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COUNTRY REPORT

Kuwait

3rd quarter 1997

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1997-98

9 Review9 The political scene

15 Economic policy and the economy20 Oil and gas22 Industry23 Money and finance25 Foreign trade and payments

27 Quarterly indicators and trade data

List of tables9 Forecast summary

16 1997/98 state budget17 National accounts22 Oil production23 Desalinated water production25 Foreign trade25 Current account26 Non-oil export markets27 Quarterly indicators of economic activity28 Foreign trade

List of figures8 Gross domestic product8 Kuwaiti dinar real exchange rate

Kuwait 1

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997

September 1, 1997 Summary

3rd quarter 1997

Outlook for 1997-98: Tension will persist between the government and theNational Assembly. The government will attempt to play off the different fac-tions within parliament as MPs try to expand their powers, especially intoeconomic and defence matters. Kuwait will continue to eschew any improve-ments in relations with Baghdad, but relations with states which supported Iraqduring the Gulf war will continue to improve. MPs will continue to block anymajor privatisation of government assets until there is a privatisation law whichaddresses concerns about corruption and monopolies. Oil prices, and henceexport revenue, will slide, although import growth will continue. The current-account surplus will consequently fall, with a slowdown in growth.

The political scene: A prominent liberal MP has been wounded in an assassi-nation attempt that appeared to be linked to his work as a “defender of publicfunds”. The finance minister has been criticised because of his relationship toone of the accused. The finance minister has been questioned formally in parlia-ment but has avoided a vote of no confidence. The justice minister has alsocome under pressure after a letter alleging corruption was leaked to the press.Relations have improved with Jordan and Sudan has apologised for its stanceafter the Iraqi invasion.

Economic policy and the economy: Parliament has finally approved the1997/98 budget after the government took out projections based on increasedcharges. A new labour law is being prepared and there have been more calls toreplace expatriate workers with Kuwaitis as the number of foreign residents hascontinued to rise. There have been controversial changes to foreign workers’rights to medical care.

Oil and gas: KNPC has announced plans to expand refinery capacity.Parliament has asked the government to give it a greater say in oil policy amidMPs’ worries that foreign companies may be given production contracts. Theassembly has also criticised the management of KPC’s finances.

Industry: KPTC has revealed plans for long-distance bus routes and the cabinethas approved plans for a new free-trade zone in Shuwaikh. The Ministry ofElectricity and Water is looking at plans for more desalination plants. Parlia-ment has restricted the period of a new contract for the mobile phone company.

Money and finance: An offset fund is to be set up and there have been callsfor revisions to investment regulations. The Ministry of Interior has expressedconcern over money-laundering. Work has been completed on a draft insurancelaw and the KIA has sold part of its stake in Burgan Bank.

Foreign trade and payments: Oil exports rose during the first quarter of1997 compared with the year-earlier period. The current-account surplus grewsubstantially in 1996 as exports rose.

Editor:All queries:

Angie BieglerTel: (44.171) 830 1007 Fax: (44.171) 830 1023

Kuwait 3


Political structure

Official name State of Kuwait

Form of state Emirate

Head of state The emir, chosen from the al-Sabah family. Currently Sheikh Jaber al-Ahmed al-Sabah,who acceded in 1977

Legal system Based on constitution of 1962, as amended or suspended by emiri decree

Legislature Unicameral National Assembly of 50 elected members plus appointed cabinetministers, with a limited franchise of Kuwaiti male citizens. The assembly has beendissolved twice by emiri decree, in 1976 and 1986

National elections October 1996; next elections scheduled for October 2000

Political groupings No political parties are allowed, although informal groupings exist. The main ones aretwo Sunni Islamist groupings (the Islamic Constitutional Movement and the IslamicPopular Grouping, also known as the salafi), and the Shia Islamists of the IslamicPatriotic Coalition. The Kuwait Democratic Forum is a secular political group withliberal and Arab nationalist tendencies. Most deputies sit as independents and manyare primarily loyal to their tribal interests

Executive Power is exercised by the emir through a Council of Ministers (last appointed October 15, 1996), headed by a prime minister who is chosen by the emir

Council of Ministers Crown prince & prime minister Sheikh Saad Abdullah al-Salem al-SabahSpeaker of the National Assembly Ahmed al-Saadoun

Key ministers First deputy prime minister & minister of foreign affairs Sabah al-Ahmed al-Jabr al-Sabah Deputy prime minister & minister of defence Salem Sabah al-Salem al-SabahDeputy prime minister & minister of finance Nasir Abdullah Mishari al-Roudhan Cabinet affairs Abdel-Aziz Dakheel al-Abdullah

al-DakheelCommerce & industry Jassim Abdullah al-MudafCommunications, electricity & water Jassim Mohammed al-OunEducation & higher education Abdullah Youssef al-GhunaimHealth Anwar al-Nouri (acting)Information Saud Nasir al-SabahInterior Mohammed Khaled al-Hamad al-SabahJustice, awqaf & Islamic affairs Mohammed Daifallah Sharar al-MutairiOil Isa Mohammed al-MazidiPlanning & administrative development Ali Fahd al-ZumaiPublic works & housing Abdullah Rashid al-HajeriSocial affairs & labour Ahmed Khalid al-Kulaib

Central Bank governor Sheikh Salem Abdel-Aziz Saud al-Sabah

4 Kuwait


Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996a

GDP at current market prices KD bn 5.83 7.23 7.38 7.94 9.28b

Real GDP growth % 75.0 40.3 –4.0a 5.5a 4.8

Consumer price inflation % –0.5 0.4 2.5 3.8 4.7

Population m (mid-year) 1.42 1.65 1.83 1.96 2.09

Exports fob $ bn 6.55 10.14 11.13 12.63 14.70b

Imports fob $ bn 7.24 6.95 6.67 7.15 7.66b

Current account $ bn –0.45 1.94 2.49 4.20 6.77b

Reserves excl gold $ bn 5.15 4.21 3.50 3.56 3.52b

Total external debt $ bn 9.51 10.03 10.06 7.91a 6.21

Average oil productionc m b/d 1.06 1.87 2.04 2.06 2.05b

Exchange rate (av) KD:$ 0.303 0.298 0.300 0.299 0.300b

September 1, 1997 KD0.3044:$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1996 % of total

Hydrocarbons sector 44.5 Private consumption 42.1

Manufacturing 11.2 Government consumption 28.1

Transport & communications 4.3 Gross fixed investment 11.9

Trade, hotels & restaurants 6.8 Exports of goods & services 52.6

Real estate, financial & business services 10.2 Imports of goods & services –34.8

GDP at factor cost incl others 100.0 GDP at market prices 100.0

Principal exports 1996 $ m Principal imports 1996 $ m

Crude oil & refined productsd 13,788 Machinery & equipmentd 1,585

Total incl others 14,696 Cars & transport equipmentd 205

Total incl others 7,662

Main destinations of exports 1995 % of total Main origins of imports 1996 % of total

Japan 23.5 USA 16.3

USA 18.2 Japan 12.0

Netherlands 17.2 Germany 7.0

India 11.1 Italy 7.0

South Korea 9.6 Saudi Arabia 6.6

Singapore 8.8 UK 6.2

Pakistan 6.0 France 4.1

Philippines 4.3 India 3.3

a EIU estimates. b Actual. c Including neutral zone output. d Provisional.

Kuwait 5


Outlook for 1997-98

The government will playoff various factions—

The government is adept at playing off the different factions in parliament andwill continue to do so using its powers of patronage. Most of the currentMPs were elected as “service” MPs, meaning that they had promised to providebetter services to their constituents. But these services are controlled by thegovernment, which will use improvements as a reward to MPs who backthe government’s other programmes. In addition, the government will promisefuture pay-offs to different groups for their support at crucial times. Some liberalKuwaitis worry that this will lead to creeping Islamisation, with the governmentpromising to implement parts of the agenda of the Islamic ConstitutionalMovement (ICM) in exchange for parliamentary support against them.

—and opposition MPs willcriticise the government

Opposition MPs will continue to harry the government, and to propose legis-lation that the government is unlikely to accept. Parliamentary committees willalso continue to scrutinise government proposals, and in particular its spendingplans. This behaviour causes considerable irritation to some ministers, and re-sults in occasional rumours that the emir will dissolve the National Assembly.But there is little chance of dissolution in current circumstances. Although someministers may pay only lip-service to the notion of Kuwait being a parlia-mentary democracy, dissolution would be a radical step that would have seriousrepercussions abroad, and would only be considered in the case of total dead-lock between the government and parliament.

