Back to the planning process
Kuwait’s plans to revive its five year plans will help in making its economy more logical. Hopefully this would also lead to the government encouraging investors rather than being an investor itself
 

By Dr Jasim Husain Ali

Kuwaiti authorities seem serious about returning to the old practice of developing five-year plans. The last plan dates back to 1986 though interrupted following the Iraqi invasion in August 1990. The authorities hope to commence the plan in April 2009 marking start of fiscal year running until March 2014. Kuwait’s fiscal year runs from April to March.

Seven objectives
The trouble is that the plan seems to be too ambitious taking into account the seven broad objectives. These are expanding the value of gross domestic product (GDP); diversifying sources of national income; providing a sufficient room for the private sector to play a leading role in the economy; creating the means to help private sector firms generating job opportunities; boosting technology and research; upgrading bureaucracy and laying a firm foundation for a prosperous society.

Clearly, the scheme envisages private sector firms assuming a primary role in the economy. For its part, the government likes to play a supportive role through provision of an efficient bureaucracy in governmental departments besides putting in place a modern infrastructure. This arrangement should help Kuwait placing its economy on the most logical path, namely that of government being supportive to investors rather than being an investor itself.

To be sure, Kuwait investors tend to be internationally-oriented. Many investors invest abroad in neighbouring Gulf Cooperation Council (GCC) countries and beyond. In fact, it is hard finding a new investing financial institution in the GCC that does not have some sort of Kuwaiti stakeholders.

Ostensibly, the challenge rests on Kuwaiti authorities to develop the right infrastructure to encourage local investors investing in the home country. Undoubtedly, this would not be an easy task, as investors have the choice to invest abroad and in fellow GCC states.

Reducing reliance on oil
Now, Kuwait’s treasury is uniquely dependent on the hydrocarbons sector. The sector accounted for 92 per cent of actual budgetary revenues in fiscal year 2007-08. To be sure, fellow Gulf Cooperation Council (GCC) member states of Saudi Arabia, the UAE, Qatar, Oman and Bahrain are less dependent on oil compared to Kuwait. The petroleum industry contributes about 80 per cent of Bahrain’s treasury income. Undoubtedly, the extraordinary reliance on the petroleum industry places Kuwait’s economy at the mercy of developments in international oil markets. Clearly, the argument of diversifying the economy away from oil is a logic one.

In addition, the petroleum sector plays a dominant role in other economic areas. Oil exports account for nearly 90 per cent of total exports, making the country vulnerable to external shocks. Likewise, the value of oil activities comprises more than 30 per cent of Kuwait’s GDP. Against this backdrop, it is certainly understandable that the authorities are broadening the economic base across the board.

Economic diversification
Reducing reliance on the petroleum sector requires speeding up the privatisation programme. The plan includes selling off shares in banks, insurance companies and light industries that the government had purchased through the Kuwait Investment Authority following the collapse of the unofficial stock market in 1982 and the Iraqi invasion in 1990.

Also, the authorities desire to privatise certain activities of Kuwait Petroleum Corp besides the operations of the Kuwait Public Transport Company, which runs buses in the city of Kuwait. Other activities entail postal services and ground communications stations as well as X-ray laboratories and security at public hospitals. Earlier, the authorities succeeded in privatising petrol stations, in turn described as the first real movement on the long path of privatisation.

Still, another benefit of the privatisation drive is to broaden sources of revenue reducing the countries dependence on oil. As mentioned above, the petroleum sector contributes a hefty 90 per cent of total treasury income. Undoubtedly, Kuwait has a long way in order to achieve real diversification away from the oil sector.

Regional financial base
One such primary strategic goal of the proposed five-year plan calls for turning Kuwait into a regional base for financial services. In fact, the authorities are thinking big by virtue of committing a hefty $131bn for the project. The amount covers developing the infrastructure including training the required personnel.

The new move would put Kuwait into direct competition with Dubai, Bahrain, Doha and Riyadh in vying for regional supremacy in financial services. More superficially, the unnamed Kuwaiti financial project would compete head on with Dubai International Financial Centre (DIFC), Bahrain Financial Harbour (BFH), Qatar Financial Centre and the King Abdullah Financial District (KAFD) in Riyadh. Work on the mega 1.6mn square metre KAFD commenced in 2007.

Upon completion, the district would house all Saudi entities dealing with financial matters including the Capital Market Authority and the Stock Exchange (Tadawal), the commodity market and be the first choice of financial institutions and other service providers such as accountants, auditors, lawyers, analysts, rating agencies, consultants, and IT providers.

In order to become law, the Kuwaiti National Assembly (or Majlis Al-Umma) must approve the five-year plan. Only elected in June, the assembly commenced its meetings in the second half of October. Whether Kuwaiti lawmakers would support the new initiative remains an open question.

However, heated exchanges would most likely take place on a controversial part of the plan, namely making the public sector not the first choice of employment for locals. More than 90 per cent of Kuwaiti nationals work in government departments. Lawmakers would stress for guarantees of the state remaining a primary source of employment of locals.

Kuwait stands out amongst GCC countries by setting aside 10 per cent of annual treasury income to the Reserve Fund for Future Generations. The plan aims at ensuring sustainable means for quality of life for upcoming Kuwaiti nationals. It is all too logical for Kuwait to be distinguished further by putting into effect a viable five-year development plan.

The Kuwaiti resumption of implementing five-year plans would most likely force other GCC countries to revisit existing plans and goals or develop fresh ones.

The author is an eminent economist and Member of Parliament, Bahrain
 

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