Kuwait's political skirmishes worry international investors

Kuwait City: The trouble with Kuwait’s democratic process is that it’s becoming increasingly turbulent, raising concerns over the toll it exerts on the businesses and population of this small emirate, whose wealth has been fueled by petrodollars and protected by its allies, including the United States.

Closed-door parliamentary hearings that took place this week in Kuwait marked the first time in the Arab world when four government ministers were grilled over allegations of mismanagement, incompetence and corruption. The ministers who underwent the secret grilling included Prime Minister Shaikh Nasser Mohammad Al- Ahmad Al Sabah and Minister of Public Works and State Minister for Municipality Affairs Dr Fadhel Safar, as well as the Interior Minister Shaikh Jaber Al Khalid Al Sabah and the Deputy Prime Minister and Defense Minister Shaikh Jaber Al Mubarak.

The hearings resulted in a motion of “non-cooperation”, a de facto vote of no-confidence, against the PM. The Parliament will vote on the motion on December 16 and, if passed, it can lead to the dismissal of the premier. But even if the motion passes, the final decision rests with Kuwait’s Amir, His Highness Shaikh Sabah Al- Ahmad Al Sabah, who can choose to dismiss the PM or dissolve Parliament and call for fresh elections, for the second time this year alone.

The outcome of this ongoing political saga if far from clear but a glimpse into the recent past may offer some hints. Shaikh Nasser is the nephew of the Amir, Shaikh Sabah, who appoints the PM, as stipulated in the constitution. This system fosters a perpetual state of conflict. Since he was first appointed in 2006, Shaikh Nasser avoided five parliamentary hearing requests and formed as many cabinets. Three Parliaments were elected in as many years as a result of the Amir dissolving them and calling for fresh elections, rather then dismissing the PM.

The timing for such political shenanigans could not be worse, given the shaky global economic outlook. Despite its oil wealth and relative low debt, Kuwait has faired worse then others in the Arabian Gulf region, in large measure as a result of the ongoing political crisis pitting the elected Parliament against the Amir-appointed government. Kuwait’s top investment bank defaulted on loans in January while other financial institutions in the country saw their ratings downgraded since September. Its infrastructure and services are crumbling, major development projects have been shelved, and private companies are getting increasingly squeezed by a debilitating mixture of political infighting and a general worsening business climate.

In June Moody's Investors Service applied a negative ratings outlook to Kuwait's sovereign debt and warned that institutions are getting weaker. Earlier in the year, 20 per cent of the listed companies on the Kuwait Stock Exchange were suspended from trading for failure to file appropriate financial data.

The Litmus Test Case

In this context, the situation faced by United Gulf Construction Company (UGCC) stands out. The American-controlled contractor who built large infrastructure projects awarded by the government in public tenders, is now facing an uncertain future as the Kuwait Attorney General is preparing action against company managers.

The dispute stems from an August incident at the Mishref pumping station that led to the overflow and spillage of untreated sewage in this coastal upscale district. This amounted to an environmental disaster, exposed weaknesses in the planning and oversight conducted by government officials, and help precipitate the current political crisis in the country. The station, serving one third of Kuwait’s population, failed just days after being transferred to Kuwait’s Ministry of Public Works (MPW) operational control, but now the government is blaming the private contractor.

Since 2002 when it won the KD 42.86 million contract (approximately Dh550.5 million) to build the station, UGCC documented its numerous attempts to remedy the situation, signaled flaws in the original designs and location of the plant, suggested alternate sites and technical solutions, offered to train technicians to take over, and even operated the plant past its contractual obligations and without receiving full pay from MPW.

In a recent development, the US Congress and the State Department are making official inquiries into this matter in an effort to determine the facts involving US citizens and investors caught in the mix.

Kuwait owes a great deal to the United States over its 1991 liberation from Iraqi invading armies, and in the least, US officials urge that American citizens and business interests are treated fairly.

Considering the charges being prepared and the secrecy shrouding the hearings of government ministers, the signals for existing and would-be investors in Kuwait are worrisome.

When questioned by MP Mubarak Al- Walaan over the Mishref plant failure, MPW’s top official, Dr Fadhel Safar “admitted there are violations and corruption in the government,” as reported by Arab Times. The minister continued shifting blame by pointing to similar occurrences in the Parliament. MP Al- Wallan pressed on by asking why the minister “failed to seek the assistance of experts immediately after the plant broke down” and “pointed out Safar’s action reflects the failure of the ministry to deal with the disaster despite warnings from the plant engineer,” according to the same press report.

A Historical Context

The handling of this matter, along with the Parliament vote and the Amir’s decision after December 16, stand to become a relevant barometer for investors and may mark a turning point in Kuwaiti political and diplomatic life as well.

The Sabah ruling family has allowed a parliamentary democracy and a constitution to be put in place in 1961 following independence from British rule. These trappings of democracy where cancelled twice, most recently in 1986, when control reverted to the absolute monarch, the traditional model of governance in the region.

Democratic institutions were reinstated only after Kuwait was invaded by Iraq and subsequently liberated by the United States and its international allies in 1991.

Sections of the Kuwaiti society and, increasingly so, members of the political class may be left contemplating a return to absolute rule by the Sabah royal family and doing away with democratic institutions in the country, sending a negative signal to investors.

The stakes are high and involve not only lofty democratic principles, which are not in the historical tradition of Kuwait or the region at large. Perhaps more pressingly important is the ability to maintain a level of prosperity and wellbeing fueled by oil revenues, investments, and know-how from abroad. In turn, these elements will be key in predicting the social climate, development of international relations, and the stability of the entire region as it faces turbulent times.

Eugen Iladi is a freelance writer on Gulf affairs