Defence contracts will bean area of contention—

Defence contracts in particular are a source of concern to many in the assembly.Some MPs feel that they should have more influence over such large-scalespending, which the government says is a matter of national security and onlyfor it to decide. One area of contention has been a deal with British Aerospacefor its Sea Skua missiles. The assembly has become deeply involved in the debateover this contract, to the evident discomfort of some ministers and members ofthe ruling family. The arguments will continue as the government moves to-wards a decision on the purchase of self-propelled artillery (2nd quarter 1997,page 7), which is expected to go to China, despite the inferior weapons on offer.

—as foreign policy focuseson the region—

There will, however, be little argument over relations with Iraq. Kuwait willeschew any improvement in relations with Baghdad for at least as long asSaddam Hussein is in power. The issue of Kuwaiti prisoners of war will continueto be a focal point of Kuwait’s policy toward Iraq, with the Kuwaiti governmentusing various international forums to remind foreign policy-makers of thecontinuing problem. But, at the same time that Kuwait remains steadfast in itsapproach toward Iraq, relations with countries that supported Iraq during theGulf war will continue to warm. Jordan in particular looks set to benefit fromthis gradual change in policy.

—particularly as thecrown prince’s absence is

extended

This process may be more noticeable while the foreign minister, Sheikh Sabahal-Ahmed al-Sabah, is acting prime minister. Depending on the health of thecrown prince and prime minister, Sheikh Saad Abdullah al-Sabah, the foreignminister may continue to play that role for some considerable time. Sheikh Saadis not expected to return to Kuwait until October, and there is speculation

6 Kuwait


that, even then, he may not be well enough to resume all of his previousresponsibilities. Sheikh Sabah has long been considered more conciliatorytowards the so-called adversary states, and has overseen an improvement inrelations with Jordan that now includes direct commercial links again. ManyKuwaitis are, however, more hawkish on the issue than Sheikh Sabah, and willcomplain vociferously if they feel he is pushing ahead too fast with this process.

Economic reform willremain contentious—

MPs, particularly in the parliament’s economic and finance committee, willalso complain about many of the government’s economic plans. Most realisethat there is a need for reform, but say that the government is inconsistent.MPs note that while ministers praise economic performance, they then say thatthere are economic problems that require drastic measures. Government effortsto privatise state assets will be particularly contentious. The idea of privatis-ation is unpopular with many members of the assembly, who are worried aboutemployment implications and the potential for monopolies and corruption.MPs also complain that the privatisation would benefit a small number ofwealthy and influential people. Parliamentary opposition will continue to holdup major sales, pending the introduction of a comprehensive privatisation law.Most officials believe that cautious liberalisation and privatisation will be morepolitically palatable than major sales.

—but much-needed However, the long-term economic health of the country will depend onsubstantial changes. Kuwait remains highly dependent on volatile oil prices,although returns from its overseas investments have also strengthened. In add-ition, spending on salaries and wages for public-sector workers absorbs a sub-stantial part of oil income, and the country’s comprehensive welfare systemrequires heavy subsidies. New revenue-raising measures will be required at somepoint and the authorities would like to increase charges for a range of govern-ment services. The assembly insists that the government must rationalise with-out hurting “poorer Kuwaitis”. In the long term, the government and theparliament realise that there will be a need for strenuous measures, includingincome taxes, but these will not be introduced over the current forecast period.

Oil prices will slide— Kuwait’s strong economic performance of the last two years is attributablechiefly to a strengthening of oil prices. However, petroleum prices have weak-ened in 1997 and are expected to slide further in 1998. Although global oildemand is growing strongly on the back of firm world economic growth,supplies are more than adequate. Production from both the OPEC producersand non-OPEC producers is increasing. Iraq temporarily stopped producing oilin June and July while it drew up a new distribution plan, but by August Iraqiproduction had restarted. Outside OPEC, the EIU expects output to continue torise, in particular from the North Sea and Latin America. The overall effect willbe a decline in average prices from $20.6/barrel—International Energy Agency(IEA) average import price on a cif basis—in 1996 to $18.5/b this year. In 1998we expect further slippage to an average of $18.3/b.

Despite the decline in prices, Kuwaiti production is not expected to increasedramatically. The Supreme Petroleum Council (SPC), which sets oil policy,remains committed to its OPEC quota. Kuwait will, however, continue to pressfor an increase in its output to match the UAE’s quota of 2.16m barrels/day (b/d)

Kuwait 7


on the basis of what Kuwait terms “historical market share” and which is closerto its production capacity.

—hitting Kuwaiti exportearnings—

Lower oil prices will have a direct impact on Kuwait’s export earnings, which areexpected to fall from $14.7bn in 1996 to $13.64bn in 1997 before a slightincrease to $13.82bn in 1998. The rise is caused mainly by an assumed increasein production levels to average 2.09m b/d in 1998. The level of merchandiseexports will reflect these movements, as oil will continue to account for over90% of total exports. Oil exports (including earnings from refined exports) areforecast to fall from $14.12bn in 1996 to $13.09bn in 1997, and rise marginallyto $13.13bn in 1998. Higher oil income in 1995 and 1996 will have a knock-oneffect on private consumption into 1997, and a smaller effect in 1998. This willhelp to stimulate import demand, with merchandise imports rising from$7.66bn in 1996 to $7.97bn this year and $8.29bn by the end of 1998. Both thetrade surplus and the current-account surplus will shrink, although the latterwill be buoyed by continued healthy earnings from Kuwait’s overseas portfolioinvestments. But outflows of invisibles will increase as imports increase, andworker remittances are expected to remain high as Kuwait remains dependenton expatriate labour. Hence, the current-account surplus is forecast to declinefrom $6.77bn in 1996 to $5.58bn in 1997 and rise marginally to $5.74bnin 1998.

—and bringing aslowdown in growth

Average oil prices will fall by 10% in 1997, which will adversely affect growthlevels, despite the knock-on effects of rising prices over the last two years. Thenew budget includes an increase in spending for 1997/98, which will help tostimulate the economy. Part of the increase in the government budget deficitcomes from an increase in spending on wages and salaries, which will help tostimulate private consumption. Likewise, investment programmes in oil prod-uction capacity, refinery capacity and desalination plants will help boostgrowth. But expected growth in imports, stimulated by increased private con-sumption, will offset some of these factors. Overall GDP growth is expected todecline from an estimated 4.8% in 1996 to 3% in 1997 and 2.5% in 1998.Inflation levels are expected to remain modest over the forecast period, averag-ing 4.5% in 1997 and 4% in 1998.

-6

-4

-2

0

2

4

6

1994(a) 95(a) 96(a) 97(b) 98(b)

Kuwait

Middle East & North Africa

Gross domestic product % change, year on year

(a) EIU estimates. (b) EIU forecasts. (c) Nominal exchange ratesadjusted for changes in relative consumer prices.Sources: EIU; IMF, International Financial Statistics.

70

80

90

100

110

120

1990 91 92 93 94 95 96 97(b) 98(b)

Kuwaiti dinar real exchange rate (c)1990=100

KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$KD:$

KD:¥

KD:$

KD:¥KD:¥

KD:DMKD:DMKD:DM

KD:$

KD:¥

KD:$

KD:¥KD:¥

KD:DMKD:DMKD:DM

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:$

KD:¥

KD:DM

8 Kuwait


Forecast summary($ bn unless otherwise indicated)

1995a 1996b 1997c 1998c

Real GDP growth (%) 5.5b 4.8 3.0 2.5

Consumer price inflation (%) 3.8 4.7 4.5 4.0

Average oil productiond (m b/d) 2.06 2.05a 2.07 2.09

Oil pricee ($/b) 17.2 20.6a 18.5 18.3

Kuwait Export Blend ($/b) 15.9 18.6a 17.0 16.8

Oil export revenuef 12.07 14.12 13.09 13.13

Merchandise exports fob 12.63 14.70a 13.64 13.82

Merchandise imports fob 7.15 7.66a 7.97 8.29

Current account 4.20 6.77a 5.58 5.74

a Actual. b EIU estimates. c EIU forecasts. d Including neutral zone output. e IEA average import price.f Includes earnings from refined exports.

Review

The political scene

A liberal MP is injured inan assassination attempt—

On June 6 Kuwaitis were shocked to learn that a veteran liberal MP, AbdullahNaibari, and his wife, Firyal al-Fraih, had been injured in a shooting attack asthey returned from their beach chalet in the south of Kuwait. Although policeand some MPs have voiced concern about a rise in the number of weaponsavailable in the country since the Gulf war, violent crime remains rare inKuwait. Mr Naibari, a member of the Kuwait Democratic Forum (KDF), wasinjured in the face and shoulder in the bungled assassination attempt. His wife,who is also a prominent liberal and a campaigner for women’s rights, wasslightly hurt. The police later arrested a Kuwaiti man who had taken Mr Naibariand his wife to hospital in Kuwait City after the shooting. At first they believedthe man to be a key witness, but they later realised that he knew details of thecrime that suggested he was at least an accomplice. Following his arrest, the mannamed two other Kuwaitis and two younger men of Iranian origin who werealso taken into custody. Although first reports suggested that outside influencesmight be at work, most Kuwaitis quickly recognised that the Iranians involvedin the incident were from the sizeable Iranian community resident in Kuwait.

