Bid to address national malaise

Ajostling group ofKuwaiti men outsidethe public door of par-liament last month,

spoke of a broader fight for theircountry’s future.

They had come to witness thefirst public grilling of a primeminister – and member of theruling Al-Sabah family – in anevent never before seen inKuwait and almost unimagina-ble elsewhere in the politicallyauthoritarian Gulf.

The jostling group providedevidence of the thirst forKuwait’s limited form of democ-racy at this time of Arab upris-ings – and hinted at some of thechaos and troubles behind theveneer of popular enfranchise-ment.

While Kuwait’s parliamentarysystem and its longstanding tra-dition of robust public debatehave in some ways made itappear far-sighted at a timewhen people elsewhere in theMiddle East are demanding sim-ilar freedoms, its example hasalso taken on a more threadbarelook in the past year.

Parliament has been beset bypower struggles and anger overcorruption that led to it beingstormed in November andhelped give government oppo-nents a majority in February’selections.

The new lawmakers, a diversegroup ranging from tribesmento Islamists, have yet to offerany clear political agenda, lead-ing to fears that they will proveno better than their predeces-sors at addressing a deep-rootedsense of national malaise.

For all the country’s oilwealth, many in politics andbusiness feel it has fallenbehind some of its neighboursin terms of development andinternational influence – andthat it urgently needs to movebeyond the favoured regionalmodel of offering its populationcash handouts and cushy gov-ernment jobs.

“The economy is all driven bythe government: the countrybecame like a gas station,” saysAbdulrahman al-Anjari, a lib-eral MP and member of parlia-ment’s finance committee.“They sell oil and have an armyof employees. There are nogoods and services that we pro-duce.”

Kuwait, one of the world’srichest countries on a per-capitabasis, is also among the leastinternationally noticed – butmost distinctive – of the Gulf

petrostates. It is marked out notjust by its moves towardsdemocracy, but also the highdegree of integration of ShiaMuslims in its Sunni ruled soci-ety. It also has a notably unbel-ligerent approach to regionalaffairs that stems from beingsurrounded by powerful neigh-bours and from having sufferinginvasion by one of them – Iraq –in 1990.

While Kuwait is still headedby a monarchy and has somerestrictions on freedom ofspeech – criticism of the Emir isoff limits, for example – thepolitical culture is relativelyopen, encompassing regular crit-icism of the government andsustaining a parliament now onthe verge of its sixth decade.

Many of the country’s politi-cal problems, brought into evensharper focus by the uprisings,have emerged where this democ-ratising impulse butts upagainst the superstructure ofroyal control.

The prime minister is still

chosen by the Emir, and as fewas one of the government’s 16members is drawn from parlia-ment. The prime minister is alsotraditionally from the rulingfamily, meaning that when one– Sheikh Nasser Al-MohammedAl-Sabah – was forced to resignlast year, he was merelyreplaced by another, SheikhJaber Mubarak Al-Sabah.

The lack of parties means poli-tics becomes very personalisedand focused on individual rival-ries and personal agendasrather than broad-based policyplatforms, critics say.

One Islamist MP has madewaves by calling for the aboli-tion of churches, says AbdullahAl-Shayji, chairman of politicalscience at Kuwait University.

“You have some hardcorefringe elements that are tryingto use the majority Islamistcomposition of parliament toadvance their agenda, theirviews of puritan Islam,” he says.“They represent the fartherextreme of this and ultimately

this will give them a black eye,because this is what will graband stick more in the headlinesand in the minds of people.”

The absence of political par-ties also makes it hard to mobi-lise support for some legislation– and to stop efforts to buy thepeople’s loyalty through bigpublic sector pay rises that fewMPs want to be seen opposing.

In economic terms, the resultis a dominant public sector,stunted private enterprise andthe loss of some of the best edu-cated and most talented peopleto better opportunities abroad, ahaemorrhage this country of 2mforeigners and 1m nationals canill afford.

Kuwait’s gross domestic prod-uct growth, which is heavilydependent on the oil price, isforecast to dip from 5.7 per centlast year to 4.4 per cent thisyear, prompting further debateon how to kick-start the econ-omy.

“Structural challenges includegovernment bureaucracy, a lack

of private sector development,labour market issues and a lackof competition in key sectors,”says Daniel Kaye, economist atNBK, the bank. “These aren’tnew things: they have beenKuwait’s Achilles heel for yearsif not decades.”

The political turmoil has alsoheld up social reforms andprojects Kuwait needs to matchthe infrastructure improve-ments and development initia-tives seen elsewhere in the Gulf,analysts say.

Parliament has repeatedlyintervened, delaying oil pro-jects, observers say, and jeop-ardising efforts to raise produc-tion from about 3.2m barrels aday now to 4m b/d by 2020.

A privatisation law passedalmost two years ago after yearsof argument is gathering dust,undermining a broader four-year £71bn development planaimed at diversifying the econ-omy and turning the countryinto a regional trade and finan-cial centre.

In October, the governmentpostponed a plan to privatiseKuwait Airways, the nationalcarrier, saying it wanted first torestructure the company, whichhas broken even in just one ofthe past 21 years.

In foreign affairs, Kuwait’srecent detente with Iraq wasevidence of a push to extend itspolicy of building as many alli-ances as possible to insureagainst the vulnerability inher-ent in its small size, greatwealth and dangerous geograph-ical position. As tensions riseover Iran’s nuclear programme,and conflicts in the Gulf andneighbouring Syria take on anincreasingly sectarian charac-ter, Kuwait will have to workeven harder to maintain thepeaceful status quo.

Alanoud Al-Sharekh, a MiddleEast politics specialist at theInternational Institute for Stra-tegic Studies and former senioranalyst Kuwait’s National Secu-rity Bureau, says: “Kuwait is amaster of holding an even keel,

trying to keep all sides happy –and cheque book diplomacy, ofcourse.”

Many of the problems facingKuwait echo those in othercountries, not least in the west.It is also true that – as manyKuwaitis point out – its difficul-ties sometimes get more atten-tion than those of other Gulfstates, simply because peopleare allowed to talk about thempublicly in a way citizens ofother countries are not.

But this year’s elections andtheir fallout have deepened asense that Kuwait is facing anoverdue reckoning about how itgoverns itself and about how itturns its oil wealth into longer-term prosperity.

