Kuwait pursues strategies to transform into a trade and finance centre

Situated in the north-western corner of the Gulf, bordered by Iraq and Saudi Arabia, Kuwait is a hereditary constitutional monarchy and a founding member of both the GCC and the Organisation of the Petroleum Exporting Countries. The country’s plentiful oil reserves have provided a strong platform for economic development and prosperity.

Kuwait has rebounded strongly from the disruption of the Covid-19 pandemic, and public finances have been bolstered by elevated oil prices in 2021-22. With one of the most dynamic political systems in the region, the hope is that the executive and legislative branches of government can work together to advance the policy changes and strategies needed to fulfil the ambitions of the long-term development plan, New Kuwait 2035.

Development

Kuwait’s economic strength primarily comes from its considerable oil reserves, ranked as the world’s sixth largest and equivalent to more than 101.5bn barrels. The government aims to increase production capacity to 4.3m barrels per day (bpd), up from 3.2m bpd as of September 2022 (see Energy & Utilities chapter). Oil has fuelled Kuwait’s development since the Second World War, and production took on a central role in the economy after it was nationalised in 1975. Oil revenue accounts for around 50% of GDP and almost 90% of government revenue, and has contributed to decades of strong public finances and consecutive budget surpluses, as well as to the development of a comprehensive welfare system that has given nationals a good quality of life.

Although the private sector played a somewhat limited role in economic expansion in the late 1900s and early 2000s, Kuwait has produced a number of globally successful firms, such as telecoms giant Zain, global logistics company Agility and low-cost air carrier Jazeera Airways. Recently, Kuwait has been pursuing a programme of economic diversification to jumpstart expansion of the private sector via infrastructure projects and the privatisation of government assets.

New Kuwait

In 2017 the government launched the country’s national economic development plan, known as New Kuwait 2035. This programme aims to transform the country into a financial, cultural and commercial centre within the Gulf through 164 strategic programmes based on seven pillars: public administration, economy, infrastructure, the living environment, health care, human capital and global position.

Among the many priorities of New Kuwait 2035 are goals to expand the role of the private sector, incentivise public-private partnerships (PPPs), upgrade existing infrastructure, and generate a support mechanism for small and medium-sized enterprises. Given the period of low global oil prices that began in 2014, the initiatives outlined by New Kuwait 2035 came at a critical time for enhancing the country’s competitiveness as an investment destination. (see Trade & Investment chapter).

By 2021, 43 ministries and authorities had identified strategic projects in various sectors to serve the new vision, including Silk City, the five islands development, and the Al Zour refinery and petrochemicals complex, as well as some 12 ongoing and planned projects being realised via PPP partnerships focusing on electricity, oil and gas, human capital, health care and logistics.

History

Kuwait’s archaeological record begins in the second millennium BCE with the colonisation of an outlying island, Failaka, by the Mesopotamians and later by the Greeks. The region came under the Islamic caliphate during its expansion throughout the Arabian Peninsula in the 7th century CE. Permanently settled in the 17th century by the Bani Khalid tribe, the area prospered as a key trading hub on the silk route between India, Central Asia, the Middle East and Europe. As its wealth grew, the city fortified, which gave Kuwait its name, a diminutive of an Arabic word meaning “fortress built near water”. Faced with imperial interests from the Ottoman Empire in the 19th century, Kuwait’s ruling Al Sabah family courted British favour and formally agreed to become a protectorate in 1899. Declared an independent principality under British protection during the Second World War, Kuwait remained allied to the British until it declared independence in 1961.

Kuwait’s economic wealth and regional ties grew in the second half of the 20th century, as it became a founding member of the GCC in 1981 alongside Bahrain, Oman, Qatar, Saudi Arabia and the UAE. However, its history in the latter part of the century was defined by Iraqi occupation in 1990-91, during which some 749 oil wells were set alight and destroyed by occupying forces. Kuwait made a strong recovery, though its economic agenda in the aftermath was largely focused on rebuilding the country. In subsequent years the focus shifted towards diversification and sustainable economic development, as the nation aimed to avoid reliance on a single source of income.

