Kuwait charts new path in changing region

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Article Summary
Kuwait is carefully positioning itself among its Gulf neighbors as a regional trading hub looking to enter the Chinese and Asian markets, while maintaining its regional relationships and alliance with the West.

It is difficult to pin down the moment when things started changing in Kuwait. The country’s slow progress, tortoise-like in comparison with its rapidly developing Gulf neighbors Qatar and the United Arab Emirates (UAE), often translates into dismissal by the rest of the world, which, seeing Kuwait as going nowhere fast, moves on to other, more interesting things.

Facts on the ground, albeit scattershot and mostly underreported, tell a different story. Kuwait has a strategic plan and is slowly but surely implementing it. The stagnancy and political infighting that marred much of the period between 2006 and 2013 has been replaced by a quiet determination and a concerted effort by the leadership to position Kuwait for the future.

This is not the future envisioned by the International Monetary Fund or the World Bank, perhaps, not the future hoped for by energy multinationals or imagined by regional rivals. Kuwait is forging its own path, shunning the bright lights, big city stratagem of Dubai, avoiding the glitzy, world-attention grabbing events in Qatar and instead focusing on fundamentals: infrastructure, human capital, finance, public administration, health care and the environment.

In quiet but important ways, Kuwait is making progress.

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The transformation of the stock market, begun in 2010 with the establishment of the Capital Markets Authority, has catapulted the exchange onto the global stage. Kuwait earned a position as the fourth best in performance globally in 2019 so far, according to Kuwait's NBK Capital. It also has been recognized as an emerging market from Morgan Stanley Capital International, the Financial Times Stock Exchange and Dow Jones; this is expected to trigger an influx of foreign investment valued at nearly $3 billon.

The transformation is not complete and it is still unclear if local and regional investors will follow their foreign, institutional colleagues back onto Kuwait’s trading floor. But the market is primed for the opportunity, having segmented its blue chips and continuing to push through reforms on settlements, products and services that aim to raise it to world standards.

This is one of a host of plans for reengineering Kuwait’s economy — step by cautious, deliberate step. The government is also working on replacing outdated and unworkable bankruptcy laws with a modernized version aimed at protecting investors, privatizing some government-owned entities and, longer term, reducing government’s role in driving the non-oil aspects of the economy.

Another important milestone in Kuwait’s future development is the Silk City project, which includes as critical features the massive new port on Bubiyan Island and a $3 billion causeway, now open, linking Kuwait City to the current undeveloped north. Part of the Kuwait 2035 strategic vision, the Silk City plan envisions Kuwait — and particularly its northern region — as a critical node in the Chinese Belt and Road Initiative, a long-term, strategic effort to link up and develop overland trade routes from Beijing through to Turkey via the Gulf, Kuwait and Iraq.

The challenges ahead

The hurdles that remain are gargantuan. Geopolitics for Kuwait is a long-term balancing act. Surrounded by giants on all sides — Iran, Iraq and Saudi Arabia — Kuwait positions itself as a mediator, a problem solver in a region beset with conflict. The intra-Gulf Cooperation Council dispute between Saudi Arabia and the UAE on one side and Qatar on the other saw Kuwait deliberately take a middle-of-the-road stance and try to mediate. In the long-running geopolitical clash between heavyweights Iran and Saudi Arabia, Kuwait has always leaned toward the Arab side while working to keep an open dialogue with Tehran. In the aftermath of the end of the Saddam Hussein era in Iraq, Kuwait has slowly and cautiously rebuilt relations with Baghdad. Serving as a doorway into war-ridden Iraq, however, is no easy feat and Kuwait has yet to solidify the relationship enough for Iraq to completely back off its own plans for a mega port at al-Faw, though this option looks less and less likely.

Internally, Kuwait is facing an upcoming succession. The 90-year-old emir, Sheikh Sabah Al Ahmad Al Jaber Al Sabah, remains in good health. But investors across the globe are cautious about what will come next. A clear line of succession has been established with a sitting crown prince and the emir’s son, Sheikh Nasser Al Sabah, is considered locally to be a likely future emir.

Kuwait’s parliament is among the most raucous and powerful in the region. Elections are always a hotly contested affair, with the next round scheduled for November 2020.

In the meantime, the government hopes to push through legislation that would create a legal framework for the Silk City region, as well as value-added tax, bankruptcy and new privatization laws. These plans all need parliamentary approval, a process that, as previous projects have proved, can drag on for years.

Yet despite these obstacles, Kuwait keeps moving forward — slowly and without fanfare.

Developing geopolitical and trade ties with China is high on Kuwait’s list of priorities and it has furthered these in recent years through a series of trade deals, projects and the recent opening of an office of the Kuwait Investment Authority sovereign wealth fund. This is the first representative office for the authority, which is estimated to manage more than $524 billion in assets, mostly from its home office in London.

While the world watches high flying Dubai and the geopolitical clashes between Saudi Arabia and Iran, Kuwait maintains its low profile and gets on with upgrading major highways and refineries, building new hospitals and pushing through projects aligned with its development strategy.

From the 1950s through the 1970s, Kuwait underwent a national transformation, bringing its economy into the modern era through massive spending on infrastructure, national industries and political and social developments.

State-owned entities mushroomed seemingly overnight: the Kuwait Sovereign Wealth Fund in 1953, Kuwait Airways in 1953, the Kuwait National Petroleum Corp. in 1960, Kuwait Flour Mills in 1961, Kuwait University in 1966 and the Central Bank of Kuwait in 1969, to name some examples. In a few short years, Kuwait went from a quiet village to a regional leader in finance, economics, politics and business as well as cultural and social programs.

Now is not then.

Kuwait is not trying to reproduce the past, to recapture its regional preeminence — at least not yet. It seems to have little interest in competing with its neighbors for tourism and glitz, for instance.

Instead, it is laying the groundwork for a future that might see it play an increasingly important role as a regional trading hub and more importantly, one not linked to oil. To do that, it has to more closely align to Asia in general and China specifically.

That is not to say that Kuwait is abandoning its Western allies. The tiny oil-rich emirate is still home to a massive US military base, with nearly 19,000 US soldiers in the country. In December, talk surfaced of a possible UK military base being established in Kuwait as well. British Defense Ministry officials denied any plans to set up a permanent base but British Ambassador to Kuwait Michael Davenport, in an interview with Forces Network, did acknowledge that talks regarding such a possibility had been taking place.

Having come to the conclusion that it does not want to mimic the development paths of its neighbors, Kuwait is attempting to forge its own road, aligning its interests with world powers such as China while maintaining its regional relationships and alliance with the West.

The question now is quite simply, will it work?

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Jamie Etheridge is the managing editor of the Kuwait Times and a former analyst for Stratfor.com. She has lived and worked in the Gulf region for much of the last 15 years and has been published in Financial Times (UK), Christian Science Monitor, Trends, Delayed Gratification and other publications. 

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