Kuwait needs to break economic inertia

Kuwait's new parliament, set to be elected on February 2, must address outstanding econ-omic issues facing the nation. These include taking steps to entice foreign direct investment (FDI) as well as strengthening economic reforms.

The fact that Kuwait is the smallest recipient of foreign direct investments among fellow Gulf Cooperation Council (GCC) countries sums up the challenge. According to the World Investment Report 2011, issued by the United Nations Conference on Trade and Development (Unctad), Kuwait only attracted $81 million (Dh297.48 million) worth of FDI in 2008. By comparison, Saudi Arabia and Qatar enticed some $28 billion and $5.5 billion, respectively.

Energy sector

One such challenge concerns opening up the upstream energy sector. Successive parliaments have failed to endorse Project Kuwait. The scheme aims to generate an additional 450,000 barrels per day from four fields located in north and west of the country. The development requires an investment of $8 billion over a 20-year period.

Absence of spare capacity denied Kuwait the opportunity to enhance oil production last year to help make up for disruptions of supply from Libya. For its part, Saudi Arabia took the lead by compensating the international market for Libyan oil.

Also, Kuwait is a poor performer in another key international survey, namely the Global Competitiveness Index (GCI), which is an integral part of the Global Competitiveness Report (GRC). The World Economic Forum publishes the annual report.

The 2011-2012 version of the report ranks Kuwait 35 globally, only better than Bahrain among GCC countries. By contrast, the same report ranks Qatar at 17 globally, the best among all Arab countries. GRC ranks countries on the basis of their performance on numerous variables including infrastructure, macroeconomic stability, labour market efficiency, financial market sophistication, technological readiness, market size and innovation.

Visiting Kuwait last week to better appreciate election issues, it was comforting to note that economic issues formed part of the debates. One proposal calls for increasing the percentage of annual revenues set aside for future generations from 10 to 15 per cent. To be sure, Kuwait stands out among all GCC countries for allocating a sizable portion of treasury income to future generations for the purpose of ensuring equitable use of the country's resources.

Public sector

The logic is simple and understandable, namely that of denying repeated demands by lawmakers for increasing salaries and benefits of public sector employees. Already, the majority of Kuwaiti nationals work for the government, which places a burden on state expenditures.

Wrongly, current spending soaks up around 85 per cent of budgetary spending, certainly at the expense of amount set aside for development projects.

By one account, some 92 per cent of Kuwaiti nationals work in government departments and state-owned establishments. Not surprisingly, migrant workers account for more than 90 per cent of jobs in the private sector.

Reducing dependence on the petroleum sector is another longstanding challenge. Currently, the petroleum sector accounts for 90 per cent of treasury income, 85 per cent of exports and 40 per cent of gross domestic product.

Need for reform

Undoubtedly, the statistics suggest that well-being of Kuwait's economy rests upon developments in the oil market, something not desirable in the light of repeated upheavals.

Clearly, Kuwait has to go a long way streamlining laws and business practices in order to attract foreign investments and to make the economy a competitive one in the regional sphere. This calls for initiating serious economic reforms in the country.

It is hoped that the new parliament will collaborate with the authorities in using the oil proceeds to diversify the economy away from the petroleum sector.

The writer is a Member of Parliament in Bahrain.