Kuwait’s economic potential: A wake-up call

Project approvals in Opec’s fifth-largest producer are at their highest since 2017, according to the independent National Bank of Kuwait (NBK). That may be because the emirate is planning to expand oil production capacity by up to 40 percent to 4 million barrels per day, exploiting what was described as a significant discovery last year of oil and associated gas.

Reserves at the Al-Nokhatha offshore field are equivalent to three years of the country’s production, according to the CEO of the Kuwait Petroleum Company.

Ministers are also attending international events such as the World Economic Forum and speaking to newspapers.

Noura Al-Fassam, the finance minister, has floated the idea of a tax on unhealthy goods such as tobacco, energy drinks and other beverages. Plans to end subsidies to diesel fuel have also been mooted. This is sensible stuff.

Most significantly, Al-Fassam said that a long-delayed debt law is “in its final stages”. The law has become a marker for the executive arm or government to take the initiative – any initiative. The argument is that short-term borrowing allows the smoothing of government spending and eases reliance on volatile hydrocarbon prices.

Sceptics will remember the days of Project Kuwait, which foresaw a giant petrochemicals complex being built in partnership with Dow Chemical. Project Kuwait fell victim to foot-dragging in the parliament and divisions between different parts of the ruling family. Suspicions ran deep. Corruption was uncovered.

Then, nine months ago, Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah, the emir, suspended parliament. Such suspensions have happened before in 1986 and 1976 and little was achieved. In the intervening years, cabinet reshuffles and government changes have been frequent – so frequent as to attract little attention outside the emirate itself. Kuwait, where oil was discovered before the second world war, has become a byword for torpor.

A leading reason for the lack of action is the country’s wealth. Fully 90 percent of hydrocarbon revenues are sent to the Reserve Fund for Future Generations managed by the Kuwait Investment Office in London. No ifs, no buts.

Meanwhile, back at home the emirate – one of the richest places in the world on per capita basis – is likely to suffer from brownouts when the summer kicks in.

Despite commitments, it has yet to introduce a value added tax making it an outlier, along with Qatar, among GCC states. The emirate is budgeted to run a whopping $20 billion budget deficit and is one of the highest per capita emitters of carbon in the world. Wages and social aid account for nearly 80 percent of total spending, according to NBK.

That 4 million bpd target may also be difficult to hit. While Kuwait has executed on the enormous Zour refinery with Chinese partners, upstream the hydrocarbon sector is closed to production-sharing agreements, which means that the majors are unlikely to offer their best technology. Historically, inward investment of any sort has been zero to minimal, according to UN Trade and Development.

As our columnist Andrew Cunningham noted last year, nearly all of the Kuwaiti government’s non-oil and gas revenue arises from overseas investments and from dividends from state-owned companies. Tax revenues account for less than 1 percent of total government income.

Housing also remains a point of stress. Valentina Pasquali reported that the median apartment price to family income ratio stands at 7.5, while the same score for Saudi Arabia and the UAE hover around 3 and 4, respectively.

Kuwait City is more expensive relative to local pockets than Luxembourg City, Cambridge and San Francisco, among others.There is room here surely for liberalisation.

Let us hope that the examples of other GCC states adopting more open stances and enjoying a certain status on the world stage may be pulling Kuwait, historically one of the most liberal of the countries in the region, out of its long slumber.

But, at this point, it is a hope.