In notable remarks last week, the Emir of Kuwait, Shaikh Sabah Al Ahmad Al Sabah, pinpointed key challenges encountering the Kuwaiti economy. He called on economic policymakers to rectify shortcomings relating to the state budget and the private sector's role.
The comments were made in the context of pressing decision makers to cope with global economic challenges including debt problems facing the US and several EU countries.
Kuwait's public finance is more dependent on oil revenues than the rest of the Gulf Cooperation Council (GCC) countries. The petroleum sector at large including oil refining and gas sales proceeds accounts for some 85 per cent of treasury income.
To be sure, government spending is uniquely vital by virtue of constituting around 40 per cent of Kuwait's gross domestic product (GDP). Hence, Kuwait's economy is by and large oil driven.
Undoubtedly, heavy reliance on the petroleum sector places the Kuwaiti economy at the mercy of developments in the volatile oil market.
Oil prices reached a record $147 (Dh539.9) per barrel in July 2008 only to plummet to below $40 per barrel in early 2009 following the global financial crisis. Still, average prices are expected to remain just above $100 per barrel in 2011 on the back of firm demand.
Limited influence
True, Kuwait is an oil producing nation and member of Opec, but like most other countries, has limited influence on the direction of oil prices. Best available statistics suggest that Kuwait accounts for about 2.5 per cent of global oil production. By comparison, Saudi Arabia contributes some 12 per cent of worldwide oil output other than being a leading oil exporter.
Furthermore, another weakness of the Kuwaiti economy concerns public sector establishments providing many job opportunities of the national labour force.
Yet this is not sustainable in light of the steady number of Kuwaitis entering the labour market, seeking jobs meeting their expectations in terms of career development and remuneration.
As in other Gulf countries, one third of Kuwaiti nationals are below the age of 14.
It is partly against this backdrop that the directions of Kuwait's Emir regarding the role of the private sector carries significance.
Concurrently, Kuwaiti officials cannot overlook largely not outstanding rankings in numerous international indexes.
Lowest investment
For instance, Kuwait attracted a mere $81 million worth of foreign direct investments (FDI) in 2010, the lowest among the GCC states. For its part, Saudi Arabia received a hefty $28.1 billion of FDI in the same year.
The figures were revealed in the recently released World Investment Report 2011, issued by the World Conference on Trade and Development (Unctad).
In addition, the 2010-2011 Global Competitiveness Report ranks Kuwait at No 35 on its Global Competitiveness Index, again the lowest among the GCC states. The World Economic Forum stands behind the annual report that ranks economies on the basis of their achievement of 12 variables including macroeconomic stability, labour market efficiency and market size.
Also, the 2011 Index of Economic Freedom ranks Kuwait at No 61 worldwide, similarly the worst achievement for any GCC country. By comparison, Bahrain achieved ranking No 10 in the same report, in turn published by the Heritage Foundation and the Wall Street Journal of the US.
Publishers of the report are known for adopting conservative ideologies and embracing private sector at the expense of public sector initiatives.
It is hoped that the directions put forward by Kuwait's Emir will serve as a guide to bring about material change in the makeup of the Kuwaiti economy.
Any change must convince Kuwaiti investors to allocate a sizable portion of their investment portfolios to investing at home. The fact is Kuwaiti investors are noted for their international outlook.
Dr Jasim Ali is Member of Parliament in Bahrain.
