A development plan and a privatisation law offer the prospect of crucial change
Kuwait City When in the past Kuwait has talked about multibillion-dollar development plans and ambitious economic reform packages, cynicism has usually been the order of the day.Yet in recent months a tentative thaw in relations between the country's combative parliament and government has enabled the passing of several high- profile bills.
In February, the Kuwaiti parliament approved a $104 billion (Dh382 billion) four-year development plan, and in May a more contentious privatisation law — first mooted 18 years ago.Implementation of the privatisation law is likely to be a crucial test of the improved political environment in the country, observers say."Privatisation is a sensitive issue in all countries, but particularly in the Gulf," says David Pfeiffer, managing partner at law firm DentonWildeSapte's Kuwait office.
"Kuwait is a paternalistic and democratic society, and how you deal with state assets and state employees is going to be touchy."
Clear sign of progress
The privatisation law, which will come into effect after six months, opens the door for transferring public-sector assets to local and foreign private ownership, and the establishment of new, private-sector companies in which the government has a minority stake.
The bill expressly excludes the production of oil and gas, oil refineries, and health and education services, but just the fact that the law was passed after a heated, eight-hour session in the national assembly is a clear sign of progress, argues Shaikh Ahmad Al Fahad Al Sabah, the deputy prime minister for economic affairs. "Before, there were just plans and no laws. Now we have already passed the legal hurdle. This sends a signal that things are finally changing in Kuwait, and we are moving forward," Shaikh Ahmad said.
The law stipulates that public shareholding companies must be established to run entities slated for privatisation and that at least 40 per cent of the shares must be sold to Kuwaitis in an initial public offering.
A maximum of 20 per cent of the shares will be held by government institutions and 5 per cent by a company's Kuwaiti employees, leaving at least 35 per cent to be sold at auction to private or foreign investors.
Restrictions
The law also includes a series of restrictions on firing or cutting the pay of Kuwaiti employees."While we do not expect an immediate pick-up in privatisation activity, it is an important further indication of improved government and parliamentary relations and the ability of the government to move ahead with its investment programme,"
Monica Malek, chief economist at EFG-Hermes, noted in a report after the law was passed.However, observers caution against premature optimism. The law only passed thanks to votes by cabinet ministers, and was opposed by 28 out of 50 parliamentarians.
Opposing views
Some assembly members said the new law was a tool for "the robbery of the wealth of Kuwait and a plan to destroy the country", and that "it will only deepen class divisions in the society", the Kuwait Times newspaper reported.
Each individual state privatisation will also still have to pass through parliament, where opposition is likely to be fierce.Nevertheless, few disagree that Kuwait needs to overhaul its government-dominated, bureaucratic, oil-centric economy. The great majority of Kuwaitis work in the government, and the country's development has lagged behind other Gulf states.
There are some signs that the bill is an instigator of real change. Soon after passing the privatisation law, the national assembly approved by 37 to three votes a bill to set up new, privately held power and water desalination plants for the first time.
The long-delayed privatisation of Kuwait Airways is also gaining some traction. "It's essentially completely a state entity where some entire families have worked there for several generations, so it's going to be a touchy deal," says Pfeiffer, whose firm is bidding for the work on the proposed privatisation.
Moreover, the number of Kuwaitis eschewing the safety of government jobs has risen steadily. Last year, 20 per cent of all Kuwaitis worked in the private sector, up from 18 per cent in 2008 and 16 per cent in 2007, according to economists at National Bank of Kuwait.
This is partially because of a law passed in 2000 that provides Kuwaitis working in the private sector with public sector benefits, including a monthly stipend, NBK notes."The financial crisis has shown that we have to redesign our economy. This is the start of a new phase in Kuwait's development, with a larger role for the private sector," Shaikh Ahmad says."If we succeed in giving the private sector a bigger role, and incentivise investments in Kuwait, we will see the benefits."
— Financial Times