“How do we preserve ourdemocracy while at the sametime achieving a sustainableeconomy, a sustainable coun-try,” asks Yousef Al -Ebraheem,a senior economist with influ-ence on official policy. “I thinkwe need to open a dialogue onthis.”

Michael Peel andCamilla Hall reporton a country in thegrip of heated debateover its direction

Question time: Sheikh Jaber Mubarak Al-Sabah (centre) takes advice before the first public grilling of a Kuwaiti prime minister EPA

Diplomacy shifts up a gearas tensions rise in the Gulf

When Sheikh Sabah Al-Ahmed Al-Sabah, Kuwait’sEmir, accepted a kiss ofwelcome from Nouri al-Ma-liki, Iraq’s prime minister,at Baghdad airport lastmonth, he was doing morethan sealing emotional rec-onciliation between the twocountries.

The visit, the first by aKuwaiti head of state sincethe country was invaded byits larger neighbour underSaddam Hussein in 1990,marked an unusually publicstep in Kuwait’s discreetefforts to ensure its sur-vival as a small rich statesurrounded by bigger andstronger ones.

“We are well aware of thedangers of antagonising ourmore populous and mili-tarily powerful neigh-bours,” says Alanoud Al-Sharekh, a Middle East poli-tics specialist at the Inter-national Institute forStrategic Studies who for-merly worked at theNational Security Bureau.She adds: “Being sand-wiched between Iraq, Iranand Saudi Arabia makesyou aware that your eco-nomic clout can take youonly so far: the rest youhave to finesse.”

After long pursuing alow-profile policy of build-ing – and sometimes buying– good relations with a widerange of countries region-ally and internationally,Kuwait is having to shift upa gear as tensions in theGulf rise. Analysts say thestand-off over Iran’s nuclearprogramme, the Syrianrevolt and the rise of sectar-ianism across the regionmay force Kuwait to dosomething it would rathernot: side with its more mili-tant Gulf Arab neighboursand turn its back on Tehranand its fellow Shia-ledregime in Baghdad.

Kristian Coates Ulrich-sen, Kuwait research fellowat the London School ofEconomics, says: “I thinkthe Kuwaiti government iscoming under pressure totake a much harder linethan it would like. “There isthe risk that the Kuwaitimodel of relatively harm-less coexistence couldunravel.”

The Iraq trip by the Emir– who was foreign ministerfor 40 years – was symbolicnot just as a breaking oftwo decades of political icebuilt up between the twocountries.

The Emir was also theonly head of state from thesix Sunni Muslim-ruledGulf Co-operation Councilmembers to turn up inBaghdad, where the emer-gence of a Shia-led govern-ment since the 2003 USinvasion has alarmed lead-ers in the region.

The Baghdad trip fol-lowed a carefully choreo-

graphed agreement in therun-up to the annual ArabLeague summit for Iraq topay and invest $500m settlea $1.2bn legal claim broughtby Kuwait over aircraft andspare parts allegedly lootedfrom Kuwait Airways, thenational airline, during thenear seven-month Iraqioccupation.

The deal, which Mr Al-Maliki travelled to Kuwaitto sign, has increased hopefor progress on other bilat-eral disputes, notably overborder demarcation andKuwait’s decision to build aport to compete with Iraq’sGrand Al-Faw terminal just

a few kilometres across theborder.

While many Kuwaitis stillfeel anger over the Iraqioccupation – for whichBaghdad is still payingalmost $40bn of reparations– there is also a pragmaticstrand of thought that rec-ognises the cost of follow-ing other Gulf leaders ingiving the Al-Maliki govern-ment the cold shoulder.

Ghanim Al-Najjar, a polit-ical analyst and professor atKuwait University, pointsout that “Kuwait is thecountry that will feel theheat if something happens

[in the region]. So it’s bestnot to follow the Saudi line:it’s better to have an openrelationship with Iraq.”

The Iraq detente high-lighted another trouble-some foreign policy con-trast between Kuwait andits fellow GCC members.

While the large minorityShia population in Kuwaitis reasonably well inte-grated and prominent insociety – though more inbusiness than politics –some other GCC countriesview the Shia as at best sus-pect in their loyalties and atworst agents of the hatedShia regime in Tehran.

Those tensions emergedpowerfully last year, whenan uprising by members ofthe Shia majority in Bah-rain against the Sunni mon-archy prompted Saudi Ara-bia and the United ArabEmirates to dispatch secu-rity forces in a show of sup-port for the rulers.

Kuwait was much lessvocal, which analysts saycost it political capitalamong the other GCC coun-tries. Kuwait also differsfrom some of its neighboursin its lack of ambition to bea regional power.

It does not want to apeQatar, which sent its mili-tary to help overthrowLibya’s Colonel MuammerGaddafi and is now callingfor arms to be sent to theSyrian uprising againstPresident Bashar Al-Assad.

Kuwait’s less partisanapproach is born partly ofpainful past experience ofthe consequences of anactivist foreign policy.

In the 1980s, the thenEmir narrowly escapedassassination, while thecountry suffered a series ofbombings by Iranian loyal-ist groups because of itssupport for Baghdad in theIran-Iraq war. “We used todo what Qatar did, and wehad a lot of headaches,”says Meshal Al-Roumi, apolitically active business-man “We are small and weknow our capabilities.”

Instead, Kuwait has con-tinued and broadened itslongstanding policy of dis-tributing money around theworld through an interna-tional economic develop-ment fund.

Targets have includedcentral Asian states thathave large gas reserves andcould help meet Kuwait’spressing energy import

Foreign relationsCrises over Iranand Syria have putthe governmenton the spot, writesMichael Peel

‘Being sandwichedbetween Iraq, Iranand Saudi Arabiamakes you awareeconomic clout cantake you only so far’

Sheikh Sabah Al-Ahmed Al-Sabah, the Emir, in Baghdad Getty

In a smart house in KuwaitCity, 20 mostly white-robedmen filled the seats liningeach wall of a cosy roomand began a chat that wassoon to take an anxiousturn.

As waiters whirled in andout with juice, caffeine andmezzeh snacks, Yacoub al-Sanea, the host of this tradi-tional gathering known as adiwaniya, turned to addressthe MP sitting next to him.

“We worry about thefuture of this country,” MrSanea said, clutching astring of white prayer beadsthat he clacked at intervalsduring the long eveningtalks. “We have everythingto make this country better.But we notice people tryingto pull us back.”

