Kuwait's government plans for economic growth with increased private sector development

As a major global oil producer, Kuwait is a key member of both the Organisation of the Petroleum Exporting Countries and the GCC. Additionally, the country is one of the most politically dynamic in the GCC, which has afforded it strong foundations to help tackle recent issues concerning parliamentary elections and accountability. By continuing with economic diversification efforts and reducing dependence on oil revenues, the country is also adding increased momentum to several large infrastructure projects that will help to further integrate the country into the global economy.

Development

Kuwait’s economic strength is derived from its oil reserves, which amount to more than 100bn barrels. Furthermore, the government has set a production target of 4m barrels per day (bpd) by 2020, up from 2014 levels of 2.93m bpd. Oil has fuelled development in Kuwait since the Second World War, and production took on a central role in the economy after the industry was nationalised in 1975. Accounting for more than 60% of GDP and 95% of exports, the country’s oil revenues have ensured strong public finances, allowed consecutive annual budget surpluses and funded the development of a generous welfare system. Although the private sector has played a limited role in the economy over the past four decades, Kuwait has produced globally successful firms, such as telecoms giant Zain and low-cost carrier Jazeera Airways.

Despite the historically minor role of the private sector, Kuwait is pursuing a programme of economic diversification that is set to re-energise the private sector. Approved by parliament in February 2010, the 20-year, KD30bn ($103.36bn) National Development Plan (NDP) is the blueprint for the country as it works to become a banking, trade and services hub for the Gulf by 2030.

With plans for new transport networks, upgraded infrastructure, increased oil production and improved services, more than 800 projects have been nominated under the NDP as growth catalysts that can restore the balance between Kuwait’s public and private sectors, while also accommodating the demands of the country’s growing population. Though implementation of the NDP was initially delayed, many projects (notably in the energy sector) are under way.

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 subsequently came under the Islamic Rashidun caliphate during its expansion throughout the Arabian Peninsula in the 7th century. Permanently settled in the 17th century by the Bani Khalid tribe, the region prospered as a key trading hub on the Silk Road between India, Central Asia, Arabia and Europe. As its wealth grew, the city of Kuwait was fortified, which gave Kuwait its name, a diminutive of an Arabic word meaning “fortress built near water”.

Faced with imperial overtures from the Ottoman Empire in the 19th century, Kuwait’s ruling Al Sabah family courted British favour and agreed to become a protectorate in 1899. Formally declared an independent principality under British protection during the Second World War, Kuwait remained allied to Britain until it declared its independence in 1961.

Kuwait’s economic wealth and regional bonds grew in the second half of the 20th century, and it became a founding member of the GCC in 1981 alongside the UAE, Bahrain, Saudi Arabia, Oman and Qatar. However, its history in the latter part of the century was defined by Iraqi occupation in 1990-91, during which time some 749 oil wells were destroyed by Iraqi forces. Kuwait made a strong recovery, but its economic agenda in the aftermath necessarily focused on rebuilding and consolidation rather than development. In subsequent years this focus has shifted towards diversification and sustainable economic development.

Recent Growth

Kuwait’s economy has been largely state-led since the nationalisation of the oil and gas industry in 1975 and the sector now accounts for over 60% of national GDP and 95% of exports. While this led to an economic golden era for Kuwait, security subsequently took precedence over economic development during the 1980 Iran-Iraq War and again during the Iraqi occupation of Kuwait in 1990-91. While the two decades since have seen considerable stability and growing prosperity, the economy remains state-led.

Launched in 2010, the NDP was a substantial achievement for the government, uniting both the legislature and the executive behind a common goal. With the intention of re-energising the private sector, almost 800 projects are tabled to upgrade transport, infrastructure, services and oil production. While a dip in export revenues caused by falling oil prices has led Kuwait’s Ministry of Finance to project a 17.8% decrease in government spending for the 2015/16 fiscal year, major infrastructure projects are set to remain priorities.

