Has Kuwait Liberalised its Economy?

The FT reports on a set of new laws (including a privatization law) aimed at encouraging a vibrant private sector and slightly more diversified economy:

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... In February, the Kuwaiti parliament approved a $104bn four-year development plan, and in May a more contentious privatisation law – first mooted 18 years ago.

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The privatisation law, which will come into effect after six months, opens the door for transferring public-sector assets to local and foreign private ownership, and the establishment of new, private-sector companies in which the government has a minority stake.

The bill expressly excludes the production of oil and gas, oil refineries, and health and education services, but just the fact that the law was passed – after a heated, eight-hour session in the national assembly – is a clear sign of progress, argues Sheikh Ahmad al Fahad al Sabah, the deputy prime minister for economic affairs.

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The law stipulates that public shareholding companies must be established to run entities slated for privatisation and that at least 40 per cent of the shares must be sold to Kuwaitis in an initial public offering.

A maximum of 20 per cent of the shares will be held by government institutions and 5 per cent by a company’s Kuwaiti employees, leaving at least 35 per cent to be sold at auction to private or foreign investors. The law also includes a series of restrictions on firing or cutting the pay of Kuwaiti employees.

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Each individual state privatisation will also still have to pass through parliament, where opposition is likely to be fierce.

Nevertheless, few disagree that Kuwait needs to overhaul its government-dominated, bureaucratic, oil-centric economy. The great majority of Kuwaitis work in the government, and the country’s development has lagged behind other Gulf states.

There are some signs that the bill is an instigator of real change. Soon after passing the privatisation law, the national assembly approved by 37 to three votes a bill to set up new, privately held power and water desalination plants for the first time.

The long-delayed privatisation of Kuwait Airways is also gaining some traction. “It’s essentially completely a state entity where some entire families have worked there for several generations, so it’s going to be a touchy deal,” says Mr Pfeiffer, whose firm is bidding for the work on the proposed privatisation.

Moreover, the number of Kuwaitis eschewing the safety of government jobs has risen steadily in recent years. Last year, 20 per cent of all Kuwaitis worked in the private sector, up from 18 per cent in 2008 and 16 per cent in 2007, according to economists at National Bank of Kuwait.

This is partially because of a law passed in 2000 that provides Kuwaitis working in the private sector with public sector benefits, including a monthly stipend, NBK notes.

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