|05 March, 2017

Déjà Vu: Kuwait's new 2035 development plan faces daunting challenges

Original plan was hampered by a combination of unrealistic geopolitical assumptions and domestic political gridlock

Amazing view of Kuwait skyline around sunset. Image used for illustrative purpose.

Amazing view of Kuwait skyline around sunset. Image used for illustrative purpose.

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05 March 2017
By Nada Al Rifai

Kuwait’s new economic development plan may suffer the same poor fate as the previous one devised for the Gulf Arab state by Tony Blair, amid renewed political tension between the government and parliament and in the absence of a clear roadmap, analysts said.

The 18-year plan, known as ‘New Kuwait 2035’, shares the same broad ambitions as its predecessor to turn the country into a regional financial and commercial hub to reduce reliance on oil revenues, but a public briefing by government ministers in January to announce the plan was scant on details.

State Minister for Cabinet Affairs Sheikh Mohammad Al-Abdullah Al-Sabah said the plan aims to increase state revenues from 13.3 billon Kuwaiti dinars ($43.5 billion) in the 2017/2018 fiscal year to as much as 50 billion by 2035, but did not provide details on how that would be achieved. The plan allocates spending of $100 billion in the five years to 2021, of which $15 billion would be spent in the coming fiscal year which starts on April 2017, according to local media.

“The new vision was summarised in a video presentation that was less than 15 minutes long,” oil analyst Kamel Al-Harami wrote in the Arab Times daily newspaper. “Unfortunately, the vision is very general in nature. Some of its recommendations date back to more than seven years and are yet to be implemented such as the Silk City and the transformation of Kuwait into a financial center like Singapore. The government has been speaking about this for seven years and has now included it in the 2035 vision.”

In 2010, Tony Blair Associates, a consultancy firm set up by the former British prime minister, devised a development plan for Kuwait but it never gained policymaking traction and was quietly shelved after the Kuwaiti prime minister resigned in November 2011, according to Kristian Ulrichsen, fellow for the Middle East at the Baker Institute for Public Policy.

Ulrichsen, author of ‘The Gulf States in International Political Economy’, told Zawya that the original plan was hampered by a combination of unrealistic geopolitical assumptions and domestic political gridlock.

“Creating a commercial hub that could span markets across southwestern Iran, southern Iraq, and Saudi Arabia was overly ambitious in the fraught regional and sectarian aftermath of the invasion and occupation of Iraq,” he said by email. “Developing a financial centre was similarly over-ambitious in a region that already featured a heavy concentration of financial expertise in Bahrain, Dubai, and Qatar, as well as the emergence of additional financial services centers in Abu Dhabi and Riyadh.”

Political wrangling 

Kuwaiti economist Mohammad Ramadhan said that while Kuwait had followed the example of fellow OPEC producer Saudi Arabia in making a big announcement about plans to diversify the economy and boost state revenues, the resulting impact was not as strong because Kuwait’s plan did not provide any practical steps for execution.

During the briefing to announce the “New Kuwait” strategy, ministers announced little in the way of new policy initiatives, efforts to accelerate economic development or policies to boost economic growth, according to a Reuters report. It said they did not provide timetables for privatisation or corporate tax reform, and were reluctant to tackle issues such as subsidy reform in any detail.

Ulrichsen said that the return of the opposition to parliament in elections last November, after boycotting previous polls, heralds a “populist backlash” to government attempts to push through austerity measures and spending cuts.

Previous stalemates between the government and parliament, which has the right to block legislation and grill government ministers, have hampered the country’s reform drive. Some MPs in the new parliament have already proposed cancelling a law which ratified a rise in utility tariffs.

Ulrichsen said that even when there was a relatively supportive National Assembly between 2013 and 2016, progress on major projects was slow. “It is likely to be far more difficult now that opposition politicians hold 24 of the 50 parliamentary seats.”

He also noted that in the early-2010s efforts to attract investment were stymied by the populist political landscape at that time, referring to the abrupt cancellation of two large joint venture deals which he said “severely damaged Kuwait in the international investor community”.

He was referring to the state’s decision to scrap a $17 billion joint venture deal with U.S. firm Dow Chemical in late 2008 to scrap and to can the $14.5 billion Al Zour refinery project in March 2009.

Push on mega projects

Credit rating agency Fitch Ratings said in a report after the November elections that one of the most tangible results of the political instability of 2011-2013 was poor execution of infrastructure spending, which if repeated would ease fiscal pressure but at the expense of development goals. 

Read more here

Eid Alrashidi, general manager at Future Generations Advisors, estimates that less than 30 percent of the goals in the previous plan were achieved.

“If the prior development plan can be used as a guidance for future results, we don't expect more than 50 percent will be invested. Kuwait needs a solution for government bureaucracy and to spend more effectively,” he told Zawya by email.

The new development plan outlines several short-to-medium term objectives including positioning Kuwait as a global hub for petrochemicals, increasing direct foreign investment by 300 percent and attracting more than 40 million dinars to information technology, services and renewable energy.

It also focuses on investment in tourism, infrastructure, transportation and power projects and a move towards more public-private partnerships.

Read more here

Several analysts questioned a decision by the government to include a goal of reducing the size of the country’s expatriate population to 60 percent by 2030, from the current 70 percent, particularly since a large labour force would be required to carry out all the planned projects.

There are around 3.1 million expatriates in the Gulf Arab state and around 1.33 million Kuwaitis.

“This is not achievable. There are many skills that have to be imported from abroad like doctors, engineers, and foreign language teachers. Most importantly, reducing the number of expats will negatively impact the development plan which shows that the plan is not realistic,” Alrashidi said.

© Zawya 2017

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