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Kuwait lags on development despite oil wealth

Kuwaiti plans for major infrastructure and development projects have failed to get off the ground, despite consecutive budget surpluses.
Sand covers the empty infrastructure at an abandoned housing project in Khairan, southern Kuwait March 6, 2014. With a youthful, well-educated population, strong relationships with both neighbours and world powers, and a strategic location on the Gulf, major oil producer Kuwait should be as dynamic a hub for the region as Dubai or Doha. But while others in the Gulf have powered ahead, attracting foreign investment and developing infrastructure, Kuwait has stagnated, frustrating the people of a country once

After years of economic stagnation and political infighting, optimism in Kuwait is on the rise. Local economists expect an uptick in government spending — tied to a partial resolution of the political turmoil — and a pickup in the pace of mega-development project implementation. But behind the spending spree, royal infighting, fears about longer term budget constraints and an upcoming succession might derail Kuwait’s turnaround before it even gets started.

“The Kuwaiti economy, in our view, will witness a moderate acceleration in non-oil growth toward 4-4.5% in 2014 and 2015 … driven largely by a faster pace of project implementation, which is already taking place,” Nemr Kanafani, senior economist with National Bank of Kuwait, told Al-Monitor.

The much touted 37 billion dinar (approximately $130 billion) five-year Kuwait Development Plan (2010-2015), approved by parliament in 2010, has faced numerous delays and disruptions. Many of the projects, particularly non-oil related ones — including the 25 billion dinar ($88.7 billion) Silk City development, 7 billion dinar ($24.8 billion) metro system and 7 billion dinar ($24.8 billion) in new hospital projects — have never moved far beyond the drawing board. 

In fact, despite 15 consecutive years of multibillion-dollar budget surpluses, Kuwait’s aging infrastructure, outdated educational system, overburdened health system, widespread corruption and general economic malaise are legend. The oil-rich Gulf Arab state is often unfavorably compared with its Gulf counterparts, the United Arab Emirates or Qatar. Even locals point to the fast-paced development in neighboring Dubai and wonder why Kuwait continues to lag behind.

“The government is a failure,” answered former member of parliament Ali al-Rashed. A lawyer who has also served as a speaker of parliament, a minister and a judge, Rashed has no confidence in the current political leadership. “They have high oil prices (income), a pro-government parliament and still there is no development,” he told Al-Monitor.

But the election of a largely pro-government parliament in June 2013 and the diminished popularity of the political opposition may be opening the way for renewed government efforts to kick-start projects.

“We have turned the corner … and will see an acceleration in implementation rates,” said NBK’s Kanafani. “In terms of investment spending, we expect that the major projects that were recently awarded will begin to show up in the numbers, particularly the recently awarded Clean Fuels Project (3.4 billion dinars, $12 billion) and the Az Zour North power plant (2.4 billion dinars, $8.5 billion).”

The International Monetary Fund warned in late 2013 that high government spending — especially on public sector wages and subsidies — could harm the country’s longer term economic health. Public subsidies have been estimated at around $5 billion (1.4 billion dinars) by government officials quoted in the local press. But with oil revenue at over $100 per barrel and total foreign assets estimated at a reported 146 billion dinars ($517.8 billion), persuading the public to accept reduced subsidies on fuel or food will be no easy task.

Changes in public sector spending have already stirred fear among locals. “Any removal or curbing of product subsidies should not harm regular citizens, said Minister of Oil and Minister of State for National Assembly Affairs Dr. Ali al-Omair,” state news agency KUNA reported on May 21.

Reducing subsidies on the one hand while spending billions on megaprojects on the other will be no easy challenge for Kuwait. At the same time, the Clean Fuels Project and Az Zour North will do little to diversify the economy away from energy-income dependence. And both have faced criticism in parliament and the press.

Three members of parliament filed an interrogatory motion against Prime Minister Sheikh Jaber al-Mubarak al-Sabah in April over Az Zour, among other issues. The motion accused the premier of responsibility and alleged violations in the tender award of Az Zour North power plant. The motion was later removed from the agenda, resulting in the resignation of the three lawmakers.

Kuwait, which sits on about a tenth of the world’s proven oil reserves, is unique in the Gulf for its vibrant political life and freer press. Criticism of the government, hints of ruling family infighting and corruption scandals are regularly reported.

The country’s 1.2 million citizens are divided by sect, tribe or economic status and these divisions often play out in power struggles in parliament. Moreover, they often reflect divisions with the ruling family, with various factions favoring one group over another.

Those divisions have come to the fore in recent weeks with the surfacing of a videotape allegedly showing senior government officials, including one ruling family member, plotting a change in leadership. The public prosecution has issued a gag order to the press about the tape while it investigates.

The controversy reflects the factional infighting within the ruling family over the next succession. The current emir, Sheikh Sabah al-Ahmed al-Jaber al-Sabah, at 84 remains in good health and Crown Prince Sheikh Nawaf al-Ahmed al-Jaber al-Sabah is widely expected to succeed him without opposition. The question, however, will be who within the ruling family is positioned to become the next crown prince. The role that the elected parliament, the oldest and most vocal in the region, will play in the succession issue is also a matter of quiet but heated debate within the country.

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