Hydrocarbons revenues have enabled a universal and comprehensive welfare system to be established. This brings with it a number of challenges that the authorities are now seeking to address, not the least of which is the issue of inflation driven by state spending. The growing burden on the state is also of concern, with the IMF warning in 2012 that revenues would be entirely committed by 2017 on current spending projections, and this would prevent any future savings.

Moreover, as Kuwait has embraced more liberal sociopolitical concepts, including universal suffrage in 2005, a more representative politics has become a focal point of contention, particularly among the country’s post-liberation generation. At the forefront of this challenge are the Bidoon, or stateless people, of whom there are 105,000 in the country. While about 200,000 tribal and Bedouin people were granted nationality in the 1960s and 1970s, in some cases citizenship has not been extended to the second and third generations. Excluded from political, economic and social participation, the tribal groups now operate as powerful para-political structures, and demonstrations have continued against the government’s policy towards them.

Politics

 Agreements between Kuwait’s government, parliament and opposition blocs have been somewhat hard to come by, and the contemporary political landscape is symptomatic of that relationship. The main prerogative of Kuwait’s parliament remains the oversight of ministerial policy and conduct. However, it is also able to exercise power over legislation that is not afforded to neighbouring national assemblies, such as the ratification and vetoing of laws proposed by the executive. Formal inquiries and questionings of ministers have often been the precursor to votes of no confidence. A vote of no confidence is parliament’s primary means of holding the government accountable, although a declaration of “non-cooperation” by either party requires the emir to dissolve the legislature or executive.

Kuwait’s parliamentarians have historically pursued these responsibilities with conviction, which brought them into confrontation with the government in 2009, when parliament summoned then-Prime Minister (PM) Sheikh Nasser Mohammed Al Ahmed Al Sabah.

Between 2009 and 2011 parliament forced Sheikh Nasser to resign four times over corruption allegations, but he was re-appointed by the emir in all four cases. However, Sheikh Nasser was ultimately replaced by the present incumbent PM Sheikh Jaber Al Mubarak Al Hamad Al Sabah in December 2011, thereby reinforcing the constitutional integrity of Kuwait’s checks and balances. The emir’s dissolution of parliament precipitated national elections that were held in February 2012. The elections heralded a new parliament that embodied Kuwait’s disparate groupings. Adjourned in June 2012 when it called the ministers of finance and labour for questioning, the Constitutional Court (CC) ruled in the same month that the emir’s 2011 dissolution of parliament was unconstitutional, rendering the February 2012 elections null and void. Since December 2013, parliament has remained stable with no dissolutions, which has allowed projects to move forward.

Costitutional Contracts

While the CC’s June 2012 ruling remains, outwardly, a reinforcement of the judiciary’s impartiality, the ramifications were less clear. The recall of the 2011 parliament, which was seen as pro-government, was only avoided because many parliamentarians declined to return to office. However, the CC’s impartiality was reinforced in August 2012 when it rejected a government motion to reverse electoral reforms from 2006 that reduced the number of voting districts from 25 to five. Opposition groups hailed the decision, having been critical of the 25-district framework, alleging that it was more open to abuse.

A key challenge for the CC and Kuwait’s political fortunes arose 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 had brought Kuwait into line with international norms, opposition groups condemned the move. The previous four-vote system had enabled voters to lend their support to disparate ballots, advantageous in a system without political parties, and to opposition groups that have long sought to break out from the back benches.

In June 2013, Kuwait’s highest court dissolved parliament and called for new elections, which were held on July 27, for the second time in eight months. The country’s Emir, Sheikh Sabah Al Ahmed Al Jaber Al Sabah, reappointed Sheikh Jaber as PM and tasked him with the job of forming a new Cabinet. While the government and the parliament continue to work towards resolving their differences, in May 2014 five members of parliament (MPs) resigned in the wake of the chamber refusing to question the PM about allegations related to corruption and mismanagement.