Recent Growth

The economy has been largely driven by the government since the nationalisation of the oil and gas industry in 1975. While this led to a golden era for the country, security soon took precedence over economic development during the Iran-Iraq War in 1980-88 and the Iraqi occupation in 1990-91. The two decades since these conflicts have seen considerable stability. However, economic and industrial development remains largely government-led, despite efforts to enhance the role of the private sector.

After the decline in economic growth in 2020 due to the Covid-19 pandemic, GDP growth recovered to 1.3% in 2021 as domestic activity gradually resumed thanks in part to the effective mitigation measures instituted by the government (see Economy chapter). Growth is forecast by the IMF to reach 8.7% in 2022 on the back of elevated oil prices, which would represent the highest in the GCC. Looking ahead, the establishment of the Northern Economic Zone is intended to diversify the economy and attract up to $2bn in foreign direct investment, in addition to boosting trade and contributing an anticipated $35bn to GDP per annum.

Population & Demographics

The Public Authority for Civil Information estimated that Kuwait had 4.5m inhabitants as of June 2022, an increase of 78,710 from the end of 2021. Demographic breakdowns show that expatriates accounted for approximately 66% of residents, while Kuwaitis made up the remaining 34%. Of the foreign population, Indians comprised the largest group, representing 19% of the total population, followed by Egyptians (14%). With 98% of the population living in cities, Kuwait has a very high rate of urbanisation centred on the capital of Kuwait City on the coast, largely due to the extreme desert climate.

As Kuwait embraces more liberal socio-political concepts – including universal female suffrage in 2005 – representation has become a point of contention, particularly among the post-liberation generation. At the forefront of this are the 105,000 Bidoon, or stateless people, in the country. Additionally, while around 200,000 tribal and Bedouin people were granted nationality in the 1960s and 1970s, in some cases citizenship has not been extended to subsequent generations. Excluded from political, economic and social participation, tribal groups operate as para-political structures, and they have consistently demonstrated against the government’s policies towards them.

Parliament & Politics

Agreements between the head of government and elected members of Parliament have, at times, been contentious and short-lived and the contemporary political landscape is symptomatic of that relationship. The principal prerogative of the Parliament is to oversee and maintain the quality of ministerial policy and conduct. However, it can also exercise power that is not afforded to neighbouring national assemblies, such as the ratification and vetoing of laws proposed by the executive branch.

Formal inquiries and the questioning of ministers have been a precursor to votes of no confidence, which is the strongest tool available for the Parliament to ensure government accountability. However, a declaration of non-cooperation by either party requires the emir to dissolve the legislature or executive. There have been several standoffs between the Parliament and the government in Kuwait, leading the emir to dissolve the Parliament 10 times since the country was created.

Checks & Balances

Parliamentarians have historically pursued their responsibilities with conviction, which brought them into confrontation with the government in 2009, when the Parliament summoned then-Prime Minister Sheikh Nasser Al Mohammed Al Ahmad Al Sabah. Between 2009 and 2011 the Parliament forced Sheikh Nasser to resign four times; however, in all cases he was reappointed by the emir. Sheikh Nasser was ultimately replaced by Prime Minister Sheikh Jaber Al Mubarak Al Hamad Al Sabah in December 2011, effectively reinforcing the constitutional integrity of the country’s checks and balances.

The emir’s dissolution of the Parliament precipitated national elections that were held in February 2012. The elections heralded a new Parliament that embodied Kuwait’s disparate groups. Adjourned in June 2012 when it called in the ministers of finance and labour for questioning, the Constitutional Court (CC) ruled in the same month that the 2011 dissolution of Parliament was unconstitutional, rendering the February 2012 elections null and void, and a new Parliament was elected in 2013. In October 2016 the emir dissolved the Parliament and a general election was held in November 2016, with a voter turnout of around 70%. Opposition candidates took the lead, winning 24 out of 50 seats, while 20 incumbents were re-elected.

