Kuwait country profile

• Increase image
• View all images

The state of Kuwait is a small, oil-rich country at the northern tip of the Gulf, bordered in the north and west by Iraq, and in the south by Saudi Arabia and the Divided Zone, over which it has joint sovereignty with Saudi Arabia.

Today, Kuwait is perhaps best-known for being invaded by Saddam Hussain's Iraq in 1990 and for having almost 10 per cent of the world's proven oil reserves.

Kuwait was the first of the colonised Gulf states to gain independence from the UK in 1961. A constitutional monarchy, it was also the first Gulf state to have an elected parliament, and until the Iraqi invasion, was considered to be the most politically and economically progressive of all its neighbours in the region.

It is governed by Amir Shaikh Sabah al-Ahmed al-Sabah, ruler and head of state since January 2006. Although the amir has the final say in all political matters, Kuwaiti rulers generally have much less influence than their regional counterparts thanks to the increasingly influential National Assembly (parliament).

The state is split into six administrative governorates – Ahmadi, Farwaniyah, Capital, Jahra, Hawalli and Mubarak al-Kabeer. Its main city is the capital Kuwait City, one of the largest cities in the Gulf.

The population is about 3.2 million, of which only 1 million are local nationals. The majority of immigrants are skilled and non-skilled workers mainly from India and Pakistan. A large number of Syrian and Egyptian workers also live in the state.

Islam is the state religion. The majority of Kuwaitis are Sunni Muslim, although there is a sizeable minority of indigenous Shia Muslims too. A growing rift between the two communities has been the source of some concern in recent years.

Table: Kuwait at a glance

Government

Day-to-day government is handled by the prime minister Shaikh Nasser al-Mohammed al-Sabah, who presides over a cabinet of up to 16 ministers.

Parliament is composed of 50 lawmakers, elected from 25 constituencies, although this will be brought down to five constituencies from the next election. Cabinet members, who do not necessarily need to be elected, are ex-officio members with voting rights, bringing the total number of parliament members to a maximum of 66.

Bills can be proposed by either the government or the national assembly and are enacted by a simply majority vote in parliament. Due to parliament's increasing opposition to the government, it has been extremely difficult for any major legislation to reach the statute book in recent years.

Government officials

• Amir: Sabah al-Ahmad al-Jabir al-Sabah

• Prime Minister: Nasir Muhammad al-Ahmad al-Sabah

• First Dep. Prime Minister: Jabir Mubarak al-Hamad al-Sabah

• Dep. Prime Min: Muhammad al-Sabah al-Salim al-Sabah

• Dep. Prime Min: Faysal al-Hajji

• Min. of Commerce & Industry: Falah al-Hajiri

• Min. of Communications: Abdallah Saud al-Muhaylbi

• Min. of Defense: Jabir Mubarak al-Hamad al-Sabah

• Min. of Education & Higher Education: Nuriya al-Subayh

• Min. of Electricity & Water: Muhammad al-Ulaym

• Min. of Finance: Mustafa Jassim al-Shimmali

• Min. of Foreign Affairs: Muhammad al-Sabah al-Salim al-Sabah

• Min. of Health: Abdallah Abd al-Rahman Tawil

• Min. of Information: Sabah Khalid al-Hamad al-Sabah

• Min. of Interior: Jabir Khalid al-Jabir al-Sabah

• Min. of Justice: Jamal Ahmad al-Shihab

• Min. of Oil (Acting): Muhammad al-Ulaym

• Min. of Public Works: Musa al-Sarraf

• Min. of Religious Endowment & Islamic Affairs: Abdallah Saud al-Muhaylbi

• Min. of Social Affairs & Labor: Jamal Ahmad al-Shihab

• Min. of State for Amiri Diwan Affairs: Nasir al-Sabah al-Ahmad al-Sabah

• Min. of State for Cabinet Affairs: Faysal al-Hajji

• Min. of State for Housing Affairs: Abd al-Wahid al-Awadi

• Min. of State for Municipality Affairs: Musa al-Sarraf

• Min. of State for National Assembly Affairs: Abd al-Wahid al-Awadi

• Pres., National Security Bureau: Ahmad Al-Fahd al-Ahmad al-Jabir al-Sabah

• Governor, Central Bank: Salim Abd al-Aziz al-Saud al-Sabah

• Increase image
• View all images

Economy

Despite diversification efforts, Kuwait's economy is still heavily dependent on oil export revenues, and GDP is determined as much by the oil price as anything else. With the oil boom of recent times, this has worked to the state's advantage as nominal GDP growth has averaged more then 20 per cent in the last four years to see the economy grow to more than $95bn

With the vast majority of government revenues coming from oil sales, this has also led to record budget surpluses. In the last financial year ending March 31, the budget surplus reached $25bn – more than 25 per cent of GDP – against record oil revenues of $53bn, 94 per cent of total state income.

