Diversification encourages infrastructure development and investment in Kuwait

 

Kuwait is a constitutional sovereign state situated in the north-western corner of the Gulf, bordered by Iraq and Saudi Arabia. As a founding member of both the Organisation of the Petroleum Exporting Countries (OPEC) and the GCC, Kuwait has forged a number of strategic relationships throughout its history. Despite the rising geopolitical challenges in the region, Kuwait has largely maintained a neutral stance and worked to promote peace, which has benefitted its multilateral trade, investment and political bonds with its neighbours and the wider global community. It is arguably the most politically dynamic country in the Gulf, which has afforded it strong foundations to tackle issues surrounding parliamentary elections and accountability.

By continuing with efforts to diversify the economy and reduce its dependence on oil revenues, Kuwait is adding momentum to several large infrastructure development projects and encouraging greater levels of private sector participation and investment. Ongoing and future projects are set to further integrate Kuwait into the global economy and raise its overall competitiveness.

Development

Kuwait’s economic muscle largely comes from its substantial oil reserves, ranked as the world’s sixth largest and equivalent to more than 101.5bn barrels. The government has set a production target of 4m barrels per day (bpd) by 2020 and 4.27m bpd by 2040, up from the current level of 3.15m bpd. 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 more than 60% of GDP and 95% of exports, according to statistics provided by the Central Statistical Bureau (CSB), and has contributed to decades of strong public finances and consecutive annual budget surpluses, as well as to the development of a generous 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. In more recent years Kuwait has been pursuing a programme of economic diversification to jump-start expansion of the private sector via a boost in infrastructure projects and privatisation of government assets.

New Kuwait

In January 2017 the government launched the country’s national economic development plan called New Kuwait 2035, or the Kuwait National Development Plan. This programme intends to transform Kuwait into a financial, cultural and commercial hub within the Gulf through 164 strategic programmes centred on seven pillars: public administration, economy, infrastructure, the living environment, health care, human capital and global position. Each pillar has a number of strategic programmes and projects that are designed to have the greatest impact on the economy. The progress of the Kuwait National Development Plan will be tracked by key global indicators used to measure its performance compared to other countries.

Among the many priorities for this development plan are goals to expand the role of the private sector in the country’s economy, incentivise more public-private partnerships, upgrade existing infrastructure, generate a support mechanism for small and medium-sized enterprises, stimulate a knowledge-based economy and provide more employment opportunities for the local population. New Kuwait 2035 is seen as a catalyst to restore the balance between the public and private sectors, as well as to accommodate the needs and demands of a growing population. Given lower oil prices seen in global markets in recent years, the initiatives outlined by the New Kuwait 2035 come at a critical time in terms of enhancing the state’s competitiveness as a destination for foreign direct investment.

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 has shifted towards diversification and sustainable economic development, as the nation aims 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, with the sector accounting for over 60% of GDP and approximately 90% of government revenues in 2018. 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. While the two decades since these conflicts have seen considerable stability and growing prosperity, economic and industrial development remains largely state-led. It was in this vein that the government launched New Kuwait 2035.

In recent years economic growth has strengthened as infrastructure projects kicked off and credit recovered, according to a March 2019 report from the IMF. Much of the recent growth – as well as improving fiscal and external balances – was seen as oil prices recovered in 2017 and the first three quarters of 2018. However, falling prices in October 2018 highlighted the need for continued diversification. To encourage further expansion, there are 164 projects in the pipeline that are expected to contribute more than KD50bn ($164.7bn) in revenue. Among these key infrastructure projects are a new airport terminal, the Sheikh Jaber Al Ahmad Al Sabah Causeway, large health care and education facilities, the South Al Mutlaa housing project, the Clean Fuels Project and the Al Zour Refinery.

Population & Demographics

The CSB estimated that Kuwait had 4.42m inhabitants at the beginning of 2019. Demographic breakdowns show that expatriates comprised the majority of residents, with a population of 3.08m, while there were 1.33m Kuwaitis. Driven by the high numbers of male immigrants seeking work in the country, the Kuwaiti population is majority men, who make up 62% of the total population and 67.2% of the expatriate community. Meanwhile, the youth cohort is robust: 31.4% of inhabitants were 24 years of age or younger. 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 somewhat 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 state’s 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 the second and third generations. Excluded from political, economic and social participation, the tribal groups operate as para-political structures, and they have consistently demonstrated against the government’s policies towards them.

Parliament & Politics

Agreements between the government, Parliament and opposition blocs have at times been volatile, and the contemporary political landscape is symptomatic of that relationship. The principal prerogative of 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 Parliament to ensure government accountability; however, a declaration of non-cooperation by either party requires the emir to dissolve the legislature or executive.

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 (PM) Sheikh Nasser Al Mohammed Al Ahmad Al Sabah. Between 2009 and 2011 the Parliament forced Sheikh Nasser to resign four times; however, in all four cases he was reappointed by the emir. However, Sheikh Nasser was ultimately replaced by PM 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 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. Parliament was dissolved by the emir in October 2016, and a general election was held on November 26, 2016, with a voter turnout of around 70%. Opposition candidates took the lead in the results, winning 24 out of 50 seats, while 20 incumbents were re-elected. The next general elections are set to be held in 2020.

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 imminent 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 strictures is strict in some respects – for example, there is a total ban on alcohol – the country granted universal suffrage in 2005, and female members of Parliament were elected in 2009, 2013 and 2016.

Education

Schooling is compulsory between the ages of six and 14. Budget surpluses have supported the development of a comprehensive education system, and the country has achieved a 100% enrolment rate in primary and secondary schooling for both boys and girls. 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 economic needs is increasing, resulting in a rise in popularity of international schools that offer Western curricula. Catering to the domestic market, Kuwait University remains the country’s sole public higher education institution. Private tertiary institutions – including the Gulf University for Science and Technology, the American University of Kuwait, the Arab Open University, the American University of the Middle East and the Australian College of Kuwait – also cater to unmet 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 Island, north of Kuwait City and home to Mubarak Al Kabeer Port, which is currently under development. 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, and 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 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. The desert climate, with average temperatures reaching as high as 48°C in summer, makes most of the country unsuitable for cultivation. As such, just 20% of Kuwait is inhabited, and the majority of settlements are located along the 500-km coastline. Annual rainfall is negligible, with 90% of water needs met through the use of desalination plants.

Natural Resources

While Kuwait’s oil reserves are abundant, as its oilfields 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 host to a number of cement manufacturers that use local resources, and the coastal waters support a small fishing industry.

Share

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Kuwait 2019

Country Profile chapter from The Report: Kuwait 2019

Cover of The Report: Kuwait 2019

The Report

This article is from the Country Profile chapter of The Report: Kuwait 2019. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart