Like its fellow GCC members, Kuwait is an immensely rich Gulf nation, with very deep pockets.
It is also similar to its Council partners in that it holds great potential for economic development, but Kuwait has been settling for the easy route, earning itself a rather troubling moniker in the process.
Could Kuwait shake off this nickname?
The Sleeping Giant
In recent times, the country has been often dubbed the Sleeping Giant of the GCC, and for good reason.
The ultra-rich Gulf nation has remained static while its fellow Council members like Saudi and the UAE have sought economic diversification plans and other reforms, such as VAT. While Saudi and the UAE began implementing VAT last year, with Bahrain joining in just a few days ago, Kuwait has snoozed the matter, postponing it to 2021.
While other GCC nations are doing all they can to safeguard their future by developing more diverse income streams besides oil, Kuwait has held on to the tried and true.
Why is this?
As it currently stands, Kuwait has been enjoying the spoils of its oil wealth, and has not had a rough going of it as of yet.
“Ruling emir Sheikh Sabah Al Ahmad Al Sabah ordered 1,000 dinar ($3,559) grants and free food coupons for every Kuwaiti ,” AP news reported. “That came on top of Kuwait’s cradle-to-grave entitlements for it citizens, which the OPEC member is able to afford because it holds the world’s sixth-largest known oil reserves.”
Kuwaiti nationals enjoy housing benefits, health benefits, almost assured employment, free education, and financial benefits for being married and for having children, according to Open Society Foundations.
Basically, Kuwaiti citizens receive handouts and support for engaging in almost any activity, be it getting married, birthing children, or holding a job. The government also helps students secure scholarships and the unemployed find jobs. In a sense, it’s a utopic vision of a government-population relationship.
Back in September of last year, the Kuwait Times (KT) reported that the country had achieved a “financial surplus of $1.2 billion in two years, as the annual surplus is estimated at $600 million based on the price of oil barrel at $60.”
They’re clearly in the black, and this sense of financial safety has dulled the country’s senses.
Petrol prices static for more than 2 years
With Saudi busy adjusting its prices back and forth in the second half of 2018 in the wake of US sanctions on Iran and decreasing demand, Kuwait’s prices have remained unmoved for the past 28 months.
In the small Gulf nation, gas prices have remained static since the country pushed prices up in September 2016.
(Graph by Trading Economics)
Ever since then, a liter of petrol has been priced at $0.28. Compare this with Saudi’s $0.54 and the UAE’s $0.51, whose gas prices have fluctuated to reflect international trends.
UAE, for example, cut all petrol subsidies in 2015, according to the Financial Times. Saudi, on the other hand, has begun decreasing energy-related subsidies for years now, but has yet to completely eliminate them. Both countries are committing to this line of action because they know an oil-dependent economy is not sustainable in the long run, and this foresight has birthed plans such as Saudi’s Vision 2030.
If Saudi, the world’s largest oil exporter, is realizing the flaws in its economy, Kuwait needs to heed the same concerns, as 95% of the country’s exports are fossil fuel-related. It exports 73% of its daily 2.8 million bpd output, according to Export.gov.
Now, Kuwait’s new oil minister, Khaled Al-Fadhel, has pledged an ongoing commitment to OPEC’s production cuts OPEC’s proposed output cuts meant to take place in 2019 to stabilize global barrel prices, the Financial Tribune reported last week.
Has the Giant finally woken up?
Given that the country has begun implementing its Kuwaitization nationalization scheme in recent years, which hopes cut down on the expat population in favor of employing nationals, something must have budged, and Kuwait seems to be turning its sights to the future.
According to CNBC, Kuwait is the most reliant among all OPEC nations on oil for GDP, and in the long term, its economy can’t survive without significant diversification.
If that bit of doomsaying isn’t enough to ring a wake-up call, CNBC continued by saying that “Kuwait’s stock market is being considered for a bump-up to emerging markets status by major index providers.”
“That would be a significant reclassification within the world of investors,” the news site said. It would bring in a flood of investors into the country, on the condition that they feel safe about the country’s future prospects.
But Kuwait is beginning to take note. Their budget surplus of $600 million was made possible after Kuwait raised gas prices in 2016 by reducing subsidies on fuel prices.
Kuwait will need to take action to secure its future, and to start weaning itself off oil. Great things await, and the rich but stagnating Gulf nation would do well to grab its fortune by the horns.