Kuwait's major challenge however has been translating these surpluses into expenditure. The issue is mainly budgetary. Budgets, and thus expenditure, are estimated on a conservative oil price of just $36 a barrel. The result of this fiscal conservatism is that ministries receive much less to spend than the state can afford. The result is a massive yearly underspend.

The other major issue is the heavy involvement of the state in economic activity. More than 90 per cent of the local working population work for the government. As a result, private sector growth has been stunted and remains heavily reliant on government spending. There is very little innovation and entrepreneurialism in Kuwait. Government plans to open up and diversify the economy have been met with resistance, particularly since high oil prices have allowed the government to deliver economic expansion without the need for significant structural reform.

The economy remains largely closed and unreformed. Foreign firms have to pay up to 55 per cent tax on their profits and there is little consequent international investment. In 2005, less than $250m was invested in Kuwait, less than many sub-Saharan countries.

The government has stated its intention to open up the economy, but legislation to reform the tax system and privatise state firms has been consistently blocked by parliament.

Table: Economic indicators

($ million, unless stated)

Sectors

Oil and gas

Kuwait has been one of the world's most important oil producers since oil was first found in the state in 1938. A member of Opec, the state has a production capacity of 2.7 million barrels a day (b/d), thanks mainly to the giant Burgan oil field, the world's second largest oil field. The vast majority of Kuwait's oil output is destined for export, mainly to the Far East and Europe. Control of the state's hydrocarbons policy is in the hands of the Supreme Petroleum Council while the Oil Ministry is entrusted with overseeing the implementation of policy.

Kuwait Petroleum Corporation (KPC) is the state firm tasked with operating the sector. It has several subsidiaries to handle different areas, the most important of which are upstream operator Kuwait Oil Company (KOC) and refinery operator Kuwait National Petroleum Company (KNPC).

The state's key oil and gas strategy is its 2020 plan to increase oil production capacity to 4 million b/d through the development of new reservoirs, the introduction of enhanced oil recovery techniques and the production of heavier oil grades.

The constitution prohibits the foreign ownership of the state's natural resources and this has meant that the state is one of the few countries in the world without any international oil company presence. This has led to problems as the government says it urgently requires foreign assistance to help it maintain and boost output.

The state's landmark upstream initiative, Project Kuwait, has been delayed by parliament for more than 10 years for this reason. KOC did however recently sign an initial agreement with the US' ExxonMobil Corporation for the development of its heavy oil reserves, although it remains to be seen whether lawmakers will view this as constitutional.

Otherwise the focus upstream has been on improving the state's woeful safety record and dealing with rapidly rising water cuts (the water content in the crude oil). Over the next 10 years, the state is expected to start producing more water than oil and has to find ways of disposing this effluent.

In terms of gas, Kuwait has not been so fortunate, with only limited amounts of associated gas. It announced last year however that it had made its first non-associated gas discovery of some 35 million trillion cubic feet, although it remains to be seen whether this really is the case. Efforts to import gas to meet its power generation needs have repeatedly failed mainly due to geopolitical reasons. The state is now believed to be looking at LNG imports to meets its requirements.

Downstream, the aim is to increase local refining capacity to more than 1.2 million b/d from more than 750,000 b/d today. The centerpiece of this is the new 615,000 b/d Al-Zour refinery planned by KNPC. Despite massive increases in the total project cost and issues over the land allocation, construction on the scheme is likely to start in 2008. The other main downstream project is the $5bn clean fuels programme to upgrade and increase capacity at the state's three existing refineries at Shuaiba, Mina al-Ahmadi and Mina Abdulla.

Banking

Kuwait's tightly regulated banking sector is one of the most developed and sophisticated in the region, with its banks enjoying some of the best credit ratings in the Gulf. Only 10 local banks provide retail banking services, and the sector remains largely closed to foreign competition – although licences have been given to a handful of international banks, they are unable to open more than one branch.

