Rocked by political instability, the oil-rich country lags its flashier GCC neighbours in the competition for investment from abroad
In the small harbor here, old dhow boats bounce across the water, Kuwaiti flags waving as the ships — most loaded down with fish — come crawling safely back into harbour.
Nearby, past the migrant fishermen and vast stretches of netting, the fruits of their labour are on display at the city’s fish market. Men toss fish the size of their heads — some without heads — across aisles. Women in head scarves haggle loudly. A visitor can’t be sure what makes the mind reel more — the sound or the smell.
It’s economic theory as old as time — cast your net wide, provide a stable boat for the fishermen to throw their lines, and return with a giant haul.
It can be applied to one of the country’s oldest industries — and its newest and most underdeveloped. Kuwait, after years of political infighting and lack of follow-through on economic policy, is now struggling to catch up to Gulf neighbours like the UAE and Saudi Arabia as a haven for investment.
Like the fishermen on the docks, the country’s bankers must cast wider nets. Lack of sizable foreign financial investment is a dark spot for a country whose economy has otherwise weathered economic downturn and remains stable.
Unemployment is at 2.2 percent, ranked sixteenth of all countries by the CIA World Factbook. It is the fourth-biggest oil exporter in the world, with an economy based on petroleum, petrochemicals, cement, shipbuilding, water desalination, food processing and construction materials.
But its steps towards investment growth are “very gradual compared to countries like Saudi Arabia, which has improved dramatically in last five years,” says Dr John Sfakianakis, chief economist at Banque Saudi Francais. “Kuwait it is a laggard and not a leader.”
Prime minister Sheikh Nasser Al Mohammed Al Sabah last week faced a parliamentary vote of no-confidence which could have led either to his ouster or a dissolved parliament, critically wounding Kuwait’s economic and political stability.
He survived a similar vote in 2009.
“The PM survived one of the most severe political crises that he has faced with the no confidence vote,” Sfakianakis says.
Survival or not, political instability — culminating in such high-profile events as last month’s shutdown of the Al Jazeera news bureau in Kuwait City — is a red light for investors from abroad.
They instead look to a re-energised UAE, emerging Bahrain, stable, oil-drenched Saudi or newly booming, 2022 World Cup host Qatar as the obvious GCC investment spots.
Still, “foreign investment in general has come down in the GCC because of the financial crisis, and region never part of the mainline emerging market index,” says MR Raghu, head of research at the Kuwait Finance Centre. Investors “have reduced their off index bets and started focusing on the mainline.”
Sfakianakis says Kuwait’s political instability and the government’s lack of follow-through made investors particularly nervous. It must also bulk up financial research in a region traditionally blind to its importance.
“Currently the research coverage on stocks is extremely poor,” Raghu says. “There has to be a properly regulated financial environment, market laws, excellent trading systems, plus a very good information flow and coverage for investor access. Then foreign investors would start queuing up.”
What works in oil-rich Kuwait, Sfakianakis said, are the traditional sectors.
“Oil and gas, traditional areas of hydrocarbon production and upstream and downstream industries,” and — in the homeland of Gulf retail giant MH Alshaya Co — “a little bit of retail helps the country expand. It has a growing consumer base — not as big as Saudi but it is growing.
That said, he said the country has ways to go.
“They’re pretty far away, and it will take a lot of political stability for Kuwait to attract the same amount of money that the UAE and Saudi have been attracting for the past five years,” he says. “They really have to do a lot.”
Raghu said Kuwait must also lift the ceiling on foreign investment that stymies many Gulf countries – “there are limits on how much a foreigner can buy.”
In Saudi, they have to buy into the market indirectly, through swaps. Raghu estimated a 49 percent roof for Kuwaiti banks.
In 2009, the Kuwaitis introduced an economic development plan pledging to spend $140bn in the next five years in order to attract investment, diversify its economy beyond oil, and boost participation from the private sector.
Details, an exact timeline and inner workings of the plan have not been discussed by the government, leading investors to worry about its ability to follow through.
“They have announced the investment programme but there is lack of clarity as to how the money will be invested, what will be the role of local banks and what amount of the investments they’ve outlines for the next few years will be underwritten by the state,” Sfakianakis says.