His fears are a reflectionof how Kuwait’s always tur-bulent system of semi-democratic rule has beenthrown into turmoil by aseries of extraordinaryevents that have left poli-tics both paralysed andunpredictable.

After the storming of par-liament by protesters inNovember and the oustingof the prime minister thesame month, February’slegislative elections – the

fourth since 2006 – sawopponents of the govern-ment take about two-thirdsof the 50 seats.

The influx of new MPs,including a large Islamistcontingent, has triggeredfierce debate over the coun-try’s direction and left com-mentators denouncing thesystem’s dysfunctionality –while still celebrating a rel-ative pluralism uniqueamong autocratic Gulf mon-archies.

Ghanim Najjar, a politi-cal-science professor atKuwait University says:“We have a parliamentwhich is not doing well, agovernment that’s ineffi-cient and corruption that’skilling everybody. We are ina crisis situation and it’s acontinuous crisis. But that’snot strange for democracy:if you have an open society,you have crises.”

Opposition to SheikhNasser Al-Mohammed Al-Sabah, the former primeminister, mounted in therun-up to the election, as aloose grouping embracingIslamists, young people andBedu tribesmen accusedhim of diverting state fundsto private bank accountsoverseas – allegations hehas repeatedly denied.

The campaign againsthim, sharpened by the Arabuprisings, pinpointed ten-sions at the heart of Kuwaitpolitics, ranging fromalleged corruption in gov-

System strugglesto find a morecoherent shapePoliticsSemi-democraticrule is in turmoil,says Michael Peel

Continued on Page 2

KUWAITFINANCIAL TIMES SPECIAL REPORT | Tuesday April 17 2012 Page 3

StatelessBidoun protestat denial ofcitizenship forthousands

www.ft.com/kuwait-2012 | twitter.com/ftreports

Inside this issueEconomyAs the onlyGulf statewith anactiveparliament,thequestion ishow to spend its moneyeffectively, ease dependenceon oil and create productivejobs for its young, writesCamilla Hall Page 2

Privatisation Little hasbeen done to realise thepromise of 2010 legislationdesigned to revive aneconomy stunted by anoverweening state sector,says Guy Chazan Page 2

WomenFailure towin evenone seat inFebruary’selection hasraisedconcernsthat one ofthe most

politically progressivecountries in the region istaking a step backwardsPage 3

Oil The appointment ofHani Hussein as oil ministerhas come as Kuwait needsto exploit a new generationof complex fieldsPage 4

Gas The host to one of thelargest discoveries of recentyears, it has been slow todevelop resources Page 4

The KIA Henny Senderlooks at the constraints onone of theworld’smostvenerablesovereignwealthfundsPage 4

needs, says the LSE’s MrCoates Ulrichsen.

Kuwait is also bolsteredby being on a list of coun-tries designated by the USas “major non-Nato allies”that enjoy military andfinancial benefits.

The close relationshipwith Washington – leader ofthe effort to drive out Iraqiforces in 1991 – is anothersign of Kuwait’s practicalacknowledgment that itmay one day again have toface a conflict it does notseek.

As Ms Al-Sharekh of theInternational Institute forStrategic Studies puts it:“Since we can’t relocate, wehave seen people acceptthat this is our geography;we are a small country, wehave our neighbours – andwe need to move forward.”

2 ★ FINANCIAL TIMES TUESDAY APRIL 17 2012

Kuwait

Quest for a dynamic private sector

Winding through thedusty, decrepitbuildings of centralKuwait City, there

are few reminders of howwealthy the country is.

Only a short flight away fromthe skyscraper skylines of Dohaand Dubai, Kuwait City has seena slower pace of change over thepast decades.

Basking in oil wealth,Kuwaitis are blessed when itcomes to economic fundamen-tals. Crude prices are comforta-bly above $100 a barrel andmultibillion-dollar budget sur-pluses are happily feeding thecountry’s coffers.

As the only country in theGulf with an active and boister-ous parliament, however, thequestion is how to spend itsmoney effectively, modernise theeconomy and lift dependence onoil. Upgrading its decades-oldinfrastructure and creating pro-ductive jobs for young people areamong the most pressing needs.

“They’ve got the money andthey know they need to spend it,but they can’t get themselves tomove fast enough,” says MichelAccad, chief executive of GulfBank.

The government recognises ithas to accelerate its developmentprojects, but is constantly drawninto parliamentary bickeringover the minutiae of its plans,stalling the process.

The cabinet and the parlia-ment blame each other fordelays to a £71bn four-year devel-opment plan that analysts say iscrucial to kick-starting the econ-omy.

There is some hope the newlyelected majority-opposition par-liament will push forward theplans, including accelerating theprivatisation of large swathes ofthe economy.

Ahmed Sadoun, the parlia-ment’s high-profile speaker and asupporter of privatisation, is

under pressure to deliver thepledges made during campaign-ing to boost the economy.

“If you had a good administra-tion, our economy would easilypick up and very soon,” says MrSadoun. “We are trying to co-operate with the government –we are ready to co-operate withthe government, once they areready.”

The technocratic nature of thenewly-elected cabinet, appointedby Sheikh Jaber Al-Mubarak Al-Sabah, the prime minister, mayhelp to prioritise plans.

The government’s recentrefusal to cave in to pressure toincrease pay during a recentlabour strike sent a positive sig-nal to the business community.

Optimism is limited, however,as the strikes came only after

the latest handout of a 25 percent salary increase for somepublic sector workers who hadnot already received rises.

The cabinet will need to bal-ance public pressure for payincreases with the long-termstrategic planning that analystssay is more likely to help correctstructural imbalances.

“It’s not rocket science. Any-one can see that going throughthis path is not sustainable,”says Yousef Al-Ebraheem, eco-nomic adviser to the Emir,Sheikh Sabah Al-Ahmad Al-Sabah. He adds: “There is noway we can sustain this level ofgovernment expenditure onwages and salaries and othercurrent expenditure.”

Mr Al-Ebraheem says that thewealth is being distributed “to

the current generation, not tothe future generation”.

Putting off addressing theproblem may create politicalstress further down the line.

While the country is arguably

the most democratic in the Gulf,the economy remains dominatedby the government, promptingcommentators to say it operatesa socialist-style system. The pri-

vatisation of companies such asKuwait Airways, its national air-line has failed to materialise.

