GCC Insights: Kuwait must speed up economic reforms

Kuwait's parliament which ended its four-year term on June 4 failed to introduce economic reforms. But the soon to be elected members of the National Assembly ought to work with the authorities to find resolutions to some outstanding issues affecting the economy. These include speeding up the adoption of a privatisation programme and attracting foreign investments in the oil sector.

Newly elected members of parliament should facilitate the adoption of a privatisation programme. The long-awaited privatisation has remained deadlocked in the parliament. The most notable part of the proposed law is granting each ministry the right to develop its own privatisation strategy.

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

Likewise, the government desires to sell parts of Kuwait Petroleum Corp besides certain functions of Kuwait Airways Corp, as well as buses operated by Kuwait Public Transport Co.

Also, the government wants to reduce its holdings of banks, insurance companies and light industries that it had purchased through the Kuwait Investment Authority following the collapse of the unofficial stock market in 1982 and the Iraqi invasion in 1990.

Also, MPs need to assist the authorities in allowing international oil companies to develop oil fields. Kuwait's existing capacity stands at 2.4 million bpd, including 450,000 bpd from five northern fields.

Known as Project Kuwait, the proposed scheme aims at doubling output of the northern fields, which require an investment of $7 billion over a 20-year period. The project was unveiled in the late 1990s and the government prepared a draft law in April, 2000, but has since experienced resistance in the National Assembly.

The sticking point is a clause within the Kuwaiti Constitution that bars foreign ownership of the country's hydrocarbon resources.

It seems that the oil officials are hopeful that the MPs will eventually approve a law consistent with the Constitution allowing the involvement of foreign oil firms. On June 9, Kuwait Petroleum Corp invited eight consortiums to submit development plans for the proposed project.

Additionally, the parliament should look for realistic ways to find new jobs for locals. Currently, the majority of Kuwaiti nationals work for the government, which places a burden on the budget. The public sector employs nearly 94 per cent of the indigenous local force.

Wages and salaries comprise some 35 per cent of total state expenditure. For the fiscal year 2002-03, the government has allocated 85 per cent for recurrent spending, with the balance of merely 15 per cent set aside for capital expenditure. Certainly, forcing the private sector to employ nationals is not a solution but rather shifting of the problem on to others.

Newly elected MPs can build on the successes in other areas of the economy due to sound policies or environment.

The telecommunications sector is relatively liberal and can serve as a model for other sectors of the economy. Two firms, Mobile Telecommunications Co (MTC) and National Mobile Telecommunications Co (Wataniya), provide the GSM services. The government has minority stakes in both firms and acts as a regulator of the industry.

Reflecting the limited domestic market, the two firms continue searching for expansion opportunities in the region. MTC has acquired Jordan's Fastlink for $430 million. Recently, MTC, in partnership with Vodafone of the UK, obtained a 15-year concession as a second mobile operator in Bahrain.

MTC owns 60 per cent of the partnership while Vodafone provides technical support. MTC Vodafone will be offering GSM services for local and international calls starting from the beginning of next year in direct competition with Bahrain Telecommunications Co (Batelco). The company has promised to invest some $120 million on telecom services.

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 rather acts a regulator.

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.

The tourism sector illustrates another successful attempt. Last year, the government set up the ministry of tourism as part of efforts to bolster the sector. Recently, officials started the process of developing tourism projects on Bubiyan and Failaka islands.

The writer is an assistant professor, College of Business Administration, University of Bahrain