Population

Pressures from Kuwait’s population growth are adding to the need for greater economic diversification and development. The nation’s population growth averaged 3.1% annually between 2000 and 2012, according to data from the IMF, and in December 2014 the Public Authority for Civil Information (PACI) reported that 57% of Kuwaitis are currently under the age of 25. Furthermore, the IMF predicts that between 74,000 and 112,000 Kuwaitis will have entered the local labour market between 2012 and 2016.

According to the latest PACI figures, Kuwait’s current population is approximately 4.2m, with 69% of this figure made up of foreign nationals, who originate largely from MENA and South Asia. Expatriate workers are estimated to account for 84% of the labour market, but in a pragmatic reversal of policy Kuwait is set to reduce the number of foreign workers by 1m from 2013 to 2023 at a rate of 100,000 per year.

Religion & Culture

Islam is the official state religion, but freedom of worship is enshrined in Kuwait’s constitution, and the country has sizeable Christian, Hindu and Buddhist communities. Kuwait’s majority religious demographic is Sunni, but its Shia minority, at around 30% of the population, is well integrated.

Sharia law is one of the key sources of legislation, but government regulations remain largely secular. While Kuwait’s adherence to Islamic doctrine is strict in some respects (for example, a total ban on alcohol), the country granted universal suffrage in 2005 and female MPs were elected in both 2009 and late 2012.

Language

Kuwait’s official language is Arabic, in which all government announcements and documents are issued. However, English is widely spoken, especially within the business community and academia. The Kuwait Times and the Arab Times are the country’s two main English-language newspapers, while coverage is also provided by regional publications including Gulf News, Gulf Times and Arabian Business.

Education

Schooling is compulsory for all children between the ages of six and 14. Considerable budget surpluses have enabled Kuwait to develop a comprehensive education system, and it has achieved 100% enrolment in primary and secondary schooling across both genders. The education system is divided into three tiers (elementary, intermediate and secondary) and overseen by the Ministry of Education, while postsecondary schooling is handled by the Ministry of Higher Education. Domestic enrolment is notably lower at the tertiary level, as many Kuwaitis choose to study abroad. At all tiers, public schools are segregated by gender but are free of charge for nationals.

Pressure to reform the education system to be more in line with current economic needs is building, which has been reflected in the growing popularity of international schools providing Western curricula. Catering to the domestic market, Kuwait University remains the sole public higher education institution. The government broke ground in 2012 on a new $3.5bn campus outside Kuwait City that will house 30,000 full-time students when complete. Private tertiary institutions include the Gulf Institute of Science and Technology, American University of Kuwait, Arab Open University, Kuwait Asia University and Australian College of Kuwait.

Geography & Climate

Kuwait’s total landmass covers an area of 17,818 sq km. Its territory includes nine islands that lie just off its coast, the largest of which is Boubyan Island, lying north of Kuwait City and the site of the Mubarak Al Kabir port. Kuwait City is based on a natural deepwater port, though extensive dredging works have been undertaken to deepen maritime access to other port facilities. It is predominantly a desert plain with a maximum elevation of 306 metres, and shares land borders with Saudi Arabia and Iraq.

The southern portion of the country is a neutral zone and an important oil-producing region, now shared with Saudi Arabia under joint administration. Oilfields straddling Kuwait’s northern borders with Iraq are expected to undergo joint redevelopment in the near term as relations between the two countries improve.

Kuwait’s desert climate, with average temperatures reaching as high as 48°C in summer, makes most of the country unsuitable for cultivation. Just 20% of Kuwait’s territory is inhabited and most settlements are located along the 500-km coastline. The country is overwhelmingly urban, with around 98% of the population residing in cities. Annual rainfall is negligible, and 90% of Kuwait’s water needs are met by desalination plants.

Natural Resources

Kuwait’s oil reserves remain abundant, but as its oilfields mature, they have become harder to access. Output levels have tapered, putting pressure on the economy, but increasing production from 3m bpd to 4m bpd by 2020 through infrastructure upgrades remains a central part of the NDP.