to avoid preparing for the future. In recent years, that has begun to change, and now the Kuwait Development Plan (KDP) is seeking to diversify the country’s economy. Today, however, the growing realization that oil prices could stay low for quite some time has added significant urgency to Kuwait’s plans.
Kuwaiti wells won’t run dry for many years, but even before the latest drop in oil prices, the International Monetary Fund (IMF) warned that government spending could soon exceed oil revenues. This means that Kuwait must act now to diversify its economy, creating jobs and wealth in other sectors and competing with its Persian Gulf neighbors as a hub for international high-value-added services. But Kuwait must also differentiate itself from its neighbors as not just another Gulf region hub, but one with a specific Kuwaiti identity and attraction.
No matter how complex these challenges, Kuwait must face them. Doing nothing means the prospect of declining oil surpluses without a viable alternative.
As always, the flip side of crisis can be opportunity. Changes that seem difficult when times are easy—for example, phasing out billions of dollars of distorting subsidies—can suddenly achieve a consensus when the going gets tough and harder choices must be made. But these things don’t just happen by themselves: bold leadership in both the public and private spheres is the key.
Huge infrastructure investments are planned. These could potentially generate a great multiplier effect in other areas of activity, enhancing the prospects for business and investment in what is already a well developed market with significant international presence. However, many projects have been painfully slow to get off the ground. A
new 2015–2020 development plan was announced in August 2014, although much of the previous plan remains incomplete. There is no lack of money or interest; rather, the problem appears to be politics, bureaucracy, and inadequate planning.
With Kuwait seeking new directions at this critical stage in its development, Peninsula Press, an international communications company that specializes in producing integrated global campaigns for investment promotion, is working with companies and government agencies to explain the country’s new directions to global investors.
This will involve a two-part strategy. An Investment Outreach forum in London, a leading money center, will offer key players in the Kuwaiti public and private sectors a unique opportunity to meet face-to-face with potential investors. This will coincide with a Special Report to be published with the prestigious FOREIGN POLICY magazine, provisionally titled “Kuwait: Alliances for the Future,” ensuring that the country’s message reaches a select global readership of top public- and private sector decision makers.
PROMOTING NON STATE DYNAMISM
Economic and social development will be the larger focus, but this Special Report will also place Kuwait’s development strategies and solutions squarely within the context of political and administrative reform. As a constitutional monarchy with an elected parliament, Kuwait has long been seen as one of the more liberal and open countries in a generally conservative region. Parliament, however, holds relatively limited power. Political parties are prohibited, elections have been called under rules that many in the opposition claim restrict their freedom, and most key decisions remain in the hands of the emir, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah.
The challenge now is to modernize Kuwaiti institutions to accommodate popular demands for more participation. Government apparatuses must be streamlined and professionalized. This is essential to help diversify the economy away from oil and to reduce the size of the public sector: currently, as many as 95% of Kuwaiti nationals work in well-paid government jobs, while the private sector—including oil, industry, and services—is largely shunted off to immigrant workers.
The long-term strategy is to increase non-oil participation in the GDP, diversify the private sector, and promote non-state dynamism.
“The government’s dominance in the local economy is quite destructive to any real economic growth,” Hamad Abdulmohsen Al-Marzouqi, chairman of the Kuwait Banking Association (KBA) and Ahli United Bank, said in an interview.
Nevertheless, Kuwait has several strong advantages in its bid to diversify.
The Kuwaiti workforce may be small, but it contains many highly educated professionals who hold good international degrees. Women are increasingly participating in the labor market. The Kuwait Foreign Investment Bureau lists more than a dozen sectors that are eligible for incentives, in particular activities that can help transform Kuwait into an international commercial and financial center. There’s a new foreign investment law that eases restrictions for international companies. The
country also enjoys a strategic location between East and West —it was an important link between India and Mesopotamia even in the pre-Christian era. And last, but certainly not least, expatriates generally love the lifestyle and high standard of living in what is one of the more relaxed of the Islamic Gulf states.
Among the key topics to be covered in the Kuwait Investment Outreach forum and the Special Report in FOREIGN POLICY magazine are:
Infrastructure – Passed by parliament in February 2015, the updated version of the Kuwait Development Plan (KDP) calls for KWD34 billion (US$115 billion) of investment through 2020, with half of that coming from the local private sector, government ministers said. The new version of the KDP maintains the broad development and diversification priorities laid down under its predecessor, but seeks to rectify the bureaucratic bottlenecks that hampered implementation.
The KDP is seen by the government as a historic shift in priorities aimed at decreasing the country’s dependence on oil, although it also includes investment to boost oil and natural gas production. The new plan seeks to increase the number of Kuwaitis in the private sector by roughly 50% through 2020—from 92,000 to 137,000—and to boost the private-sector share of GDP from 26.4% to 41.9% in the same period. Public-private partnerships (PPP) totaling some US$28 billion are expected to attract local and international investors.