—which may have beenrelated to his

anti-corruption stance

Most Kuwaitis concluded that Mr Naibari had been targeted for his self-declared role as a “defender of public funds”. Mr Naibari, who became an MPin 1992, was chairman of the parliamentary committee for the protection ofpublic funds during the 1992-96 parliament. Although he is not a member ofthe current committee (which consists of members of the finance and legis-lative committees), Mr Naibari has continued to be an outspoken campaigneragainst government corruption and for public accountability.

A number of prominent Kuwaitis took up this theme, speaking in support ofMr Naibari. The speaker of the parliament, Ahmed al-Saadoun, warned that the“thieves of the public funds” would not hesitate to get rid of those who stoodin their way. Others warned of the problems of corruption. In a thinly veiled

Kuwait 9


attack on those who abuse their influence, a former liberal MP, Yacoubal-Hayati said that Kuwait was suffering at the hands of “big thieves, smallthieves and servants to the thieves”. Another veteran liberal, Ahmed al-Khatib,who retired from parliament in 1996, claimed there was a tripartite allianceamong those “from the government, the thieves of public funds and thoseopposed to Kuwait’s method of choosing the emir from the descendants ofMubarak the Great”.

Mr Naibari’s opponentscondemn the attack—

Kuwaitis initially feared that the attack might mean another campaign to under-mine liberal elements within parliament. In 1991 another liberal MP, Hamadal-Jouan, was partially paralysed in a similar attack, and in May this year theliberal chief editor of a Kuwaiti daily newspaper, al-Qabas, Mohammed al-Saqr,received death threats for his outspoken attacks on government corruption.However, the attack appears to have been an isolated incident, and Mr Naibari’spolitical opponents rushed to disassociate themselves from the assassinationattempt. Islamist groupings, including the hardline Social Reform Society (SRS),which funds MPs associated with the Islamic Constitutional Movement (ICM),were quick to condemn the attack and hold rallies in support of democracy.Some younger elements in the SRS initially suggested that any attack on liberalswas to be welcomed; but they were quickly silenced by more politically awareelements in the organisation, who feared that an upsurge in support for theliberals might lead to a backlash against the Islamists.

—as talk of a conspiracyabounds—

The suspects in the attack were seen as being “small-fry” and a number of MPs,led by the deputy chairman of the KDF, Sami Munayyis, called for the accusedto be held in custody for their own protection. Speculation about who hadhired the men abounded in the weeks following the assassination attempt. Thefinance minister, Nasir al-Roudhan, came under attack by parliamentarianssince one of the suspects, Abdul-Mohsen Roumi, was alleged to be distantlyrelated to him, and had appeared regularly at Mr Roudhan’s diwaniyya (a regu-lar meeting for family and friends, but which is open to anyone). Mr Roudhandenied any links to the attempt. However, the public prosecutor’s office calledfor the minister to answer questions concerning his relationship to two of thesuspects, and, as the case is still sub judice, no details of his testimony have beenmade public.

—and the accused appearbefore the court

The men accused of attacking Mr Naibari made their first appearance in court onAugust 5, with the public prosecution calling for life imprisonment for all five.The defendants, Mr Roumi, Salman Shamlan and Adel Mukaimi (of Kuwaitinationality) and Sayed Mohammed and Sayed Abdel-Hadi (of Iraniannationality), all pleaded not guilty to conspiring to kill Mr Naibari and his wife.The presiding judge turned down a bail application by Mr Roumi, who claimedthat his business interests would suffer if he was remanded in custody.Mr Naibari and his wife are currently in the USA, where Mr Naibari was taken fortreatment at the insistence of the emir following initial surgery in Kuwait.Mr Naibari is still undergoing surgery to reconstruct his jaw and is unlikely to bewell enough to attend the trial.

10 Kuwait


The finance ministercomes under attack—

The speculation about the link between Mr Naibari’s anti-corruption activitiesand the attack on him came in the context of a wider public debate on govern-ment corruption. In the wake of the shooting, it emerged that a group of liberaland independent MPs had already been gathering support for a formal parlia-mentary questioning of Mr Roudhan. The three MPs who have drawn up thequestions against the finance minister said it was time that the NationalAssembly and the public knew the extent of corruption in the administrationof state finances. They hoped to force a vote of no confidence in the minister,whom they accused of a long list of shortcomings, including the failure to im-plement various laws, negligence in protecting public funds, failure to collectdues to the state treasury and giving favours to relatives.

—but avoids a vote of noconfidence—

In the event, the questioning of the finance minister in mid-July was an incon-clusive affair. It neither revealed ministerial inadequacies nor produced a voteof no confidence. The three liberal MPs who presented their accusationsagainst the minister gave a poor performance, while the minister dazzled theassembly with facts, figures and expert witnesses to support his record.Mr Roudhan also had the benefit of a statement of support from the actingprime minister and the cabinet, which, to the annoyance of some MPs, wasmade before the questioning began.

—to the delight of those inthe galleries

The furore over the ministerial questioning did little to improve relationsbetween the government and the parliament. But it did demonstrate the pub-lic’s enthusiasm for its parliamentary democracy. Kuwaitis queued from theearly hours of the morning to gain a seat to watch the debate, which went onuntil late in the evening. The three MPs who had tabled the motion eventuallydid not call for a vote of no confidence, although they claimed to have securedthe ten signatures required to call such a vote. They said that the 13 hours ofquestioning had sufficiently exposed the minister’s record of mismanagementand irregularities. The public galleries saw it differently, however, and gave theminister a standing ovation before the session closed.

Parliamentary unityquickly disintegrates—

The facade of parliamentary unity which appeared in the wake of the attack onMr Naibari rapidly dissipated following the questioning of Mr Roudhan. LiberalMPs who had brought the motion against Mr Roudhan vowed to continue theirfight. Mr Munayyis said that he would not admit defeat because the aim ofhimself and his colleagues had been to reform and not to deliver winnersand losers.

Although they put a brave face on the outcome, the liberals were clearly dis-appointed not to have accomplished the removal of the minister. The KDFaccused the Islamists of bowing to government pressure. In retaliation, MPsfrom the ICM said that if the liberals had not been in such a hurry to bring theirown motion against the minister, the two groups could have worked together.

—and hopes of a reshufflerecede

Mr Roudhan’s success in avoiding a no-confidence vote has bolstered his pos-ition within the government and alleviated some of the pressure for a cabinetreshuffle. The acting prime minister, Sheikh Sabah al-Ahmed al-Sabah, has saidthat any change in the government will have to wait until the crown prince andprime minister, Sheikh Saad Abdullah al-Sabah, returns from his convalescence

Kuwait 11


(2nd quarter 1997, page 9). Thus far, Sheikh Sabah has managed to avoiddecisions on offers of resignation from Mr Roudhan and the justice minister,Mohammed Sharar, by telling ministers that if they want to resign, they mustpresent their resignations to the crown prince himself. But the crown prince’scontinuing absence and the lack of a definite date for his return have againraised questions about his health. Sheikh Sabah’s reluctance to act now mayreflect his hope that he might be able to choose his own cabinet later this year.

Society’s registrationis denied

One casualty from Mr Roudhan’s successful defence of his record on protectingpublic funds was the newly founded Society for the Protection of Public Funds(SPPF). The group, which was established in early 1997, had been hoping forformal registration as a non-governmental organisation (NGO) by the Ministryof Social Affairs and Labour. NGO status confers a government subsidy. But thegovernment has been cautious about approving licences for groups, particularlythose with a political agenda, since the mid-1980s when several Islamist NGOswere suspected of using government funds for their political activities. The headof the SPPF, a liberal lawyer, Mohsen al-Mutairi, said in July that the society’sapplication for a licence to operate as an NGO had been rejected by theministry. Although the SPPF does not have a formal legal basis, the governmentwill probably allow it to continue to operate, provided that it does not make toomany political waves.

The justice minister isaccused of meddling—

In July publication of a letter alleging impropriety by prosecutors in the KuwaitOil Tanker Company (KOTC) fraud case led to a storm of press protests. Theletter, which was from Mr Sharar to the chief justice, Mohammed al-Rifai, wasleaked to the local office of a Saudi-owned newspaper, Asharq al-Awsat. The localpress interpreted the leak as a government attempt to discredit the investigationinto allegations of fraud by a former oil minister, Sheikh Ali al-Khalifa al-Sabah.Mr Sharar threatened to take action against the editors who reproduced theletter, arguing that publication and discussion of the letter was not in the publicinterest. Most of the editors responded by attacking Mr Sharar, who was accusedof jeopardising the ability of the public prosecution to bring the case to trial.

