that parliament and government need to work more strongly together to attract foreign investments and open up the oil-dominated economy.

"It was a slap in the face," said analyst and former oil minister Ali al-Baghli. "The climate for investors is not encouraging, there are too many obstacles such as bureaucracy."

Amani Bouresli, professor of finance at Kuwait University, agreed: "This is a signal that something needs to be done... We're behind other Gulf states with regulations."

The government had asked Bouresli to draft a tougher law to regulate the stock market, but later dropped her proposal in favour of a softer version. A plan to create a telecoms regulator has also yet to see the light.

Despite reform problems, the cabinet says it is not too late. "The government is committed to its agenda," Prime Minister Sheikh Nasser al-Mohammad al-Sabah told leading daily al-Qabas last week.