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Tue 4 Jan 2011 05:10 PM

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Kuwait has a long way to go to rival Gulf states on FDI

Political instability in Arab state stymies potential investors, says analyst

Kuwait has a long way to go to rival Gulf states on FDI
Last year, Kuwait pledged to spend $140bn over five years in a bid to attract investment

Political instability is deterring investors from putting as
much money into Kuwait as they do into its GCC neighbours, an economist has
said.

“It has a long way to go,” Dr John Sfakianakis, chief
economist at Banque Saudi Fransi, said in an interview with Arabian Business.
“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. It [will take] consistency and political resolve to make Kuwait a more
business-friendly environment.”

A long-running feud between Kuwait’s elected parliament and
royal-family led government has taken its toll on the state’s economic growth,
leaving foreign investors wary.

As of 2009, foreign direct investment made up 13.9 percent
of its GDP – giving it a dismal rank of 141 in the world.

Last year, Kuwait pledged to spend $140bn over five years in
a bid to attract investment, diversify its economy beyond oil, and boost
participation from the private sector.

Its current GDP is $148bn per year.

What’s necessary “is for the government to be effective on
the economic development projections of Kuwait – which has not been case over
past decade,” Sfakianakis said. “It has to have the vision and the political
will to push ahead, and there’s a tendency not to see that.”

What works in oil-rich Kuwait, he 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 M.H. 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, Sfakianakis said the country has a ways to go.

He said its steps towards growth “were very gradual compared
to countries like Saudi Arabia, which has improved dramatically in last five
years. Kuwait it is a laggard and not a leader.”

He added that in order to bridge the gap between it and the
attraction of investment hotspots the UAE and Saudi, “they really have to do a
lot.”