—as KOTC prosecutors arecleared of wrong-doing

An investigation into Mr Sharar’s allegations of bribes having been taken by theprosecution team found that money paid to the prosecution team by KOTCduring the course of their work was legal. The sums paid covered travel expensesfor officials from the investigation team, the public prosecution and the interiorministry who travelled overseas in pursuit of evidence in the case. The reportinto the allegations said that KOTC had written to the public prosecutor’s officein January 1993 agreeing to cover such travel expenses. Although no criminaloffence was found, the chief justice justified Mr Sharar’s interest in the case,saying that administrative and procedural errors made in the filing of papersrelating to the prosecution team had clouded the issue.

MPs try to questionMr Sharar—

After the vindication of the prosecution team, an independent MP, Misharial-Osaimi, announced that he had tabled a motion to question the justiceminister formally in parliament. Local commentators believe that he intendedto quiz Mr Sharar about his dispute with the public prosecutor’s office.

12 Kuwait


Mr Osaimi appears to have been persuaded that he had sufficient support for avote of no confidence in the minister.

—but support for themove dissipates

The government’s normal response to a request for formal questioning of aminister, which might result in a vote of no confidence, is to ensure that it hasenough support in parliament to avoid such a vote. In this case, the governmentfound allies in unexpected quarters. Mr Sharar, who is one of four elected MPsthat currently holds a ministerial position, comes from a tribal constituency.Other tribal MPs accused Mr Osaimi, who is also from a tribal constituency, ofdamaging their interests. In addition, the government found support from MPswho were concerned that the questioning might be perceived as an attack bythose who are traditionally from the heartland of Kuwait City on those from theouter areas. Islamist MPs also voiced support for the minister, while some ShiaMPs said that they would not participate in any vote of no confidence againstMr Sharar. Eventually, during a six-hour meeting, the speaker of the house andsome 30 other MPs persuaded Mr Osaimi to withdraw his motion on thegrounds that it would disrupt the unity of the assembly.

The government banspublic entertainment

The government chose the summer lull to prevent Islamist groups from takingthe lead on public entertainment, following its decisive rejection in May ofan Islamist-sponsored bill to ban all forms of public entertainment(2nd quarter 1997, page 10). In late July the official gazette published an orderby the Ministry of Information banning public concerts “which violate shariarulings and the country’s traditions”. The order did not elaborate on whatconstituted a violation. Officials have suggested that the order was a way ofavoiding a blanket ban and that licences would continue to be granted forevents which fell within unspecified ministry guidelines. The government’saction has not gone uncriticised. The Islamists fear that the government willtake a liberal interpretation of the rules, while liberals are critical that theministry avoided parliamentary discussion by issuing the decision as an order.

Missile deal signed at last After much political argument, the Kuwaiti government has finally signed acontract with British Aerospace for the purchase of Sea Skua missiles. The con-tract, which is worth some $100m, is for missiles to be placed on French-builtfast-patrol boats. Wrangling over the deal has centred on the work of a series ofparliamentary committees. One committee found in favour of the Britishmissiles, but another decided that the missiles on offer from France weresuperior. A third committee then decided on Sea Skua.

Ties thaw further withJordan—

Sheikh Sabah has also taken advantage of the crown prince’s absence to pressahead with a gradual resumption of relations with Jordan. In June he led aparliamentary debate on normalising relations with the Arab countries thatsided with Iraq during the Gulf war. This debate was followed on July 11 by theresumption of direct flights by Kuwait Airways and Royal Jordanian between thetwo countries. These flights had been halted since the Gulf war.

The moves toward normalisation have received some support. In August aKuwaiti MP, Abdel-Wahab al-Haroun, told a local English language daily, ArabTimes, that restoration of ties with countries that supported Iraq would be a

Kuwait 13


positive move. Mr Haroun argued that improving relations with these coun-tries would help to isolate Baghdad.

—to the dismay ofsome MPs—

However, some MPs, who are less keen on normalisation than the acting primeminister, expressed surprise at the accelerated pace adopted by Sheikh Sabah.The chairman of the finance committee, Nasser al-Sanae, said that the govern-ment should have waited until parliament had completed its debate on theissue. Ten senior MPs, including the chairman of the foreign affairs committee,Abdel-Aziz Adesani, tabled a motion in July to slow down normalisation.

In response to these complaints, Sheikh Sabah played down the importance ofresumed air services. He said it was a welcome commercial decision, and pointedout that relations with Jordan, Sudan and Yemen had never been totallysevered. He noted that Kuwait had retained embassies in those countries.

—who fear an influx ofJordanians and

Palestinians

Some MPs are concerned that if Kuwait resumes full diplomatic ties withAmman, it will lead to an influx of Jordanians and Palestinians who carryJordanian passports. Although many of the workers from Jordan left Kuwaitwith their families after the invasion, some remained. MPs worry that theirfamilies will seek to join them in Kuwait, hoping to benefit from the generoussocial provisions for residents. Jordan continues to suggest it can help in thedetermination of the fate of Kuwaiti prisoners taken by Iraq, but Kuwaitisare privately sceptical about the level of assistance and information that Jordancan provide.

Sudan apologises for itsGulf war stance—

The resumption of flights between Jordan and Kuwait coincided with a visit toKuwait by the Sudanese minister of state for foreign affairs, Mustafa OsmanIsmail. The trip was the first official Sudanese visit to Kuwait since the Gulf war.The minister, who carried a message from the Sudanese president, said thatSudan would do its utmost to secure the rapid release of Kuwaiti prisoners heldby the Iraqi regime. Mr Ismail admitted that Sudan had not condemned Iraq’soccupation of Kuwait and had, at times, backed Baghdad. He blamed strongBaathist influences within Sudan. The minister’s statements were the first offi-cial apology from the Sudanese government for its stance in the Gulf war. Theminister also indicated for the first time that Sudan recognised that the Iraqiinvasion was in violation of international law. Mr Ismail characterised the visitas a success, and said that it represented a step toward normalisation. Sudanhopes to benefit from a renewed flow of aid if relations with Kuwait return tonormal. Kuwait will, however, be cautious about the rate at which it strengthensties with Khartoum. Aside from its Gulf war stance, Sudan allegedly has ties withvarious terrorist groups.

—as Kuwait plays downmeetings in Yemen

July also saw a visit by a group of senior Kuwaiti academics, including twoformer ministers of education, to Yemen. The group, which had an audiencewith the Yemeni president, visited Sanaa at the invitation of the Arab StrategicCentre at the University of Sanaa. The visit coincided with the resumption offlights to Jordan and the Sudanese ministerial visit to Kuwait, leading to pressspeculation that the delegation was a semi-official group sanctioned by theKuwaiti foreign ministry. The ministry was quick to quash such speculation. Itsaid that the invitation had been a private one and that the government had

14 Kuwait


nothing to do with it. Like the Sudanese, the Yemenis are keen to resumerelations with Kuwait, which was a generous aid donor before the Gulf war. Butmost Kuwaitis feel that there is little benefit for them in a resumption, otherthan an apology for Yemen’s stance in the Gulf war.

In a move designed to demonstrate that the Yemen should not assume that itwould benefit immediately from aid should full diplomatic relations beresumed, a delegation from the Kuwait Investment Authority (KIA) also visitedYemen in July to discuss resumption of debt repayments. Yemen has loans andinterest payments outstanding to the KIA valued at around $320m.

Kuwait expressessolidarity with the

Palestinians—

Although there has been no suggestion of normalisation with the PalestinianAuthority (PA), parliament has continued its policy of expressing support for“the Palestinian people”. It issued a forthright statement on June 14, followinga decision by the US House of Representatives to recognise Jerusalem as theunified capital of Israel. The assembly said that such a position undermined andfrustrated peace efforts in the region. It also said that recognition heraldedfurther problems for the peace process, arguing that the Palestinian people willnot be able to make peace without Jerusalem. The Kuwaiti parliament expressedits hope that the US president would prevent the transfer of the US embassyfrom Tel Aviv to Jerusalem.

—and remains firmon Iraq

The new head of the UN Special Commission (UNSCOM) charged with dis-arming Iraq, Richard Butler, paid his first visit to Kuwait in late July. He saidthat while UNSCOM’s job was far from over and funds would be needed tokeep its work on track, he had not come to ask for financial assistance from theKuwaitis. Mr Butler said that it was natural that he should choose to meet withthe leaders of the Kuwaiti government and to hear their views and concernsabout UNSCOM’s work.

