Kuwait's economic development

Despite serious efforts to address development issues in Kuwait, various barriers still stand in the way, including local companies' lack of operational capabilities, the private sector's lagging contribution to economic activity and dependence on foreign workers.

al-monitor A car approaches detour signs where an extension to the Aljahra road is being constructed in Kuwait city, Nov. 9, 2012.  Photo by REUTERS/Stephanie Mcgehee.

Topics covered

youth, kuwait, economy, development, business

Mar 13, 2015

Kuwait has now been tackling development issues for five years, at many levels. Some [Kuwaitis] are in the process of submitting proposals on the final costs of development projects, and others are examining whether there is an excess of public funding. Many have criticized implementation mechanisms and obstructions to completing numerous vital projects, especially related to education, health services, electricity and water utilities and roads. But most important, there are those who question development itself, its goals and the extent to which the political administration is keen on achieving them.

Since the 1960s, plans for development have recommended diversification of the economic base and providing support to oil revenues as well as relying on the private sector and reducing dependence on foreign workers. However, the complete opposite of these goals has been done. The state’s contribution to various institutions has risen in different sectors of the economy, and the role of migrant workers has grown, while at least 90% of the public treasury's funds continue to be from oil revenues. So what could lead to a quantum leap in development in Kuwait in the upcoming years, and is it possible to anticipate significant developments in the Kuwaiti economy?

In 2010, a four-year development plan was presented with a budget of 32 billion dinars ($110 billion). The final accounting of the plan at the end of March 2014 — the end of the last fiscal year of the plan — revealed that no more than 12.8 billion dinars had been spent, the equivalent of 39% of what was initially earmarked.

Accomplishing certain projects faces numerous obstacles, as making the decision to launch these projects is known to be a very slow process. Controversy surrounding the cost of many projects has resurfaced, especially when the price submitted by the contractors is higher than the estimated cost approved by the concerned authorities. Therefore, over the past years, many projects have been revived, such as the Jaber Bridge and a number of hospitals and other projects, in addition to the airport project — which was postponed more than once — not to mention delayed power plant projects.

Kuwait lacks companies with high operational capacities, and thus it deals with international companies through local agents who receive a certain percentage of the total value of the contract. This issue has become one of the obstacles and has become politicized due to the competition between these local agents, who usually have recourse to political means to get contracts or put a cog in the wheels of those they fail to win. Special reports issued by concerned international institutions note that conducting business in Kuwait is a slow, bureaucratic process. This is why Kuwait still needs to catch up with international standards.

Pivotal development issues are still in a state of inertia. The private sector is far from making a well-deserved contribution to economic activity, and the private sector's share of GDP [gross domestic product] is still below 25%. Privatization programs remain dysfunctional, despite the fact that the plan indicated the need to raise the contribution of the private sector and complete the allocation of key activities and facilities currently owned by the state. The private sector relies on migrant workers, and the employment of Kuwaitis in the private sector remains modest to a large extent. The previous plan had stressed the importance of raising the contribution of local workers to the labor market.

However, the mechanisms that have been adopted to achieve these goals have not borne fruit, and the private sector remains far behind in participating in economic activity. Kuwaitis’ contribution to the labor market remains as it was in 2010 — less than 17% of the total labor force. It goes without saying that such targets will require political management, a certain social consensus and a culture that can effect efficient investment in local potential. In addition, reform of the educational system is needed to produce graduates compatible with labor market requirements. Achieving development goals will require putting an end to populist programs that are funded by oil proceeds and do not have core goals relating to development or structural reform.

A new plan aims for the adoption of a capitalist approach over the next five years, at an annual cost of 11.8 billion dinars. The plan raises the contribution of the public sector to 6.3 billion dinars a year, as long as the private sector invests the remaining amount to expand businesses. Government investments focus on the oil sector, seaports, airports, roads and transportation, such as the metro project. Can these important projects be completed by the established deadlines? Do we expect the private sector to play a pivotal role in the plan, and do we expect the business distribution equation to change between the public and private sectors in favor of the latter?

For its part, human development remains the main challenge in the country. Kuwait has a population of 4 million and suffers from a demographic imbalance. Non-Kuwaitis represent 68% of the population, while the Kuwaiti population is less than 32%. Kuwaiti demographics are characterized by an increasing number of young people, with those younger than 21 years representing 50% of the total population. The population growth rate is still on the rise and is estimated at 2.8% annually. Based on this data, planners must search for the best mechanisms to maximize the potential of future generations and enable them to seriously contribute to the economy.

The development plans approved over the past years and decades all had similar goals. Achieving development in all its manifestations, however, requires the adoption of a clear economic and social philosophy as well as true will to overcome obstacles and political barriers that might prevent the achievement of these objectives.

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