GCC Insights: Privatisation in Kuwait is progressing cautiously

The long-awaited privatisation law remains deadlocked at the National Assembly due to political wrangling between the appointed government and the elected parliament.

The proposed law will likely grant each ministry its own privatisation strategy, and this clause has been stirring much debate.

Some details of the privatisation programme have emerged.

Amongst others, the programme will be centred on selling shares in banks, insurance companies and light industries that the government had purchased through Kuwait Investment Authority (KIA) following the collapse of the unofficial stock market in 1982 and the Iraqi invasion in 1990.

Also, long on the privatisation list are activities such as postal services and ground communications stations as well as laboratories, X-rays and security at public hospitals.

The government has indicated a desire to sell parts of Kuwait Petroleum Corp besides certain functions of Kuwait Airways Corporation (KAC) as well as buses operated by Kuwait Public Transport Company (KPTC).

Kuwaiti legislators need not look further than the local telecommunications sector to appreciate the benefits of liberal economic policies.

Kuwait's telecommunications sector is the most liberal within the GCC economies.

Unlike the rest of the GCC, not a single monopoly firm controls the telecom services. Two firms, Mobile Telecommunications Company (MTC) and National Mobile Telecommunications Company (Wataniya), provide mobile services.

The government has minority stakes in both firms and acts as a regulator of the industry.

Also, in response to rapid growth of the GSM market, the authorities have commissioned a study to evaluate the possibility of granting a licence for a third mobile provider.

Concerning the Internet, Qualitynet and Fasttelco are the two operators, helped by the 35 sub-providers.

The state has no interest in the two firms or the sub-providers but acts as a regulator of the Internet.

A liberalised telecom market has positive implications for the Kuwaiti economy.

For one, consumers seem pleased with the competition as firms do their best to appease them.

The results are continued improvement in services, terms, quality and value for money.

For another, the government is earning a substantial amount of money from the sector - 143 million dinars according to communications minister, Sheikh Ahmed Abdullah Al Ahmed Al Sabah.

Part of the revenue comes in the form of return on investment from state stakes in the two GSM providers. Now that private firms are providing the GSM and the Internet business with no apparent undue costs to the consumers, the authorities are contemplating opening the fixed-line network to the private sector.

An understanding between the executive and legislative branches for restructuring the economy should facilitate the adoption of a liberal privatisation scheme.

The fact that the National Assembly has passed a law covering foreign direct investment (FDI) which, amongst other liberal measures, allows for majority foreign ownership in local companies and a 10-year tax break suggests that MPs are willing to cooperate with the government.

To be sure, the privatisation drive has been gathering momentum - support has even come from the Central Bank of Kuwait.

It lifted restrictions on Kuwaiti banks to extend credit facilities to finance the buying of shares in state-privatised entities.

In the past, the central bank was not receptive to the idea on the grounds of fuelling speculative trading.

The influential deputy premier and foreign minister, Sheikh Sabah Al Ahmed Al Sabah, has strong tendencies for privatisation.

The privatisation push stems from a government desire to see an increasing role for the private sector in the economy, partly to reduce state burden and partly to enhance efficiency.

But Kuwaiti investors, who tend to be international in their outlook, can only be convinced to invest in promising projects and the right environment.