Following Mr Butler’s visit, Kuwait marked the seventh anniversary of the Iraqiinvasion with a series of seminars and debates around the Arab world. Thesewere designed to maintain Arab pressure on Iraq to comply with UN SecurityCouncil resolutions. A senior adviser to the foreign minister, and a formerchairman of the Gulf Cooperation Council (GCC), Abdullah Bishara, praisedthe Arab League for its stance at a seminar in Egypt. But he warned against theattitude of some member states who are pursuing more conciliatory policiestoward Baghdad. A former education minister, Ahmed al-Rubei, echoed thesesentiments in an article in an Arabic daily, al-Qabas. He said that the Arabworld could not turn a new page and forget the past while Iraq was still makingstatements suggesting that the Gulf war was one of the most glorious events inthe history of humanity.

Economic policy and the economy

The budget has finallybeen passed—

The parliamentary finance and economic committee passed the draft statebudget for 1997/98 at the end of July, allowing a projected net deficit ofKD1.27bn ($4.18bn). This is an increase of KD63m over that of the last fiscalyear, and is the first time that the projected deficit has increased since 1994/95,when oil prices bottomed out. Oil revenue will account for 82.3% of total

Kuwait 15


projected revenue, based on an assumed price for Kuwaiti crude of $13/barrel,which is likely to be a conservative projection. Spending on governmentsalaries is projected to increase by KD42m in 1997/98. Salaries will thenaccount for 50% of Kuwait’s estimated oil income and 41% of total revenue.

1997/98 state budget(KD m)

Total revenue 3,105 Oil 2,555 Non-oil 550

Total expenditure 4,378 of which: public-sector salaries & wages 1,287

Balance –1,273Source: Al-Shall Economic Consultants, Weekly Economic Report.

The budget was only passed after the government revised its projections toexclude revenue from new charges on public services that it had assumed in itsinitial calculations (2nd quarter 1997, page 17). The parliamentary committeerefused to accept the charges because they were levied on existing services. Thecommittee added, however, that it accepted that new chargeable services mightneed to be introduced in the future. The committee also recommended that thegovernment speed up plans to appoint financial controllers in ministries anddepartments and said that the government needed to implement more effi-ciency measures and to improve its mechanisms for internal financial monitor-ing. For the second year running, the budget was passed after its constitutionaldeadline of June 30.

—and a 25-year plan ismooted

The cabinet has instructed the Ministry of Planning to work on Kuwait’s firstlong-term, 25-year strategic plan. The plan is to start in 2000. The ministry willliaise with the higher planning council and will consult public- and private-sector institutions and businesses. The minister of planning, Ali al-Zumai, hassaid that a strategic document outlining the 25-year plan will be launched at anational cultural festival to be held next March.

The finance minister isupbeat about the

economy—

The finance minister, Mr Roudhan, in early August in an interview with a Saudidaily, Okaz, said that Kuwait’s economy had returned to its pre-Gulf warstrength. He said that inflation had dropped to 2%. Mr Roudhan admitted thatthe public sector still accounts for 75% of GDP, but said that the governmentwants to privatise state-owned companies. The minister said this should help toboost the private sector and to diversify sources of revenue. Mr Roudhan said hehopes a privatisation law will be passed in 1997 and hinted that the governmentwould need to bring in charges for some services. He added that the governmentwas no longer capable of subsidising all services and that some “re-pricing”would be necessary.

—as the IMF reports GDPgrowth

Data from the IMF shows a rapid nominal increase in Kuwaiti GDP in 1996.According to GDP by expenditure figures released in July, nominal GDP grew by16.8% in 1996. The IMF figures show that growth in 1996 was due largely tohealthy export growth. An expansion in the services sector and an increase in

16 Kuwait


private consumption, which are themselves largely the result of higher oilprices, also helped boost growth levels.

National accounts(KD m)

1994 1995 1996

Private consumption 2,756 3,241 3,909

Government consumption 2,504 2,615 2,608

Gross fixed capital formation 1,192 1,086 1,103

Exports of goods & services 3,753 4,234 4,883

Imports of goods & services –2,825 –3,233 –3,226

GDP 7,380 7,942 9,277Source: IMF, International Financial Statistics.

Local economists have, however, indicated that both nominal and real growthfigures in 1996 were probably lower (2nd quarter 1997, page 16). The Kuwaitigovernment does not revise its national account information on a timely basis,and the 1996 figures are probably a reflection of inaccurate 1995 numbers.They expect that eventually the 1995 figures will be revised upwards and the1996 figures will be revised downwards.

A new labour law is onthe way—

The government has almost completed a draft labour law designed to clarifyand simplify the existing 30-year-old legislation. The draft law has been workedout in consultation with the International Labour Organisation (ILO), theKuwait Chamber of Commerce and Industry and the General Labour Union.The Kuwait Union of Trade Federations (KUTF) has given a cautious welcometo the draft. The KUTF president told the Arab Times that the proposal was“revolutionary and successfully deals with a number of important issues”.

—which still does notaddress the issue ofdomestic servants—

The law will cover both Kuwaitis and expatriates working in the private sectorand the oil sector. An ILO representative, Hatem Kutran, who visited Kuwait inAugust to review the draft, said that his recommendations were non-binding,but praised the government for accepting most of them. He said that he hadalso discussed the problematic issue of sponsorship for domestic servants, butthat this could not be covered directly by the labour law. The Kuwaiti govern-ment places responsibility for sponsorship of domestic workers on the interiorministry, rather than the Ministry of Social Affairs and Labour, as it is closelytied to the issuing of residence permits.

—but does includeimproved entitlements—

The bill will be laid before the cabinet and the assembly in the autumn session.Under the new law, employees with less than five years of service will be entitledto 21 days’ leave per year, an increase from the existing 14 days. Leave for longerserving workers will increase from 21 days to 30 days. The entitlement for end-of-service indemnity will also increase, from 14 days per year at present to 20 peryear for the first five years of service, and from 30 days per year to 40 days peryear subsequently. In addition, the working week is defined as 48 hours, withnot more than eight hours per day, except in certain defined occupations.During the fasting month of Ramadan, working hours are cut to 36 hours perweek. The number of public holidays will increase from 8 to 12, and rights to

Kuwait 17


sick leave and to leave to carry out the hajj (pilgrimage) are clearly defined. Thenew law also calls for a minimum wage, although no amount is specified.

The draft law also recognises group labour disputes, and proposes that theauthorities set up an arbitration panel and introduce measures to speed upcourt settlements of labour disputes. It also guarantees workers the right ofassociation and allows them to set up trade unions.

—and some rights forwomen at work

The legislation also sets out working conditions for women. The bill stipulatesthat, in line with Kuwaiti interpretation of sharia (Islamic law), women cannotbe employed in “dangerous or risky” occupations. They cannot be made towork after 8 pm or before 7 am, except in a medical institution or in certainunspecified companies to be determined by the minister. Working women aregiven maternity cover of 45 days from the birth; and they are also entitled tofull indemnity if they terminate their contracts within six months aftermarriage or giving birth to a first baby. Women must also be paid equal salariesto their male counterparts for equal work.

The law leaves open thequestion of

Kuwaitisation—

The assistant under-secretary for legal affairs at the Ministry of Labour, KhalilOnaizi, said that, although the bill aims to encourage private-sector employersto employ Kuwaitis, there is no specific clause spelling this out. Despite the lackof prescriptive measures on Kuwaitisation, the draft law bans companies fromemploying expatriates without the prior consent of the ministry, and makes itan offence to recruit expatriates for non-existent jobs. For businesses that recruitforeigners and then fail to provide them with a job, there is a maximum penaltyof three years in jail and a fine of KD5,000 ($16,426).

—which is being pushedby the government—

The minister of communications, electricity and water, Jassim al-Oun, hasadded his voice to those in the government calling for Kuwaitis to replaceexpatriate labourers. Mr Oun condemned the practice of renewing employmentcontracts for expatriates who are over the state retirement age of sixty. Speakingat a planning committee meeting at his ministry in June, Mr Oun also said thatKuwait needed to provide on-the-job training for Kuwaitis to help them gainpractical experience.

The Ministry of Social Affairs and Labour has been trying to restrict recruitmentof unskilled expatriates in recent months and plans to impose charges for therecruitment of labourers. The minister, Ahmed al-Kulaib, said that the ministrywanted to reorganise the labour market according to profession and wage struc-ture. Kuwait is considering appointing labour attachés at some of its foreignembassies to help regulate the recruitment of expatriate labour.