Opposition candidates won 24 seats in general elections held in December 2020. The election was seen as a victory for the opposition bloc. Since the inauguration of the 16th Parliament in December 2020, four Cabinets have been formed, all of which have resigned. Parliament was again dissolved in August 2022 by Crown Prince Sheikh Mishal Al Ahmad Al Jaber Al Sabah, who called for early elections in 2022 and approved a new Cabinet to be led by a new prime minister. Elections took place in September 2022, with opposition candidates making considerable gains. The crown prince named a new Cabinet in early October 2022, which was reshuffled in an effort to build bridges with the opposition.

Constitutional Constructs

While the CC’s June 2012 ruling outwardly reinforces the judiciary’s impartiality, the ramifications were less obvious. The recall of the 2011 Parliament, seen as a pro-government move, was only avoided because many officials declined to return to office. However, the CC reinforced its impartiality in August 2012, when it upheld – against government wishes – the motion to cut the number of voting districts from 25 to five.

The key challenge for the CC and Kuwait’s political fortunes came in June 2013, when the court ruled on the legitimacy of the emir’s October 2012 emergency decree that reduced the number of votes per person from four to one. While this brought Kuwait in line with international norms, opposition groups condemned the move, as the previous four-vote system enabled voters to lend their support to disparate ballots.

Sharia law is a primary source of legislation, but law and government regulations remain largely secular. While adherence to Islamic principles is strict in some respects, the country granted universal suffrage in 2005, and female members of Parliament were elected in the subsequent years.

Education

Schooling is compulsory between the ages of six and 14. Budget surpluses have supported the development of a robust education system, and the country has achieved a 100% enrolment rate in primary and secondary schooling for boys and girls (see Education & Health chapter). The education system is divided into three tiers: elementary, intermediate and secondary. It is overseen by the Ministry of Education, while post-secondary schooling is handled by the Ministry of Higher Education. Domestic enrolment is notably lower at the tertiary level, partially because many Kuwaitis choose to study abroad.

All public schools are segregated by gender and are free for nationals. Pressure to reform the education system and align it with future economic needs is increasing, resulting in a rise in popularity of international schools that offer Western curricula. Kuwait University is the sole public higher education institution serving the domestic market. Private tertiary institutions are also helping to meet the increasing demand.

Geography & Climate

Kuwait’s landmass covers an area of 17,818 sq km. Its territory includes nine islands off its coast, the largest of which is Boubyan, north of Kuwait City and home to Mubarak Al Kabeer Port, which was under development as of November 2022. Kuwait City is based on a natural deepwater port, but extensive dredging works have been undertaken to extend access to other port facilities. Kuwait is predominantly a desert plain, with a maximum elevation of 306 metres. It shares land borders with Saudi Arabia and Iraq, in addition to a maritime border with Iran. An important oil-producing area, the southern region is a neutral zone shared with Saudi Arabia under joint administration.

The desert climate, with average summer temperatures reaching as high as 48°C in summers, makes most of the country unsuitable for cultivation. As such, just 20% of land is inhabited, and the majority of settlements are located along the 500-km coastline. Kuwait lacks sufficient natural freshwater resources, with 90% of water needs met through the use of desalination plants.

Understanding the impact of its harsh climatic conditions on the economic growth of key sectors, Kuwait is working to adapt to climate change challenges such as high temperatures, low rainfall, rising sea levels, depleting water resources and dust storms.

Natural Resources

While Kuwait has one of the largest known oil deposits, as its oilfields have matured they have become harder to access. Output has tapered, putting pressure on the economy. Plans to increase production will require substantial infrastructure upgrades – a central aspect of the New Kuwait 2035 vision. Kuwait is also home to a number of cement manufacturers that use local resources, and the coastal waters support a small fishing industry.