Hopes are rising that January’s elections will end a period of economic uncertainty and allow the newly elected government to focus on increasing levels of foreign direct investment (FDI).
Concern was mounting that Kuwait risked falling behind its regional rivals in attracting investment and diversifying its economy, despite surging oil revenues and solid growth which resulted in a budget surplus of KD5.3bn ($19bn) last year.
While growth is estimated at 4% for 2011, FDI in Kuwait remains among the lowest in the GCC for the year, with the country performing relatively poorly against regional countries in global competitiveness surveys.
Analysts blame the slow pace of economic expansion on political wrangling that led to Sheikh Nasser Al Mohammed Al Sabah’s stepping down as prime minister last year. His resignation led to January’s elections, which saw the opposition win 60% of the seats.
Before Kuwait went to the polls, critics highlighted the slow pace of the country’s huge $100bn-plus development plan, created to drive investment in health, education and infrastructure. They called for economic reforms to be speeded up, together with the introduction of more anti-graft measures and better job opportunities.
Regional observers have also commented on the tempo of Kuwait’s economic expansion, saying that while the budget surplus highlighted the country’s wealth, it also showed spending was being hampered by indecisiveness.
“Kuwait’s budget surplus is by far the biggest in the GCC,” Liz Martins, a senior economist at HSBC Middle East, told The Gulf. “What that says is that while there is lots of oil money coming in, it is getting stuck and not actually being spent and invested in the economy. That’s evident in a lack of infrastructure development and the failure of the non-oil economy to keep pace with some of the more dynamic economies in the region such as Dubai.”
Kuwait attracted $81m in FDI in 2008, according to the World Investment Report 2011, issued by the UN Conference on Trade and Development (Unctad). The figures, which were published in Gulf News in January, showed that Saudi Arabia and Qatar tapped around $28bn and $5.5bn of investment, respectively, for the same year.
A report by Moody’s rating agency in January suggested that Kuwait’s huge oil reserves were contributing to a lack of momentum in the country’s plans to diversify its economy. “Partly because of its vast oil wealth, Kuwait has been slower than some other GCC states to develop its non-oil sector through encouraging private sector activity and attracting foreign investment,” it said.
While Kuwait’s slow pace of economic expansion is giving cause for concern, observers acknowledge that the country’s wealth has provided it with a buffer against the worst of the global economic crisis.
In December, Standard & Poor’s highlighted Kuwait’s significant national wealth, sustained and consistent trade surpluses, and strong and growing net international asset base, saying they made the country “less susceptible to external shocks”. Moody's, meanwhile, reaffirmed the country's bond rating of Aa2 in its January report.
The minister of finance and minister of health, Mustafa Al Shimali, acknowledged in late January that Kuwait had greater inbuilt protection against globalisation when compared to other GCC members but added that Kuwait would continue to push ahead with its plan to transform the country into a regional and international financial hub.
International politicans have thrown their weight behind Kuwait’s bid to move its economy forward, with former British prime minister Gordon Brown giving the country his backing to host the World Economic Forum in 2013, according to the Kuwait News Agency.
But while Kuwait’s people will view words of support as a boost for the country, they will also be looking to the government to ensure the pace of economic expansion is increased and to reassure investors that political instability has been laid to rest.