—as expatriate numbersincrease

The Public Authority for Civil Information said in late August that the popul-ation of Kuwait had risen to 2.153 million by the end of June, a 6.8% increasefrom June 1996. The authority puts the number of Kuwaiti nationals at about745,000 and the number of expatriates at 1.41 million. The survey indicates that61.1% of the total population is male and that fewer than 20% of expatriateworkers are accompanied by a wife. The figures also show the population ofKuwaiti nationals increased by 25,450 in 1996, implying a growth rate of 3.42%,one of the highest in the world. At the same time, the number of expatriates

18 Kuwait


increased by more than 111,000, a growth rate of 7.87%. Expatriates comprisearound 84% of the total workforce, although only 35.5% of workers in thepublic sector. The workforce has grown to 1.18 million, and is 77% male.

The rapid increase in the number of single expatriate males brought strongcriticism from a local company, Al-Shall Economic Consultants. Al-Shall saidthat the government had failed to introduce promised plans to reduce thenumber of expatriate bachelors. It also said the government figures show thatoverall growth in the number of expatriates is continuing despite the objectivesof the five-year plan. Al-Shall warned that the proportion of Kuwaitis is fallingback towards the pre-Gulf war level of 27% of the total population.

Privatisation plans aremoving slowly—

The head of the parliamentary finance committee, Mr Sanae, told the local pressin June that a draft privatisation law under discussion was taking time to final-ise. While reassuring Kuwaitis that parliament was committed to privatisation,Mr Sanae said the committee wanted to include some precautionary regulationsin any legislation authorising a privatisation programme. He indicated that thecommittee was keen to prevent monopolies being established after privatisationand that it wanted the government to appoint a regulatory body. He added thatmanaging public institutions more efficiently was a prerequisite for sale.Mr Sanae believes that the public needs to be better educated about what privat-isation entails to reduce scepticism towards the process. He referred to theprivatisation programme being carried out by the KIA.

—despite trade unionopposition

The Kuwait Trade Union Federation is apprehensive about even this cautiousapproach to privatisation and says it will reject any attempts to privatise stateservices. A member of the executive council of the federation, Saud al-Harbi,told a local Arabic daily, Al-Rai al-Aam, that he hoped the government wouldconsult with the federation about privatisation and that the rights of some70,000 state-sector workers would be protected. He said that any privatisationprocess would have to be a gradual one which was not detrimental to theinterests of citizens.

Progress is made onhealth insurance plans—

In late July the cabinet approved, with some amendments, a draft law submittedby the health and labour committee of the assembly making health insurancemandatory for foreigners. The plan will cover all expatriates except domesticservants, foreign civil servants, foreign wives of Kuwaitis and children withnon-Kuwaiti fathers. It is supported by the ministry of social affairs and labour,which sees the regulations as a way to control the number and type of expatriateworkers it allows to enter the country. The bill allows exemptions for certainemergency cases and for foreigners who are already covered by company healthinsurance policies. Insurance will be provided by Kuwaiti insurance companies,with the minimum acceptable level of cover including routine check-ups, tests,X-ray services, surgery (except cosmetic) and the cost of hospitalisation anddental treatment. The cost of premiums and who will be responsible for payingthe contributions (employer or employee) is still undecided. Earlier committeerecommendations suggested a basic payment of KD50 in the first year, rising toKD150 after five years. The amended draft law leaves these sums open and the

Kuwait 19


head of the health and labour committee said that it should be a matter forindividual companies to determine.

Some officials at the Ministry of Health have suggested that the bill does not gofar enough and should be extended to cover Kuwaiti citizens. But MPs wouldnot accept proposals to impose charges on their constituents, although someare already exploring ways of gaining preferential cover through private heath-care schemes for their voters.

—as the communicationsminister steps in—

The effort to push through legislation is in part the result of efforts made by theminister of communications, Jassem al-Oun, who has been acting as de factohealth minister while the health minister, Anwar al-Nouri, is away on holiday.Mr Nouri submitted his resignation several months ago but a replacement hasnot been named and he remains nominally in charge of the health ministry(1st quarter 1997, page 14). Mr Oun told the local press that healthcare wascurrently costing the state KD300m per year. He said that it was time thatexpatriates who benefited from the system contributed to it, arguing that noother country provides the same type of free healthcare services for foreigners.He suggested that the introduction of the new scheme could create new inter-est in the health sector with an increase in the number of private-sector clinicsand hospitals to service those covered by health insurance schemes.

—but fears are raisedabout restrictions on

medicines

The draft health insurance scheme comes in the wake of a health ministry edicton July 1 that bans the provision of 83 drugs to expatriates on the grounds thatthey are too expensive. The acting minister, Mr Oun, said that the ban had beenissued only after an exhaustive study had been made ensuring that effectivealternatives were available in Kuwaiti pharmacies. But some government phar-macies have admitted that they do not stock the government’s recommendedalternatives, and some private pharmacies say that not all the alternatives are aseffective as the originals.

In August the health ministry denied press speculation that it had also barredexpatriates from receiving medical treatment at several specialised treatmentcentres. Some expatriate workers, mainly from the Indian sub-continent, havesaid that the changes to the health service and the proposed insurance schemewould force them to leave Kuwait as they would no longer make enoughmoney for it to be worth staying.

Oil and gas

KNPC plans furtherexpansion—

Kuwait National Petroleum Company (KNPC) said in June that it was planningto improve production units at its Ahmedi refinery as part of a modernisationprogramme. KNPC also plans to construct a unit for removing sulphur from gasoil and preventing the loss of untreated gas oil, and to build new loading docks.In addition, KNPC has drawn up a five-year plan to reduce maintenance stop-pages by providing more staff and spare parts. By 2000, KNPC also plans toinstall a new unit producing 20,000 barrels/day (b/d) of jet fuel.

—but parliament is waryof plans for the oil sector—

In late July parliament approved a motion presented by the head of the parlia-mentary finance committee, Mr Sanae, asking the government to present any

20 Kuwait


proposals for joint exploration and production with foreign firms to parliamentfor approval. The motion was opposed by the government, and Mr Roudhansaid on behalf of the government that it violated the constitution. But MPsargue that it is their constitutional right to be consulted on policy and oper-ations dealing with natural resources. The assembly says that it is not opposedto deals with foreign oil companies, but it wants them to be properly scrutinisedbefore approval. One liberal MP, Mr Munayyis, has suggested that parliamentshould set up its own oil committee.

The assembly is concerned that the Supreme Petroleum Council (SPC), whichdecides oil policy, may try to bypass parliament and sign contracts with foreigncompanies for domestic oil production and exploration. The SPC is due todiscuss upgrading existing technical assistance agreements with several majorinternational oil companies. It also wants to renew in principle a concessiondeal with Japan’s Arabian Oil Company for offshore operations in the neutralzone between Kuwait and Saudi Arabia that is due for renewal in 2003.Parliament also asked to be consulted on contracts for Kuwait PetroleumCorporation (KPC) and its subsidiaries, and recommended the creation of acentral committee to handle all tenders at KPC.

—and has criticised KPC’sfinancial record

The assembly has also criticised the financial management of KPC. Although itapproved KPC’s annual budget, parliament recommended that KPC coordinateits investment activities with the KIA. The recommendation followed commentsby the head of the parliamentary committee for the protection of public funds,Adnan Abdul-Samad, who said that an Audit Bureau report on KPC activitiesshowed that KPC had pursued bad investments. Mr Abdul-Samad was partic-ularly concerned by KPC’s decision to acquire Santa Fe International at doubleits market price in 1981, and its KD90m ($296m) losses on the Southern GasProject in 1983. He said that other bad investment decisions in the early 1980shad resulted in heavy losses and the liquidation of several companies in whichKPC had a stake.

Exploration profits haveincreased

Kuwait Foreign Petroleum Explorations Company (KUFPEC) has announcedrecord half-yearly net profits of KD12m. The company operates projects inAustralia, China, Egypt, Indonesia, Pakistan, Tunisia and Yemen. Its chairman,Mahmoud al-Rahmani, said that the sharp increase was mainly due to aKD30m rise in crude oil and natural gas sales, and a drop in operational,administrative and forward project expenses. KUFPEC has been limiting itsexploration activities since 1995 to concentrate on production. But the com-pany is reviewing its long-term strategy for investing in new exploration andacquiring new production fields.

Production falls slightly Kuwait’s crude oil production fell marginally during the second quarter of 1997,according to figures from the International Energy Agency (IEA). The IEA saysthat Kuwaiti output, excluding the country’s share of production from theneutral zone, was 1.8m b/d in June. Total neutral zone production, which is splitevenly with Saudi Arabia, stood at 480,000 in June, leaving total Kuwaiti prod-uction at slightly more than the 2m b/d OPEC quota. The price of Kuwaiti crudeexports averaged $19.42/b during the first quarter of 1997.