More and more of Kuwait’syouth are dependent on the gov-ernment for jobs. “The govern-ment takes care of you frombirth to death, even the rubbingwhen you die is by the govern-ment,” says Faisal Hamad Al-Ay-yar, vice-chairman of Kipco, the$25bn Kuwaiti holding company.“When you give something, youcan’t take it back so easily.”

While many are downbeat,economists say the numbers donot tell a negative story, particu-larly given the global slowdown.Growth will slow from 5.7 percent last year to 4.4 per cent thisyear, according to National Bankof Kuwait.

The government is reviving

plans to make Kuwait a financialhub, despite stiff competitionfrom Dubai, Qatar, Abu Dhabiand even Riyadh.

It is also trying to increase for-eign direct investment by estab-lishing an independent one-stop-shop to help investors, saysSheikh Meshaal Jaber Al-AhmadAl-Sabah, head of the foreigninvestment bureau.

Progress is slow, but bankers,politicians and analysts agreethat there is now a motivation topush the country’s developmentplans forward. Mohammed Al-Omar, chief executive at KuwaitFinance House, says: “They aregoing through turbulence but Iknow that they seriously want todo it and they are going to do itbecause there is no otherchoice.”

EconomyCamilla Hall looks atefforts to liftdependence on oiland create productivejobs for the young

The government isconstantly drawn intoparliamentarybickering over theminutiae of its plans,stalling the process

On the move: a bridge under construction. The government recognises it has to accelerate projects and there is hope the new parliament will push plans forward Reuters

Business questionsstate’s commitment

After years of political argu-ments, Kuwait finallypassed a much-delayed pri-vatisation law in May 2010designed to revive an econ-omy stunted by an over-weening state sector.

The law was an importantplank of a four-year £71bndevelopment plan aimed atturning the country into aregional trade and financialcentre, lessening its depend-ence on oil, and boostingthe private sector.

But two years on, littlehas been done to implementthe law. That failure is epit-omised by the aborted pri-vatisation of Kuwait Air-ways, the country’snational carrier. The planwas to sell 35 per cent of itto a strategic investor and40 per cent to Kuwaiti citi-zens in an initial publicoffering. But last October,the government shelved theplan, saying it would firstrestructure the airline.

Kuwait Airways symbol-ises the weaknesses of thestate-run sector. Notori-ously inefficient, over-staffed and with high oper-ating costs, it has incurreda loss in all but one of thepast 21 years.

It now faces mountingcompetition from dynamicrivals in the region such asDubai’s Emirates and Eti-had of Abu Dhabi.

One of the reasons for thefailure of the privatisationwas the onerous terms setby the state – for example,the acquirer had to keepstaff on and pledge not tocut salaries.

“Why would any com-pany want to take it onunder those conditions?”asks one western analyst.

Yousef Al-Ebraheem, aneconomic adviser to theEmir, says he was againstthe initiative from the start.“You cannot privatise asick company – you will getpeanuts for it,” he says.

“You need to work on it,

to restructure it, to make ithealthier, more attractive.The private sector is notstupid – they’re not going tobuy a dead company.”

Kuwait does have somesuccessful private compa-nies. Regional telecomscompany Zain, logisticsgroup Agility and the shar-i a -compliant Kuwait FinanceHouse are proof that freeenterprise is alive and well.

But critics say Kuwait’spowers-that-be still appearunconvinced of the virtuesof private business.

“In Saudi Arabia, it’s veryclear that the private sectoris one of the core engines ofgrowth, job creation andinvestment, fully supportedby the government,” saysNader Sultan, senior part-ner of consultancy F&Nand a former chief execu-tive of KPC, the state oilcompany.

“We don’t see that kind ofcommitment here from thegovernment.”

Part of that is due to theoil price. When it was rela-tively low in the 1990s andearly 2000s, Kuwait wasmore enthusiastic abouteconomic reform.

Ministers came up withplans to reduce the fiscalburden on the state by cut-ting subsidies, increasingthe private sector’s role inthe economy and pushingthrough private finance ini-tiatives. But as soon as oilprices started to rally, thatreforming zeal cooled.

Now there is a sense thecountry is falling behind itsneighbours. “There’s a say-ing here: Kuwait is the past,Dubai the present andQatar the future,” saysKamil Al-Harami, an inde-pendent oil analyst.

It is not all gloom, how-ever.

Observers say theappointment of a cabinet inFebruary should enhance

prospects for privatisation.And some projects are mov-ing ahead. Kuwait’s CapitalMarkets Authority (CMA),set up in 2011, is privatisingthe Kuwaiti Stock Ex-change and has hired HSBCto advise on the process.

The law stipulates that 50per cent of the KSE will besold in an IPO, with theremaining 50 per cent auc-tioned to listed companies,each of which can buy onlya 5 per cent stake.

“The idea is to build aprofit-based company inorder to expand the busi-ness, make it more competi-tive and robust on aregional level,” says AzizAl-Yaqout, managing part-ner of DLA Piper MiddleEast, which has been advis-ing the CMA on privatisingKSE. He says if this suc-ceeds, the privatisationwave could spread to othersectors, such as fixed-linetelecoms, electricity genera-tion and the country’s oiltanker fleet.

Privatisation, however, isnot the only tool in the gov-ernment’s armoury. It hasalso launched a number ofpublic-private partnershipsin sectors such as power,health, transport and tele-coms. Among the largestare the Az-Nour independ-ent water power project, abig public hospital, and a“labour city” for 20,000workers.

Meanwhile, the ministryof health plans to privatiseexpatriates’ healthcare andassociated medical servicesthrough a new entity calledKuwait Health Assurance,or KHAC. The projectinvolves plans to build andoperate three hospitals and15 primary healthcare clin-ics.

But more needs to bedone, analysts say. DanielKaye, senior manager ofeconomic research atNational Bank of Kuwait,says: “The economy needs amore dynamic private sec-tor, which means a moreaggressive approach to eco-nomic reform. The privatesector still only makes up30 per cent of the econ-omy.”

Additional reporting byCamilla Hall

PrivatisationAppointment of anew cabinet mayenhance prospects,says Guy Chazan

‘There’s a sayinghere: Kuwait is thepast, Dubaithe present andQatar the future’

ernment to the Emir’s solepower to appoint the primeminister.