Unlike elsewhere in the Gulf, Islamic banking has been slow to take off in Kuwait, partly due to a strong appetite for conventional banking from locals, but also because only three banks – Kuwait Finance House, Boubyan Bank and Kuwait Real Estate Bank – are licensed to provide Islamic banking services – a bone of some contention amongst other banks.

The sector is tightly – some say too tightly – regulated by the Ministry of Finance and the Central Bank of Kuwait, with banks closely monitored and often restricted by what they can and cannot do. Several financial firms have requested licences to start retail operations, but have been prevented from doing so. Nonetheless, the sector's strong fundamentals have meant that it is one of the few in the region this year to have grown following the stock market meltdown last year.

Financial Markets

The Kuwait Stock Exchange (KSE) is the oldest and most sophisticated stock market in the Gulf. It is largely self-regulating – Kuwait is now the only Gulf state to not have an independent financial regulator. Largely due to its strict regulation and relative maturity, the local bourse managed to avoid the worst excesses of the 2004-2006 stock market boom and bust, having only been slightly affected. This year, its robustness has allowed it to rise by more than 20 per cent, and in October, it reached an all-time record high of more than 13,100 points.

Industry

Kuwait has a relatively small industrial sector centred around the Shuwaikh and Shuaiba industrial areas. Most of it is light industry, although the state does have the region's only catalyst manufacturing plant. There are also two cement producers; Kuwait Cement Company and Kuwait Portland Cement.

Petrochemicals

A lack of gas feedstock has hampered the development of a local petrochemicals industry, with the state's only world-scale petrochemicals project being the Equate Petrochemical Company olefins plant in the Shuaiba Industrial Area. A joint venture of the US' Dow Chemical Company and state-owned Petrochemical Industries Company (PIC), Equate has been a huge success story for Kuwait accouting for 60 per cent of its non-oil exports since it was set up in the late 1990s. Construction is currently under way on the Olefins II expansion of the existing facility, which will also include an aromatics element. PIC itself also operates fertiliser production facilities and a polypropylene plant.

Construction and real estate

Kuwait's construction boom was kick started by the US invasion of Iraq and the subsequent basing of many international firms in the state to take advantage of the post-war situation. Real estate prices have risen since then, helped also by the lack of available land and a shortage of housing. The government hopes to rectify that by building whole new cities such as the $85bn Silk City project in the north to provide jobs and more affordable housing stock as well as diversify its economy.

Nearly all construction activity in Kuwait is carried out by local firms. Many have expanded rapidly over the last four years, and are now looking to expand into other Gulf states.

Power

Despite its healthy financial position, Kuwait failed to adequately plan its future power generation requirements and so experienced black-outs in the summer of 2006. The implementation of an emergency power capacity building programme this year has meant that it just about avoided a repeat, but a lot still has to be done to bring the sector up to scratch; more than 5,000 MW of capacity is planned to be installed over the next five years to safeguard for the future.

Unlike most other Gulf states, Kuwait still hangs on to the conventional government-funded model for its power and water developments. Extensive work on the transmission and distribution network is also required.

Water

The water sector largely escaped the shortages experienced by the power sector. Nonethless, new capacity does need to be brought onstream to avoid future shortages, and the state is currently building two new desalination plants at Shuaiba north and Shuwaikh to avoid shortfalls.

Kuwait has one of the most advanced sewerage systems in the Gulf, and is also in possession of the world's largest wastewater treatment and reuse plant at Sulaibiya.

Transport

Passenger demand at Kuwait International Airport has grown rapidly in the last five years, and the government is implementing plans to expand its capacity to 20 million passangers a year by 2012.

National carrier Kuwait Airways (KAC) has not fared so well as it continues to make losses. Its board recently resigned over an aborted deal to renew the fleet, and parliament is set to debate soon its prospective privatisation.

Kuwait is one of the key proponents of the GCC railway. It has plans for a high-speed network of its own, and is also planning a multi-billion-dollar metro system.

Telecoms

Kuwait has two modern mobile operators, Zain and Wataniya Telecom, the latter of which was recently bought by Q-Tel. Penetration rates are high as the two firms vie for customers.

Bidding is under way for the state's third mobile operator, with a decision on the successful applicant expected to be announced by the end of 2007.