By TBY | Kuwait | Jun 27, 2018
Despite a regional slowdown due to the fall of oil prices, Kuwait’s immense currency reserves have allowed it to continue investing and take the time to implement the needed reforms […]
Despite a regional slowdown due to the fall of oil prices, Kuwait’s immense currency reserves have allowed it to continue investing and take the time to implement the needed reforms to stabilize its economy in the long run. Building off these investments, the objective of the New Kuwait plan, at its core, is to create a diversified economy, investing heavily in tourism, infrastructure, IT, and the service industry. Further investments in renewable energy decrease dependence on oil and contribute to the goal of generating 15% of electricity through renewables by 2030.
It also aims at transforming Kuwait into a global hub for the petrochemical industry and a world leader in finance and commerce, incentivizing the private sector to lead economic activity and increase productivity. The plan is designed to raise capital through large projects—the government plans to attract USD150 billion in FDI during that time span—and enable knowledge transfers. It also requires a strong investment in infrastructure and a fortification of the legal framework, notably regarding start-ups.
In practice, it entails selling a 50% stake in Kuwait’s power and water company to the private sector to create three new power companies that will then focus on renewables and cleaner fuel sources. Enabling more PPPs will support the many infrastructure projects, including the extension of the airport by 2022, a metro, a regional highway, a rail network, and the largest hospital in the Middle East. The largest Kuwaiti housing project is scheduled for completion in 2019, as well as a new university campus, and the Jaber causeway is set to open in 2020. The government plans to spend USD100 billion in the next five years, and to quadruple revenues by 2035; currently, 90% of these revenues come from the oil industry.
The New Kuwait plan also has a cultural pendant: the Sheikh Jaber Al-Ahmad Cultural Center, opened in November 2016. On top of promoting Kuwaiti identity, the proportion of expatriates to the country’s total population will be reduced from 70 to 60% by 2030, with the government already starting to impose rising fees and bureaucratic hurdles on the expatriate population.
But with few details and no timetable, the plan will face several obstacles. Creating a regional commercial hub in today’s Middle East and its sectarian divisions is but a dream; creating a financial center will be equally difficult considering the region already has several prominent financial clusters in Bahrain, Dubai, and Qatar. Political gridlock will likely be another impediment to implementation. Measures with unpopular effects in the short term but with long-term benefits, for example reducing subsidies, will face strong political opposition. Historically, the parliament has often given in to these short-term interests.
In addition to lacking political support for long-term interests, previous plans also did not achieve much partly due to issues that have plagued the Kuwaiti administration since its inception: bureaucracy and inefficient spending, leading to huge mismanagement issues.
Internal political and administrative issues aside, this plan could spur more coordination with China. The two countries are economically complementary, as China is a massive oil consumer—and thus importer—and Kuwait imports many manufactured goods. Kuwait is eyeing a lot of infrastructure projects, another opportunity for China to become an outsource partner. The plan could be a complement for the Chinese Belt and Road initiative, as bilateral trade almost reached USD10 billion in 2017 and is set to continue growing.
Kuwait’s development plan, should it achieve its goals, will radically transform the country. It will be a built-to-last, diversified and competitive economy, with a performing administration and top-notch infrastructure. And if the plan fosters collaboration between the Near and Far East, it can truly turn Kuwait into a regional commercial hub. But the obstacles are many and the hurdles are high.