Now the new MPs – 10 ofwhom are either from theIslamist Muslim Brother-hood and the even moreconservative Salafists – arestruggling to find a coher-ent shape without the bind-ing force of opposition toSheikh Nasser.

The absence of politicalparties in Kuwait hasalways given its parliamenta Babel-like quality, butsome observers say an ever-increasing diversity thatought to be a boon to policymaking will instead be athreat unless MPs start toorganise themselves.

The system is furtherhampered by poor relationsbetween parliament and themostly appointed govern-ment – itself weakened bythe fact that it holds only 16seats in parliament and cansee its proposed laws easilyvoted down by MPs.

Rola Dashti, a former MPwho lost her seat at theelection, says the way thesystem was set up encour-ages unstable short parlia-ments, personal feuds andpopulist lawmaking thatthe country cannot afford –such as a pay rise of 25 percent for public sector work-ers agreed last month inresponse to a series ofstrikes.

“We are not a democracythat’s deepening its tradi-tions and being strength-ened,” Ms Dashti says.

“We are a democracythat’s going into chaos.”

The elections have alsoprompted debate, familiaracross the Arab world, overthe rise of Islamism and itsconsequences.

While Kuwait’s small sizemeans the Muslim Brother-hood and Salafist MPs arefamiliar and unthreateningfaces to some non-Islamists– “at the end of the day

they are family”, says onebusiness person – liberalsworry they could threaten atradition of political open-ness, tolerance and freedomof speech.

On April 8, a parliamen-tary committee approved aproposed law to impose thedeath sentence or lifeimprisonment on anyonefound to have blasphemedagainst God or the ProphetMohammed, his compan-ions and wives.

A further concern is theincreasingly sectarian toneof politics – another devel-opment that has ominousechoes of deepening conflictbetween Sunni and ShiaMuslim groups around theregion.

Members of the SunniAwazem tribal group lastmonth stormed Scope, a sat-ellite television channel, inprotest at criticism alleg-edly made of their leader inan interview by Hussein Al-Qallaf, a Shia MP.

“In the past, there wasno differentiation betweenKuwaitis on the basis oftheir sects,” says one youngShia professional.

“Nowadays, [politicians]are using these categoriesto bring supporters.”

On one level, the clamourover the elections and theiraftermath is the familiarsound of a political andbusiness establishmentshocked by a result it nei-ther expected nor wel-comed.

Equally, the virulencewith which politiciansdebate and their difficultyin passing legislation arenot exactly unique toKuwait, as the US electionseason is showing.

The deeper question iswhether the diwaniyadoomsayers are right whenthey say there is somethingfundamentally rotten abouta political system that hasbeen a source of nationalpride for the near half cen-tury of its existence.

“We mustn’t lose hope,”insisted Adnan Abdulsa-mad, the MP at Mr Sanea’sdiwaniya, as he and otherguest discussed the newparliament’s prospects.

“When things get verydark, any small light willshow.”

Systemstrugglesto findshapeContinued from Page 1

A former MP saysthe way politicsoperatesencouragespersonal feuds andpopulist lawmaking

FINANCIAL TIMES TUESDAY APRIL 17 2012 ★ 3

Stateless march for a better life

At Kuwait’s CentralApparatus for IllegalResidents, Saleh Al-Fadala, its head, pulls

out a photocopy of a passportand waves it triumphantly asevidence of another imposterbusted.

Mr Al-Fadala, who is taskedwith vetting citizenshiprequests from among the coun-try’s estimated 105,000 residentswithout citizenship, says theapplicant is not entitled toKuwaiti nationality because heis Syrian.

“This man, he said ‘I ambidoun’,” says Mr Al-Fadala,using the Arabic word for “with-out”, a term used to describefamilies who have lived in theGulf without citizenship for dec-ades. “When he brought hisfather, [it turns out] he is fromSyria.”

His comments underscore adispute embroiling Kuwait andother Gulf states over theirtreatment of bidoun, whom

human rights groups say aresuffering in their tens of thou-sands at the hands of hostilegovernment bureaucracies.

Kuwait is accused of draggingits feet to avoid doling out moreof the expensive benefits frompay to pensions that make Gulfnationals perhaps the mostfinancially pampered citizens inthe world.

Though the policy is rarelyarticulated, the government willusually grant nationality only tothose whose families resided inthe country at the time of inde-pendence in 1961 and can proveit.

That citizenship is certainlyworth its weight in gold. Thegovernment provides health-care, housing, loans, educationand scholarships for its nation-als. Since unrest started spread-ing across the Middle East, ithas boosted public sector sala-ries and is even providing freefood parcels to citizens.

Security concerns are alsoplaying on the minds of govern-ment officials who are loath togive passports to those of whomthey have no record. Withregional rivalries and sectarianissues at stake, the authoritiesare more suspicious of somecountries than others.

While the bureaucraticmachine lumbers on, a large

number of genuine applicants isleft without access to publiceducation, healthcare or theability to travel.

Kuwait’s human rights profilehas been tarnished, while insta-bility has been created at home.

Although travel is generally aluxury for stateless people, oneof their biggest concerns is notbeing able to perform pilgrim-ages to Mecca in Saudi Arabia,an integral part of the Muslimway of life.

“It’s appalling the way it’s

been neglected and ignored. It’sa gross violation of humanrights,” says Saad bin Tefla, aKuwaiti commentator andformer minister of information.

“You get generation after gen-eration of people who have veryfew opportunities in life.”

The lack of opportunity isreflected in the average salaryfor the bidoun in Kuwait, manyof whom live in makeshift hous-ing outside the centre of the

city.Refugees International, a US-

based human rights group, esti-mates that the average salary ofa Kuwaiti bidoun is $300 amonth, one-tenth of the averagenational.

As comparatively new coun-tries, other Gulf states face thesame dilemma. However,Kuwait’s bidoun issue wasaggravated by the 1990 invasionby Iraq, which resulted in themass displacement of peopleand a widespread loss of docu-mentation. Political distrust hasremained between the two coun-tries for the past 20 years.

In some cases, the roots of thestateless population can betraced back to countries such asIraq, Yemen, Iran, India andPakistan. Many, not to be con-fused with bidoun, are alsodesert bedouin, who have livedoutside of the cities for decadeswithout needing paperwork.

