The New Deal

2016 marks the 25th anniversary year of the liberation of Kuwait from Saddam Hussein’s Iraq. What efforts have been made to develop Kuwait’s economy over the years?

Our growth has been continuous and has been supported by oil revenues, but this has proven to be insufficient, and we as the private sector wish to see more sustainable growth. The government has started to spend on development projects with an ambitious program over the next five years to rebuild ports, build a new airport, a metro station, a railway system, and so forth. It has been positive, but we are behind. The challenge we face today is to continue to diversify our economy, as the private sector’s share of GDP represents only 24.6% of GDP; this needs to change.

What role do you see diversification and privatization playing in Kuwait’s economic future?

We want to increase awareness among all citizens of Kuwait—not just our members—about the risk of trying to manage an economy that is not diverse. For years, the fear has been that by giving a greater role to the private sector, employment will suffer, because Kuwait’s largest employer is the government. But looking at the three largest telecom operators in Kuwait as examples, we have seen how privatization has led to both growth and employment. In the early 1970s, the mobile segment in Kuwait was managed by the Ministry of Communication. In 1983, the Mobile Telecommunications Company (MTC) was set up in Kuwait as the first mobile operator in the region. MTC, known as Zain today, now employs 3,600 Kuwaitis and the price of a mobile line is minimal. Zain is the 10th largest company by assets in Kuwait, and in 2008, it became the fourth largest mobile operator in the world in terms of physical presence. Their growth led them beyond Kuwait, and they are now operating in Iraq, Saudi Arabia, Sudan, Bahrain, Algeria, and others.

What are some other sectors that are moving in the direction of privatization?

The government should consider the privatization of almost all sectors of the economy (except upstream operations for oil and gas exploration and extraction), notably electricity, water, health and education services, and downstream petroleum industry. We need the private sector to become more established, and employment will follow. The number of Kuwaitis working in the private sector amounts to only 5% of the total national Kuwaiti workforce, while the remainder are employed by the government. It is simple to see the implications of this, economically speaking.

How can international cooperation and foreign direct investment (FDI) play a bigger role in Kuwait’s economic development, and what is the Chamber doing to attract foreign interest to Kuwait?

One positive change in FDI law has been that the Offset Program has been suspended, which has been a disincentive for foreign investors in Kuwait. The program mandates that any company doing anything for the Kuwaiti government for over $164.2 million has to reinvest the equivalent of 35% back into Kuwait over the next ten years. We thought this was illogical and a disincentive for FDI, as it was making projects around 6% more expensive. Based on the feedback we received from international investors—especially those coming into oil—we requested that the Offset Program be suspended. With the program stopped, we will see lower costs and we expect an increase in foreign interest as a result.