Kuwait 21


Oil production(m b/d)

1996 1997 3 Qtr 4 Qtr 1 Qtr Apr May Jun

Kuwaiti production 1.80 1.81 1.84 1.80 1.79 1.80

Kuwait’s share of neutral zone 0.24 0.26 0.27 0.27 0.25 0.24

Total production 2.04 2.07 2.11 2.07 2.04 2.04Source: IEA, Monthly Oil Market Report.

Industry

Kuwait develops tourismplans—

Kuwait Public Transport Company (KPTC), which is expected to be one of thefirst state-owned companies to be privatised, has announced ambitious plansto extend its Middle East activities. The director of operations, Badr al-Mutar,said in August that KPTC intends to build a road connection to Syria and to rundesert bus trips to the Egyptian Red Sea port of Nuweiba at the end of the year.The company has recently upgraded its fleet of buses.

—and announces a newfree-trade zone

The cabinet has approved a proposal by the Ministry of Commerce to establisha free-trade zone (FTZ) in a 112,000-sq metre storage area of Kuwait City’s maincontainer port at Shuwaikh. The way is now open for a contract to be drawn upfor a private company to administer the FTZ. But the commerce and financeministries are arguing over who should take the lead in awarding the lucrativecontract. The cost of setting up the FTZ is estimated to be KD21m ($69m) andthe government hopes to attract Arab and foreign firms to participate. Amember of the consultative committee supervising the establishment of theFTZ, Abdul-Wahab al-Wazzan, says that it would form a “good investmentnucleus” and would operate commercial, storage and industrial activities.

More desalination plantsare needed

The Ministry of Electricity and Water is studying proposals to increase thenumber of desalination plants it operates before the year 2000. The director ofwater distillation projects at the ministry, Abdul-Aziz al-Shuaib, told localreporters in August that rising water consumption and future projections ofwater production show a need for more desalination capacity. During the hotsummer months, temperatures can exceed 50°C, and although many Kuwaitisspend the summer out of the country, farming consumes most of the availablefresh water. This year ministry officials launched a campaign to encourageKuwaitis to curb their consumption of water as consumption exceeded prod-uction. Consumption peaked at 229.5m gallons/day (g/d) on June 28, com-pared with 215m g/d in 1996.

The ministry is already shortlisting international firms for a third developmentphase at the South Zour desalination project which should generate 24m g/dwhen production begins in mid-1998. In addition, the ministry plans to build astation at Sabbiyya with a further capacity of 24m g/d to be operational bymid-2001, and another at North Zour which will be up and running by 2004.The ministry also hopes to expand its use of reverse osmosis desalination, whichis already being used at a plant on the Doha spur to produce 3,000 cu metres/dayof water.

22 Kuwait


Desalinated water production(m g/d)

Shuwaikh 16

Doha west 85

Doha east 30

Shuaiba 20

Al-Zour 50a

Brackish water productionb 86.73

a Other ministries estimate production at 40m g/d. b 84 wells in Sulaibiyya, 64 wells in Shaqaya,64 wells in Umm Qadeer and 2 wells in Wafra.

Source: Ministry of Electricity and Water.

MTSC is put on a shortcontract

Following parliamentary dissatisfaction with the mobile telephone serviceoperated by Mobile Telecommunications Systems Company (MTSC)(2nd quarter 1997, page 24), the parliamentary committee for the protection ofpublic funds has offered a limited renewal of the company’s contract. Thecommittee has decided that is will only renew the MTSC contract for a singleyear on the original terms. The committee said that it was concerned about themonopolistic aspects of the company’s operation and was considering impos-ing additional charges on MTSC until other competitors were established.

Local companiesannounce half-yearly

profits

A number of local companies have announced healthy half-yearly results.Warba Insurance Company says it made a profit of KD300,000 in the first sixmonths of this year, compared with KD136,000 last year. National Bank ofKuwait saw its profits rise by KD3.9m to KD39.2m, and Kuwait Fisheries UnionCompany boosted profits by 25.3% to KD2m. Al-Sharqah Company for Cementand Industrial Development said its performance had improved by 13.4%, withprofits of KD1.4m, while Kuwait Boubiyan Petrochemicals Company an-nounced profits of KD1.3m. But Gulf Cement Company saw its profits fall by43.6% to KD1.5m.

Money and finance

Approval is expected foran offset fund—

The managing director of the Industrial Investment Company, Taleb AliAhmed, has told the Kuwaiti state news agency, KUNA, that he expects theministry of commerce and industry to approve an offset fund with initialcapital of KD30m ($98.6m). The fund, which will operate for ten years, will beopen to local and foreign investors and will aim for high-yield schemes anddiversified investments. But Mr Ahmed admitted that Kuwait had a long wayto go to encourage foreign investment and agreed that current taxation lawsdid not help.

—amid calls to improvethe investment climate

A special committee in charge of drafting a law on foreign investment hasrecommended that foreign companies be allowed full property rights and taxexemptions for the first ten years of their operations in Kuwait. The under-secretary responsible for the committee at the commerce ministry, Rashidal-Majren, said that the committee all agreed on the need to attract foreigninvestors to Kuwaiti markets and hoped to finalise the law as soon as possible.

Kuwait 23


Concern increases overmoney-laundering

The minister of interior, Mr Sabah, has complained that Kuwait is at risk becauseit has no specific legislation in place to safeguard it against money-laundering.At a seminar on drugs held in Kuwait in July, the director of the anti-narcoticsand mind-altering substances department at the ministry, Lieutenant-ColonelHamad al-Surayya, said that the department had evidence that drug-traffickerswere trying to launder money through Kuwait.

The Central Bank of Kuwait has played down the ministry’s fears, saying thatexisting monitoring arrangements are capable of detecting money-launderingactivities. In June the head of the Central Bank, Sheikh Salem Abdel-Azizal-Sabah, told Al-Rai al-Aam that it had taken measures to prevent attempts tolaunder money. He claimed that these had already prevented some suspicioustransactions. Banks are required to make identity checks on clients and theirbusinesses, and have a duty to inform the Central Bank of all cash deposits ofover $33,000 as well as any other large or irregular transactions. The Ministryof Finance is also looking at further measures to bring Kuwait into line withguidelines on countering money-laundering established by an internationalfinancial action task force.

An insurance law is onthe way

The Ministry of Commerce and Industry has finalised a draft insurance lawaimed at modernising the insurance system in Kuwait. The manager of theministry’s insurance department, Adel al-Rumaih, said that the new law aimedto improve the reputation of the sector both inside and outside Kuwait. It willalso impose harsher penalties on fraudulent claims. The ministry is examiningthe possibility of allowing foreign investment in the Kuwaiti insurance sector,which is banned by current legislation, but Mr Rumaih admitted that so farthere are no plans to change the policy.

The KIA sells shares inBurgan Bank

The KIA has sold part of its stake in Burgan Bank to the Investments ProjectsCompany (IPC) in the first part of a two-stage sell-off. The IPC was the onlycompany to bid for the 130m shares on offer in a public auction on July 31. Thesale, which was worth KD48.1m, was equivalent to 17.5% of the bank’s totalshares. With the purchase, IPC now holds a 43% stake in the bank. KIA haspromised the sale of a further 250m shares at a later stage. In July Burgan Bankreported net profits of KD10.5m in 1996.

A new Islamic bankinginstitution is planned

The Saudi-based Islamic Development Bank (IDB) is leading a consortium ofIslamic banking institutions that plans to set up an Islamic leasing company inKuwait once a bill regulating Islamic banking activities becomes law(2nd quarter 1997, page 25). The company will be capitalised at $50m, with IDBtaking a 33% stake. Other non-Kuwaiti participants may include the NationalCommercial Bank of Saudi Arabia and the Qatar International Islamic Bank.Several Kuwaiti government institutions are also keen to be involved in theproject. The Kuwait Finance House (KFH), which currently holds a monopolyover Islamic leasing activities in Kuwait, is also interested in participating. KFH’sgeneral manager for Murabaha activities, Ahmed al-Khalid, says that KFH isconfident of its own market share and believes that the local market can absorbmore companies operating on an Islamic banking basis. Draft legislation onIslamic banking is currently at the committee stage and is expected to be final-ised later this year.

24 Kuwait


Foreign trade and payments

Exports increase in thefirst quarter of 1997

Reflecting higher world oil prices during the first quarter of 1997, export figuresfor Kuwait show that the country’s trade surplus for that period increased byover 19% in comparison with the year-earlier period. Total exports wereKD1.4bn ($3.74bn), an 11% increase over exports during the first quarter of1996. Oil exports accounted for 96% of merchandise exports, and grew in valueby almost 13%. Non-oil exports declined in value by KD10.1m, to totalKD47.8m. Imports also rose by about 5%, to KD627m. The resulting tradesurplus totalled KD511.6m.