Unlike in European countries,or the US, Gulf states do notgrant citizenship to residentsafter a set number of years. Inmost of the region, expatriatesare allowed to reside only ifthey are sponsored by a com-pany to work or are married tosomeone with that arrangement.

When the work ends, so doesthe residency, regardless of howlong they have spent in the

country.Despite pushing the issue to

the sidelines for many years, therights of the bidoun have at lastbeen catapulted into the centreof the political stage. Last year,inspired by the social unrestacross the Middle East, Kuwaitibidoun started to hold weeklyprotests.

In contrast to other scenesfrom the region, the bidounshowed their allegiance toKuwait’s Emir, Sheikh Sabah al-Ahmad al-Sabah by carrying hisimage as they protested.

Despite that, the authoritiesused tear gas to break up dem-onstrations and arrested scoresof people, prompting the con-cern of international humanrights groups.

The bidoun now fear thatthose who were arrested havelost their chance of nationalityforever.

After a lull, the protests haveresumed, projecting the issueagain into the forefront ofKuwait’s lively political debate.

“It’s one of the main problemsin Kuwait. It’s one of the issuesthat has been left untouched,”says Ahmed Sadoun, the influ-ential speaker of parliament andan opponent of the former gov-ernment. “It’s not an easy issuebut it has to be tackled. We can-not leave it unresolved.”

BidounCamilla Hall considersthe plight of the105,000 peoplewithout citizenship

Have nots: protests have put status at the centre of debate Getty

Kuwait

The governmentprovides healthcare,housing, loans,and educationfor its nationals

Women anxiousafter Islamistelection victory

Massouma Al-Mubarak cutan unusual figure as shecalled on voters for supportduring this year’s parlia-mentary elections. A jijab-clad woman in a campaigndominated by men, shetried to rally her listenersaround the popular themeof stamping out corruption.

That same anti-graft cam-paign would prove to be thewinning formula for Islam-ists and tribal leaders alike,but it did not work for MsAl-Mubarak. Voters aban-doned her and the threeother women MPs who losttheir places in parliament.

The failure of women towin one seat has raised con-cerns that Kuwait, one ofthe most politically progres-sive countries in the region,is taking a step backwards.

With a convincing victoryfor Islamists, women areanxious that they will suf-fer without political repre-sentation.

Rola Dashti, one of theformer lawmakers, says sheis worried that Islamist MPswill press for women toretreat from public life. Sheis not confident of protec-tion from the government.

The cabinet will “tradesocial liberty and women’s

rights for the sake of ‘co-operation’,” as it seeks toavoid confrontation withthe elected parliamentari-ans, she says.

Some women had hopedthat the Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah, the new prime min-ister, would choose at leastone female for his cabinet.But the government mir-rored parliament andappointed only men.

Most analysts agree thatthe perceived ties of womento the former government isthe reason for their down-fall. The previous govern-ment collapsed after theopposition aired allegationsof corruption.

Abdullah Al-Shayji, chair-man of political science atKuwait University, says:“They lost not becausewomen could not perform.They lost because womentook radical positions sidingwith the government in allissues that were not popu-lar.”

Mr Shayji says thewomen supported theformer government onissues such as rejecting payincreases for teachers.

Regardless of a bill-by-billbreakdown, the womensomehow became linked tothe former government inthe public eye, an imagethat would later workagainst them.

Salwa Al-Jasser, anotherKuwait University profes-sor, says she and her threefellow defeated women MPswere the victims of theirdistinctiveness: becausethey arrived with such amedia fanfare, they becamelinked in other people’sminds to parliament’sbroader failings.

“Kuwaiti people saw the2009 parliament as focusingon women: how much wedid, how much we added,”she says. “That is not fair.”

Other analysts say thatthe women were simplyunlucky in an election thatsaw the male-dominatedopposition sweep to victoryafter rallying against theformer government.

“It wasn’t a vote againstwomen, it was a voteagainst liberals that wereseen to be too close to anunpopular government,”says one western diplomat.“They were collateral dam-age.”

With the all-male parlia-ment and government inplace, opinion is split overwhether the Islamists willseek to curb women’srights.

As one western diplomatsays, referring to conserva-tive dress codes for women:“The new parliament ispoliticised and sensitiveenough to realise thatKuwait is not a place wherethat will fly.”

However, Ms Dashti isnot so convinced of theirreticence. “There will be nolaws helpful to women thatwill be passed,” she says.

“What will be passed willbe laws that get them out ofthe labour market, whichmeans giving them moneyto stay at home.”

GenderThe four femaleMPs lost their seats,say Camilla Halland Michael Peel

ContributorsMichael PeelMiddle East Correspondent

Camilla HallGulf Correspondent

Guy ChazanEnergy Correspondent

Henny SenderChief Correspondent,International Finance

Stephanie GrayCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

For advertising, contact:Mark CarwardinePhone +44 020 78734880Fax +44 020 7873 3204Email:mark.carwardine@ft.comor your usualrepresentative

All FT Reports areavailable on FT.com.Go to:www.ft.com/reportsFollow us on twitter atwww.twitter.com/ftreportsAll editorial content in thissupplement is producedby the FT.Our advertisers have noinfluence over, or priorsight of, the articles oronline material.

4 ★ FINANCIAL TIMES TUESDAY APRIL 17 2012

Kuwait

Energy stars ‘are finally aligned’

When Hani Husseinwas appointedKuwait’s oil minis-ter this year, the

country’s energy industrybreathed a collective sigh ofrelief.

A former head of KuwaitPetroleum Corporation (KPC),the state-owned oil company, heis widely respected in energycircles. If anyone is going to pullthe industry out of its malaise,the thinking goes, it is Mr Hus-sein.

“The stars are finally alignedin the oil sector,” says SaraAkbar, head of Kuwait Energy,a private oil company. “At lastwe have the right people in theright place.”

His arrival came at a crucialjuncture. Kuwait has ambitiousplans to increase oil productionfrom about 3.2m barrels a day to4m b/d by 2020. To reach thatgoal, it needs to exploit a newgeneration of complex and tech-nically challenging oilfields thatare far too difficult for the state-owned companies.

Yet partnering with westernoil majors is controversial in acountry where protectionist sen-timent runs high and the localparliament has repeatedly inter-vened to hold up projects.