The goal, as expressed in the original 2010–2014 plan, remains the same: to turn Kuwait into “a regional trade and financial hub through sustaining economic development, economic diversification, and GDP growth.” This involves some 1,100 projects, with pride of place going to mega-schemes such as the US$77 billion Silk City—an all-new 250 km2 business and urban development at Subiya with a kilometer-high tower block as centerpiece. Silk City will be connected with Kuwait City by the proposed Subiya Causeway that could include one of the world’s longest bridges over Kuwait Bay. There will also be—according to plans—a vast new container port on Boubyan Island; a US$20 billion, 68.7 km metro system for Kuwait City due to start building in 2017; and a major airport expansion. Additional projects include a KWD8 billion (roughly US$28 billion) railway line linking the six member states of the Gulf Cooperation Council and expansion plans for universities and housing.
However, certain local businessmen wonder if some of these megaprojects might reflect centralized government planning rather than market-driven economics. And given the mixed progress of the 2010–2014 plan, it is clearly appropriate to ask whether the 2015–2020 KPD is not perhaps too ambitious: Will Kuwait really be able to move such an ambitious menu of projects forward on anything approximating a schedule?
Our Special Report will detail the most significant opportunities in the new KPD. We will hear from Kuwaiti business and government leaders about the lessons of the 2010–2014 plan and ask how the 2015–2020 plan can achieve a higher implementation rate.
Diversification – Kuwait already has well-developed sectors in value added services like finance, education, telecommunications and health. As the new KDP moves forward, it can create exceptional opportunities in these and various other areas. Diversification is a challenge in a small country with a limited variety of natural resources, but Kuwait does not need to do everything. Rather, it must identify and selectively leverage its key advantages. Real estate is often seen as offering interesting
potential, as is tourism. But there are certainly others. For example, Kuwait recently called for bids for the first phase of what will eventually become a 2,000-megawatt alternative energy park at Shagaya, some 100 kilometers west of Kuwait City in the desert. With a focus on wind, solar thermal and photovoltaic systems, the aim is to generate 15% of Kuwait’s power sustainably by 2030, so reducing oil-fired generation and freeing up crude for export. Given the availability of capital and the desire to diversify there is also scope for research and innovation is several areas: the Kuwait Institute for Scientific Research has a particular focus on “industry, natural and food resources”.
Strategic location – Kuwait has no shortage of competitors when it comes to trying to leverage its status as a staunchly pro-Western developed economy at the north end of the Persian Gulf. Abu Dhabi, Dubai, Qatar, and Saudi Arabia have all been investing for years and are way ahead of Kuwait in the battle to become regional hubs for business,
freight logistics, air travel, conventions, commerce, and tourism, including in some cases medical tourism. But its late start doesn’t mean Kuwait is out of the game; it just requires identifying the best niches and leap-frogging its neighbors. Notably, Kuwait is a founding member of the Gulf Cooperation Council. Can this six-nation grouping, which in 2012 voted to move toward confederation status, be a relevant factor as Kuwait plans its way forward? The Special Report will examine options and seek expert opinion on strategies and options.
THE KUWAIT INVESTMENT OUTREACH
Some Investment Outreach forums are held in New York. The highly successful Monterrey Investment Outreach and Myanmar Investment Outreach, both held in premier Manhattan hotels, attracted some 500 public- and private-sector leaders. However, Kuwait and the United Kingdom have exceptionally long and strong ties. Lord Jonathan Marland, co-chair of the recently formed UK-Kuwait Business Council, stresses the great degree of trust and mutual understanding in the bilateral relationship, which starts with the two monarchies and permeates all levels, including diplomacy and business. Furthermore, the Kuwaiti sovereign wealth fund has been present in London for 60 years. Marland, who was named a UK prime minister’s trade envoy with specific responsibility for Kuwait, was invited to join the board of a new small and medium enterprises (SME) fund set up by the Kuwaiti government. He believes that SMEs in niches such as logistics, information technology/communications, and medical services can be a foundation for diversifying the Kuwaiti economy into a regional hub and building bilateral trade and investment. “The combination of investment, skill sharing, and trust means that Kuwait is an ideal partner for Britain,” Marland said.
Who will participate in the Kuwait Investment Outreach?
The Kuwait Investment Outreach forum in London will bring together C-level executives, scholars, diplomats, and government officials.
Research for the Kuwait Special Report to be published with FOREIGN POLICY magazine will provide the framework for specific sector and theme panels at the Kuwait Investment Outreach forum. Throughout this process, Peninsula Press will be working closely with leaders from the Kuwait public and private sectors and academia, whose input is fundamental to the success of this important and exciting venture. We
are also working with key British business and political leaders who have connections with Kuwait.
An Investment Outreach forum is a closed-door, invitation-only event, although selected international business journalists may be invited to attend. Speakers from the public and private sectors will share panels and breakout sessions with analysts and potential investors, and there will be ample opportunities for one-on-one meetings. Speakers, participants, and sponsors are welcome to suggest names of other potential invitees.
For further information about the Kuwait Investment Outreach and the Special Report now being researched by Peninsula Press for publication with FOREIGN POLICY magazine, please contact:
Investor Relations Director
+965 6574 6699| [email protected]