Foreign trade(KD m)

Jan-Mar 1996 1997

Exports 1026.1 1138.6

Imports –596.4 –627.0

Trade balance 429.7 511.6Source: Central Bank of Kuwait, Quarterly Statistical Bulletin.

The current-accountsurplus shows an increase

in 1996—

The IMF has released trade figures which show that the country’s trade surplusincreased from about $5.5bn in 1995 to $7bn in 1996. Exports rose to theirhighest level since the Gulf war, reaching a total of $14.7bn in 1996. Theincrease reflected high world oil prices, as the volume of Kuwaiti oil exportsactually fell slightly in 1996. Imports also rose, but at a slower pace. In 1995merchandise imports totalled $7.2bn compared with a total of $7.7bn in 1996.

The country’s current-account surplus also grew significantly in 1996, reachingits highest level since 1989. The increase was due mainly to the strong showingon the trade account. In addition, income credits rose to just under $6bn in1996, as investment income grew. The Central Bank credits this increase to boththe strong performance of foreign capital markets and growth in the size ofKuwait’s foreign investments. Net transfers, which largely reflect the continuingimportance of expatriate workers in the country, increased only slightly andservices debits declined, despite an increase in the country’s merchandiseimport bill.

Current account($ m)

1995 1996

Exports 12,632 14,696

Imports –7,154 –7,662

Trade balance 5,478 7,034

Services: credit 1,555 1,613

Services: debit –5,472 –5,107

Income: credit 5,740 5,965

Income: debit –1,066 –1,049

Current transfers: credit 54 53

Current transfers: debit –1,716 –1,737

Current-account balance 4,574 6,773Source: IMF, International Financial Statistics.

Kuwait 25


—and India remainslargest market for non-oil

exports

Figures released by the Central Bank show that in 1996 India remained thelargest market for Kuwait’s non-oil exports. The next most important marketsfor these exports were Saudi Arabia and the UAE, two of Kuwait’s partners inthe GCC. Exports of Kuwaiti origin are two-thirds of the total of non-oilexports, with re-exports accounting for the remainder. The total value of non-oil exports rose from KD217.3m in 1995 to KD228.35m in 1996.

Non-oil export markets(KD ’000)

1995 1996

India 35,605 38,718

Saudi Arabia 33,718 34,564

UAE 22,620 32,902

USA 9,118 12,594

China 25,947 11,199Source: Central Bank of Kuwait, Quarterly Statistical Bulletin.

Foreign investmentincome grows

The chairman of the KIA, Ali Rashid al-Badr, said at the end of July that prelimi-nary figures showed healthy investment income for Kuwait. He suggested thatrevenue from foreign investments for 1996/97 could be greater than oil revenuein the previous fiscal year. The KIA is banned by law from publishing the valueof Kuwait’s international holdings, but they are believed to be in the region of$45bn-50bn. Mr Badr said that returns in 1995/96 were around 18%, and thathealthy equity markets meant they were likely to be around 20% for 1996/97.Kuwait is still rebuilding its international portfolio after having liquidated hugesums to pay for the Gulf war and reconstruction.

26 Kuwait


Quarterly indicators and trade data

Quarterly indicators of economic activity

1995 1996 1997

2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Production: industry Prodn/day

Crude petroleuma m barrels 2.05 2.06 2.06 2.07 2.03 2.04 2.07 2.11 2.07b 2.10c

Prices Monthly av

Consumer prices: 1990=100 114.0 115.0 115.5 117.7 118.9 n/a n/a n/a n/a n/a

change year on year % 3.1 3.1 1.5 3.1 4.3 n/a n/a n/a n/a n/a

Money End-Qtr

M1, seasonally adj: KD m 1,407 1,107 1,164 1,178 1,138 1,198 1,219 1,344 1,360 n/a

change year on year % 27.2 3.7 5.0 10.8 –19.1 8.3 4.8 14.1 19.5 n/a

Foreign trade Qtrly totals

Exports fob KD 994 917 955 1,026 1,051 1,098 1,274 n/a n/a n/a

petroleum “ 947 856 894 968 990 1,046 1,217 1,091 n/a n/a

Imports cif ” 640 489 587 596 617 608 686 n/a n/a n/a

Exchange holdings End-Qtr

Central Bank:

goldd $ m 739 732 734 762 743 733 716 669 653 617e

foreign exchange “ 3,581 2,903 3,263 3,264 3,457 3,287 3,221 3,291 3,018 3,016e

Commercial banks’ assets ” 6,653 7,081 7,128 7,002 6,777 6,802 7,230 7,569 7,290 n/a

Exchange rate

Official rate KD:$ 0.299 0.299 0.299 0.299 0.300 0.300 0.300 0.303 0.302 0.303e

Note. Annual figures of most of the series shown above will be found in the Country Profile.a Excluding partly refined petroleum. Including half share of neutral zone production. b Provisional. c Estimate for July. d End-quarter holdings atquarter’s average of London daily price less 25%. e End-July.

Sources: IEA, Monthly Oil Market Report; IMF, International Financial Statistics.

Kuwait 27


Foreign trade($ m)

Total USA Japan Germany UK

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1994 1995 1994 1995 1994 1995 1994 1995 1994 1995

Food, drink & tobacco 1,100.6 1,157.5 101.3 125.6 1.3 1.5 47.1 49.9 68.6 79.3

of which:

tobacco & manufactures 75.5 65.1 50.0 40.7 0.3 0.4 0.8 1.3 17.4 14.9

Chemicals 505.2 569.1 68.3 59.9 16.0 12.2 54.6 62.7 86.8 95.2

Paper & manufactures 142.9 171.6 6.9 10.2 2.8 2.0 15.4 19.6 4.8 8.0

Textile yarn, cloth & mnfrs 243.7 262.3 35.4 34.3 27.3 31.5 5.0 3.9 11.0 11.7

Non-metallic mineral mnfrs 250.8 345.6 9.6 10.8 23.5 23.2 4.9 4.9 4.3 4.7

Iron & steel 246.5 299.1 8.8 14.0 37.0 40.5 7.9 9.3 7.5 9.0

Non-ferrous metals 79.5 99.4 8.4 7.3 1.9 1.4 2.3 2.1 8.2 5.5

Metal manufactures 196.3 215.2 14.1 17.3 9.2 8.3 22.0 18.2 20.2 22.6

Machinery & transport eqpt 2,548.0 3,212.5 594.7 830.5 585.3 526.0 323.7 331.0 177.4 156.1

of which:

road vehicles 916.2 1,007.6 294.2 352.0 336.8 309.6 165.6 167.7 14.8 21.3

aircraft 212.6a 809.2a 25.8 210.3 0.0 0.7 3.0 7.2 2.5 2.1

ships 89.1 51.9 10.8 9.8 2.9 2.3 0.6 0.2 2.0 1.2

Furniture 117.2 128.7 27.1 32.9 0.6 0.8 4.8 6.0 6.4 7.6

Clothing 291.4 319.0 14.4 14.4 0.7 0.6 11.2 11.3 16.0 19.5

Scientific instruments etc 158.2 146.0 29.4 26.4 34.0 35.1 16.7 11.3 15.7 13.3

Total incl others 6,680.4 7,789.8 971.2 1,255.2 783.1 728.7 549.5 564.7 463.5 466.9

Total India Saudi Arabia China UAE

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1994 1995 1994 1995 1994 1995 1994 1995 1994 1995

Crude petroleum 0.0 12,216.0b 0.0 n/a 0.0 n/a 0.0 n/a 0.0 n/a

Petroleum products 33.9 39.1b 3.2 n/a 0.5 n/a n/a n/a 0.6 n/a

Chemicals 151.3 260.7 64.2 82.7 9.0 9.0 24.6 86.5 3.4 4.9

Manufactured goods 113.5 133.4 3.8 4.3 54.0 60.8 0.0 0.1 21.5 24.6

of which:

paper & manufactures 31.1 33.1 2.5 2.4 19.6 21.8 0.0 0.0 3.6 1.9

non-metallic mineral mnfrs 32.5 41.4 0.1 0.2 16.5 22.1 0.0 0.0 7.0 9.4

Machinery & transport eqpt 343.7 182.3 1.8 0.9 23.5 17.9 0.0 0.0 64.4 34.2

Total incl others 767.5 12,944.4 103.4 119.3 111.4 113.0 25.1 87.0 105.7 75.8

a Imports from France, $179.8m and $586.3m. b Country breakdown is not available.

Source: UN, External Trade Statistics, series D.

28 Kuwait


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