Neda Salmanpour, an energylawyer with Pilsbury, says: “Thefact there’s been such under-in-vestment in the oil industry is alot to do with the politicalstand-off between parliamentand the government.”

With more than 100bn b/d ofoil reserves, Kuwait is the fifthlargest crude producer in theOpec cartel. Its Burgan field,discovered 74 years ago, is thesecond largest in the world afterGhawar in Saudi Arabia andaccounts for half the country’soutput.

In its heyday, production atBurgan was, in the words of oneoilman, as easy as sticking astraw in the sand. But the easy-to-drill, high-quality light oil is

running out and Kuwait mustreplenish its reserves with itshuge endowment of heavy oil,which can be as thick as molas-ses and is hard to pump.

In Wafra, a field in the neutralzone between Kuwait and SaudiArabia, engineers from Chevronare trying to extract it using aprocess called “steam-flooding”in which steam is injected intothe reservoir to heat the crudeand make it less viscous, allow-ing it to flow into the well. It isjust a pilot at present, but if thefull project goes ahead, it willmark the first commercial useof steam-flooding in this type ofreservoir.

But Wafra is just one field andprogress at unlocking the heavyoil deposits in the north ofKuwait has been much slower.

Part of the problem is a lackof rivers or lakes that can beused as a source of water forsteam injection, officials say.Kuwait Oil, KPC’s explorationand production arm, has heldtalks with ExxonMobil and

Total on a partnership todevelop the fields, but nothinghas come of them so far. As aresult, production targets keepslipping. Initial forecasts of900,000 b/d by 2020 have beenscaled back to 270,000 b/d.

Yet there is a recognitionthat, without the majors,Kuwait will not achieve itsgoals. “We need help from inter-national oil companies – nowmore than ever,” says HashimAl-Rifaai, head of the KuwaitGulf Oil, a KPC subsidiary.

Yet, over the years, efforts toentice the majors into Kuwaithave been stymied by politicalwrangling.

In 1997, a $8.5bn plan calledProject Kuwait aimed to bringforeign companies in to helpboost crude production. But par-liament objected and it nevergot off the ground. It wasaround this time that westernoil executives invented theirnickname for the country –“Queue and Wait”.

Then, in late 2008, KPC’s pet-

rochemicals subsidiary PICabandoned a $17bn joint venturewith Dow Chemical after law-makers expressed opposition tothe deal. Dow is suing PIC overthe cancellation.

Meanwhile, other largeprojects have fallen by the way-side. A costly plan to upgradetwo refineries was dropped.

Kuwait also had plans to builda new refinery, al-Zour, that,with capacity of 615,000 b/d,would be the largest in the Mid-dle East. Tenders were held andcontracts handed out. But in2009 KPC was forced to with-draw them after lawmakersclaimed they had been awardedin circumvention of the law.

Nader Sultan, senior partnerat F&N Consulting and a formerchief executive of KPC, says: “InKuwait, unfortunately, winninga project tender, both inside andoutside the oil sector, is not thesame as in Qatar, Saudi Arabiaor the UAE, because a year laterit might be cancelled.”

He refers to “shaky hand syn-

drome” – where ministers arecautious about signing anything“in case parliament makes anoise”.

But Mr Hussein seems deter-mined to break the logjam.Addressing an energy confer-ence last month, he said Kuwaitwould speed up a clutch ofprojects that have long beenheld up, including Al-Zour.

Mr Al-Rifaai of KGOC is cer-tain that Mr Hussein, a techno-crat in contrast to his predeces-sors in the job, who weremainly political appointees, willmake a difference.

The new minister was thedriving force behind a lot of thestalled megaprojects while hewas head of KPC – “so he’s bestplaced to defend [them] beforethe Council of Ministers and theparliament. He can cut throughthe bureaucracy quickly”, MrAl-Rifaai says.

The hope now is that Mr Hus-sein can stay long enough in thejob to see these big develop-ments through to completion.

OilGuy Chazan reportson the high hopesattached to theappointmentof a minister

Oil find: the Burgan field, discovered 74 years ago, is the second largest in the world after Ghawar in Saudi Arabia Bloomberg

Bottlenecks impede thedevelopment of supplies

It is one of the ironies of theMiddle East energy sectorthat Kuwait, a country with1 per cent of global naturalgas reserves has to importthe stuff.

Since 2009, it has beenreceiving cargoes of lique-fied natural gas from as farafield as Russia, Australiaand Trinidad at a $150mfloating terminal in thewaters of the Gulf. And itsLNG imports are set togrow in the coming years,officials say.

Yet this is a country thatin 2006 made one of thelargest gas discoveries ofrecent years – the vast“Jurassic” fields of Sabriyaand Umm Niga.

Kuwait offers the “contra-diction of a country appar-ently unable to commercial-ise its substantial reserves”,the Oxford Institute ofEnergy Studies (OIES), saidin a recent book. With lim-ited ability to increase pro-duction, it said, Kuwaitfaced “a potentially gapinghole in its gas balance”.

Kuwait is not alone.Many other Gulf stateshave been slow to developtheir gas reserves. But theimperative to do so is grow-ing. The Middle East’swhite-hot industrial boomis pushing up gas demandand domestic supply isstruggling to keep up.

Kuwait’s problem is not alack of subsurface resourcebut “the policy and decisionmaking bottlenecks aboveground”, says Nader Sultan,senior partner at F&N con-sultancy and a former chiefexecutive of the KuwaitPetroleum Corporation,(KPC) the state oil com-pany. “The question is: howlong will you keep gettingthese delays to projects?”

Like its neighbours,Kuwait used to flare its gas,long seen as a uselessbyproduct of oil production.But in the mid-1970s, itstarted using it domestically

and between 1990 and 2008consumption more thandoubled, from 4.5bn cubicmetres to 10.7bn cu m.

An important factor inthat growth was its increas-ing use as a feedstock in thepetrochemicals industry.That trend accelerated withthe creation in 1995 ofEquate, a joint venturebetween PIC, the state pet-rochemical company, andUnion Carbide, later part ofDow Chemical of the US.

Gas was also used to gen-erate electricity, for whichdemand has surged since2000 – in no small partbecause of its artificiallylow price.

For years, power stationsburned it on the basis ofsubsidised prices of $0.5-$2.5per million British thermalunits, according to theOIES. The ministry of oilhas increased domestic gasprices but they remain afraction of internationalmarket levels.

