In comparison with most Gulf states, the health of the Kuwaiti economy and local industry are frequently more dependent on internal politics than they are on international market developments, making Kuwait something of an anomaly among the Gulf states.
This trend for Kuwait’s internal politics to dictate the direction of the economy has been borne out in the past year. Thanks to considerable savings of oil receipts during the oil price boom of 2002-2008, Kuwait was well positioned to handle fallout from the global financial crisis by increasing public spending and bailing out struggling banks. Yet infighting between the government and parliament has stalled public spending, which is the source of most economic activity in the country.
This political turmoil reached a crisis point in the spring of 2009, when the government resigned and the emir dissolved parliament, leaving a $235bn spending programme in suspension. Under the Kuwaiti constitution, both government and parliament need to approve large infrastructure projects before work can begin. A typical casualty is the $15bn Al-Zour refinery project, which has been repeatedly delayed.
Political stag-nation has also deterred foreign investment and suffocated government plans to diversify the economy away form the oil sector, which still accounts for more than 90 per cent of its revenues.
Private investment in infrastructure has declined in recent years, but this has in part been offset by an upsurge in public spending. The infrastructure sector grew by 1.5 per cent last year, according to official statistics, although it is still dominated by ongoing projects rather than fresh schemes and contributes less than 2 per cent to gross domestic product.
In-fighting has stalled public spending, which is the source of most economic activity in the country
Stagnation at home could encourage contractors such as the Alghanim companies to seek work further afield in the Gulf, or indeed the wider region of west Asia and Africa. Like many Kuwaiti construction and engineering companies, they have a strong competitive advantage, being more experienced than many of their peers in the Middle East.
Any improvement in the domestic political situation would be welcome, not least because of the huge backlog of work. While some $3bn of infrastructure projects are under way, a further $24bn of projects are waiting in the wings. There is also a huge demand for public housing – the Public Authority for Housing Welfare reportedly had some 90,000 applications pending for housing in October last year.
Private investment in low-income housing, which has provided considerable work for contractors in markets such as Saudi Arabia and Bahrain, is less of an option in Kuwait. Land remains expensive and much of it remains in government hands. A ban on the mortgaging and trade of residential properties by shareholding companies – ostensibly to prevent speculation – has further impeded the real estate sector. Yet population growth and the youthful profile of the Kuwaiti population could stimulate the construction market in future. As with public infrastructure, a huge potential is waiting to be released.
The industrial sector also shows considerable potential, and has been marginally less affected by Kuwait’s periods of political paralysis. The manufacturing base has grown steadily over the decade and helped boost exports as a result. The comparative stagnation in the domestic construction industry has had a knock-on effect on local industrial suppliers, but the recovery of the global economy, and of Asian markets in particular, promises improvement for export-oriented industries.