Challenges for Kuwait's policy makers (page 1 of 3)

Kuwait is learning to breathe freely again. After decades of living uncomfortably in the shadow of its vast and menacing neighbor - not to mention the trauma of the Iraqi invasion in 1990 - the emirate at the northern end of the Gulf is beginning a new era in its history.

The initial signs are that the new era will be a very fruitful and profitable one. The accident of history that put Kuwait in the sights of Saddam Hussein's Iraq is today working in the emirate's favor. Kuwait looks set to profit in a major way from the long and expensive task of rebuilding Iraq.

But real economic growth will require a major change in the country's decision-making process: until the executive and legislative branches of government figure out how to overcome their differences, Kuwaiti politics will remain paralyzed - and a major drag on the economy.
Even after the reopening of regular air links between Iraq and the world at large, much of the equipment needed for the country's renaissance will need to be transported through Kuwait.

The emirate is wasting no time in making preparations for the expected boom in transit business. Last January, the Council of Ministers approved a proposal to construct a port at Bubiyan, an island off the northern coast of the country. In August last year, it was reported that the cabinet would be studying a feasibility study on the proposed $850 million project.

The decision to press ahead with studies on the scheme was taken in the light of the change of regime in Iraq and the subsequent expectation of a big increase in the volume of container shipping in the northern Gulf region - with estimates of a 45 percent rise by 2020.

At present, the dry goods handling capacity at Kuwait's ports is 12 million tons per year. With the new facility, this is expected to rise to 20 million tons per year by 2020. It is estimated that by 2005, demand at current ports in Kuwait and Iraq will have outstripped capacity.

The development of the new port at Ras al-Qaid will be carried out in five stages over a period of 16 years, beginning with capacity of 5 million tons per year in 2006. The new port will comprise roll on-roll off container handling facilities, along with infrastructure development and road and rail connections to Kuwait City and the Iraqi border.

The impression that Kuwait is in for a business boom is confirmed by a number of assessments of its economic health by international organizations. According the International Monetary Fund (IMF), Kuwait's economy remained in a comfortable position in 2003, with real non-oil gross domestic product (GDP) growth picking up briskly to about 6.5 percent due to the spillover effects of developments in Iraq and improved domestic confidence.

Today, the Kuwaiti economy is "buzzing with activity," according to one analyst who recently visited the emirate, with hotel occupancy high and busy trading. Kuwait is well-placed (and has the infrastructure and capabilities) to act as a base for international companies bidding for and managing projects in Iraq's reconstruction, particularly while the current lack of security in many parts of Iraq persists.

The financial sector is also benefiting, he says, from the opportunities in trade and project financing. Moreover, says the IMF, the macroeconomic position is projected to remain manageable over the medium term in 2004-08.

The IMF also gave Kuwait's stock market positive marks, saying that it continued to rise sharply in 2003 following increases of 39 percent in 2002 and 27 percent in 2001.