“Domestic prices inKuwait are below the priceat the point of delivery –that is, they cannot coverthe costs of investment, pro-duction, transmission anddistribution,” the OIES says.

Meanwhile, Kuwait’s deci-sion in the wake of the

Fukushima disaster toshelve its nuclear powerplans indefinitely will proba-bly mean gas demand willrise even faster thanexpected.

Luckily for Kuwait, it hasa lot of its own reserves.The northern Jurassicfields, discovered in 2006,are thought to contain990bn cu m of gas – a mam-moth find. But they presentenormous difficulties. The

gas is high temperature andhigh pressure and is lacedwith lethal hydrogen sul-phide.

KPC and its upstreamsubsidiary KOC lack theexpertise to handle suchcomplex reservoirs. In Feb-ruary 2010, KOC signed afive-year deal with RoyalDutch Shell, known as anenhanced technical serviceagreement (Etsa), to help itdevelop the fields. The

production targets wereambitious. The fields wereto produce 17m cu m a dayof gas by the end of 2013,and 30m cu m/d by 2016.Yet current output is stuckat about 4.2m cu m/d.

Part of the problem is themess Shell discovered whenit got to the fields. To buildthe gas processing facilities,KOC had chosen a localcontractor “not qualified todeal with a project of thiscomplexity”, says KamilAl-Harami, an independentoil analyst. Shell was soshocked at the state ofthe substandard equipmentused that it recommendedpulling the plant down andstarting from scratch.

Meanwhile, Shell’s Etsa isthe subject of a parliamen-tary investigation, withMPs looking into whetherKOC overstepped itsauthority in issuing thecontract and whether theAnglo-Dutch group hasoperational control of theproject – unacceptableunder Kuwaiti law.

A Kuwaiti oil officialinsists the inquiry has notheld up Shell’s work,although he acknowledgesthat probes such as this“can deter western oil com-panies”. But Mr Al-Haramiis sceptical the project cansurvive. “Once you get theNational Assembly comingsnooping in your bedroom,it’s finished,” he says.

Other projects are advanc-ing more smoothly, such asthe offshore Dorra field inthe neutral zone, the areaKuwait shares with SaudiArabia.

Hashim Al-Rifaai, head ofKuwait Gulf Oil, a KPC sub-sidiary says: “All the drill-ings and subsequent analy-sis give us comfort thereserves are there – it’s justa question of sustaining ourdrilling plans and buildingthe necessary pipelines andgas processing facilities.”

Meanwhile, Kuwait con-tinues to make up theshortfall with cargoes ofLNG. For years, it has heldtalks with Iran on import-ing gas but with tensionsrising in the Gulf such anoption is seen as increas-ingly unlikely. “Let’s justcall it a work in progress,”says one state oil executive.

GasThe country has itsown reserves yetrelies on imports,says Guy Chazan

Imports: cargoes of LNG make up the shortfall

Kuwait offers the‘contradiction of acountry apparentlyunable tocommercialise itshuge reserves’

The KIA Fund’s attention turns to China

High oil prices mean that moneyis flowing into the coffers of theKuwait Investment Authority, yetthere is no sign of rejoicing inthe shabby, crowded offices ofone of the world’s mostrespected sovereign wealthfunds.By law, the KIA receives at

least 10 per cent of thecountry’s oil revenues, makingthe fund, with more than$250bn under management, lessdependent on the whim of itsrulers than in some oil-richnations.But, these days, inflows can

be as big a problem for manyfunds as a lack of money.It is not easy to be an

investor – especially a non-USdollar investor – when interestrates are close to zero and mostof the securities in whichinvestors put their money aredollar-denominated.In a low-yield world, US

investors only have to worryabout returns. But others alsohave to worry that respectabledollar returns will evaporate

when translated back into theirlocal currencies.The Kuwaitis had a good year

in 2011, partly helped by thefact that the dinar appreciatedless against the dollar than theSingaporean currency.The weakness of the US dollar

is symptomatic of a shift inwhich the growth prospects forAsia are far more compellingthan those of the developedworld.Today, sovereign wealth funds

and pension funds in the MiddleEast have become increasinglydisenchanted with the US andare looking more to Asia.When they do invest in

developed markets, the mostsophisticated of these funds areshifting to hard assets such asreal estate and infrastructure.“We have become hostage to

the irresponsible behaviour ofpoliticians,” said Bader Al-Saad,the head of the KIA, inSeptember 2011 in a speech inNew York, referring to theacrimonious US congressional

debate over raising the debtceiling.A month after making the

speech, Mr al-Saad was inBeijing to preside over theopening of the KIA’s new officeand to celebrate its status as aqualified foreign institutionalinvestor (QFII) in China.Beijing is the KIA’s first

overseas office since theKuwaitis establishedrepresentation in Londondecades ago. There is norepresentative office in the US.The KIA has already been a

cornerstone investor in manyChinese listings, including that ofAgricultural Bank of China andCitic Securities. While it receivedapproval to invest only $300mas a QFII, it has been promisedthat as soon as it has spentthat, it will receive approval toput more money to work.It also invests in private equity

funds in China, recently shiftingfrom the big international buyoutgroups to more local ones.Recently, the KIA has also

tried to step up its directinvestments rather than workingthrough intermediaries with theirexpensive management fees. Butthat is not always possible.For example, it is not clear

whether the KIA will getpermission to hire a team withthe knowledge and experience toinvest in infrastructure.That is because, like many of

its peers, the KIA is starved ofresources. Its assets have grown10-fold in the past 20 years, yetits budget has only doubledduring that time and itsheadcount has gone from 300to only about 400 people.The KIA needs parliamentary

approval for its budget, itsinvestment decisions and evenits personnel decisions.It has a hard time raising

money by divesting of some ofits assets, such as its stake inthe inefficient Kuwait Airways.And when the KIA appointed

the 41-year-old Osama Al-Ayoubto head the London office, MrAl-Saad was summoned toparliament and questioned.Mr Al-Saad, who comes from

one of the most respected localfamilies, has told parliament hewill resign if his performance orhis integrity are found wanting.So far, he has kept his job

and the confidence of the Emir.

Henny Sender

Bader Al-Saad,KIA head,says he willresign if hisperformanceor integrity arefound wanting