Commentary

Oil, Politics, and Economics: Kuwait’s Balancing Act

in Program

By Duaa Elzeney – Kuwait’s oil wealth and small population buy it great advantages,[1] but it is engaged in a long political dispute over resources. Over the last two years, this has taken the form of an intense struggle between the Executive and Parliament over the economic direction of the country, ending in the resignation of the entire Cabinet of Ministers, the dismissal of Parliament in March 2008, and a new government put in place in May 2008. The biggest worry now is that the ‘tradition’ of political stalemate will continue into the future, hindering the progress of economic reforms and the ability of the country to evolve beyond an oil-based economy.

The economic development of the country has simply not kept up with the impressive pace of its Arabian Gulf neighbors. The Emir, Sabah Al-Jaber Al-Sabah, has a vision of transforming Kuwait into its former glory as a financial and commercial center, given that 80 percent of the government’s income is currently from oil revenues.

Immediate reforms needed are a reduction in taxes on foreign firms and privatization of state enterprises. A more difficult and politically charged reform is significantly reducing the current system of subsidies and social benefits to citizens which account for the bulk of the government’s budget. Another difficult reform will be to move away from public sector employment for Kuwaitis, who account for over 90 percent of public sector employees.

Kuwait has the most open political system in the Gulf region. The elected Parliament supports policies that appeal to its constituents, including those that protect the financial well-being of citizens though may not necessarily be the best policies for the country’s diversification plans. It was pushing for the second pay rise this year for public sector employees. The first approved salary increase this year will cost the state roughly $3.7 billion a year, and there is a fear that it may destabilize the financial standing of the country. Had this second salary increase been approved, it would have cost the state an additional $1.5 billion a year.

Both citizens and non-citizens have experienced dissatisfaction, and this has placed additional strain on the political dynamics.

One point of contention has been the demolition of illegally built structures used for diwaniyas across Kuwait starting in April 2008 (over 30,000 estimated demolitions). Diwaniya, an informal weekly gathering for discussion of politics, business, religion, etc., is a deeply rooted component of Kuwaiti culture, as well as a barometer of public opinion. Though the gatherings will still take place in homes and legally designated areas, removing these diwaniya structures could lead to continued resentment. The demolitions sparked protests by tribal members in April where some physical force was used by the Kuwaiti security forces.

Another area of discontent is the power outages that have been occurring in the summer months since 2006 and are expected to worsen given population growth rates. Supply cannot meet demand with the existing infrastructure. No feasible solutions by the government are in sight creating further frustration.

Additionally, there are inadequate labor rights for foreign nationals who make up 85 percent of the work force, particularly Asian workers and women. Workers complain of lack of payment, poor living conditions, or physical abuse. Rising food prices have placed further constraints on already tight salaries. Non-citizens cannot place direct political pressure on the government; the international community has been pressuring Kuwait’s government for an improvement in conditions.

Kuwait is feeling competition from its neighbors whose economies are growing rapidly and are becoming the global commercial centers that Kuwait’s leadership dreams of. The big question on everyone’s mind is will the new Cabinet and Parliament be willing to work towards a common ground for the sake of the country’s future?

[1] Kuwait is the eleventh largest oil producer in the world and with only 2.5 million people (half the size of the Washington, DC metropolitan area).

photo credit: http://www.flickr.com/photos/kuwaiti_muwali/2255278331/ 


Duaa Elzeney is a Research Associate with the Regional Voices: Transnational Challenges project at the Stimson Center.

 

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