Kuwait’s Shift towards the Private Sector
by Sophie Smith
The ongoing COVID-19 pandemic has significantly impacted Kuwait’s economy with the country reaching a budget deficit of 9.38% as economic growth fell to -8.1% in 2020. This comes as unemployment nearly tripled from 2.41% in 2019 to 6.79% in 2020. Like others around the world, the Kuwaiti government’s attempts to navigate this unprecedented situation and lead the country’s economic recovery, emphasising engagement with and expanding the private sector. Indeed, privatisation is regarded as an avenue for innovation and competition that can help Kuwait diversify beyond the hydrocarbon sector to achieve sustainable economic development in line with its larger economic development plan, Vision 2035.
Privatisation in Kuwait
Privatisation in Kuwait can be traced back to the early 1990s when low oil prices and the aftermath of the Iraqi invasion (1990-1991) led the country to seek further avenues for economic growth. In 1992, the Kuwait Investment Authority (KIA), a body focused on encouraging private sector development, implemented a three-phased privatisation programme that aimed to transform the economy to decrease its dependency on oil revenues. However, such efforts did not gain significant impetus until the following decade. In 2008, the government adopted the Public-Private Partnership (PPP) Law to set out a framework for the governance of PPP while creating the Partnerships Technical Bureau (PTB) to act as the main implementation body of such projects. Six years later, this body was replaced by the Kuwait Authority for Partnership Projects (KAPP) under a new PPP Law designed to consolidate the institutional framework for PPP. The KAPP, thus, became the main body responsible for the implementation of PPP projects, particularly in: power, water, education, health, transport, communications, real estate and solid waste management sectors. In tandem, the government has adopted the Privatisation Law of 2010 to articulate the procedure of transferring public projects to the private sector with the creation of the Supreme Council of Privatisation to help achieve this. In addition, it also passed the Independent Water and Power Plant (IWPP) Law of 2010 – later amended by Law No. 19 of 2015 – which specifically regulates power and water desalination PPP projects. And, in 2013, the Kuwait Direct Investment Promoting Authority (KDIPA) was established to promote and regulate direct investments in Kuwait, building on several laws that focus on 100% foreign ownership in certain sectors, among other measures.
On this basis, the government intends to privatise forty state assets over the next 20 to 30 years. Accordingly, several sectors have been undergoing privatisation. Telecommunications was among the first sectors to undergo privatisation as the government divested itself from the state-owned company, the Mobile Telecommunications Company, now known as Zain, in 1999. Similarly, the financial sector has been included in the privatisation process as the country sold a 44% stake in its stock exchange, Boursa Kuwait, in early 2019, followed by an initial public offering of a further 50% later that year. The same holds for the power sector, which includes the sale of 50% of KAPP’s equity stake in the Shamal Az Zour Al-Oula KSC, the owner and operator of Az Zour North Power and Water Plant, in 2019 as Kuwait’s first PPP project under the IWPP and PPP Laws. Other projects include the Shagaya Renewable Energy Park (Phase III), a completed and signed project, and the Al Khairan IWPP (Phase I), which is in the tendering stage. Such initiatives are equally occurring in real estate, including the South Al-Jahra Labor City, currently being tendered, which should include affordable housing for 20,000 expatriate workers. And, in transport, the Kuwait National Rail Road, which is part of the large Gulf Cooperation Council (GCC) railway project, is a PPP project, designed to boost regional integration and trade and create job opportunities. Further, the solid waste management and water management sectors are also being opened to the private sector, including the Municipal Solid Waste Treatment Facility in Kabd, which will collect half of Kuwait’s total municipal solid waste, and the Umm Al-Hayman Waste Water Project, one of the world’s largest such facility.
The Impetus behind Privatisation
Such privatisation initiatives reflect Kuwait’s economic development plan, Vision 2035, which seeks private sector involvement in realising goals, such as modernising infrastructure and developing renewable energy. Indeed, private sector engagement and initiatives are the third stage of the Vision (2020-2024), which intends to unleash the private sector’s potential in leading economic development by creating competition and encouraging production efficiency. In other words, the private sector is designed to support and fuel economic diversification towards a knowledge-based economy that is globally competitive in high value-added sectors. Moreover, engaging the private sector is part of wider plans to boost employment in line with objectives to significantly increase the proportion of jobs for nationals in the private sector. And privatisation will allow the government to focus on regulation and policymaking as opposed to economic activities and being the predominant employer of the population.
However, Kuwait still has some way to go in acquiring these benefits. Indeed, foreign direct investment (FDI) remains underdeveloped, taking up only 0.38% of GDP in 2019, compared to 2.12% of GDP in 2011. This comes as the country ranks the lowest of its GCC counterparts (and 83rd in the world) in the ease of doing business as a result of its regulatory environment in the establishment and operation of a local company. For instance, the Kuwaitisation quotas – the hiring of nationals – are seen as a burden to private sectors, which cite that it favours nationality over skills. In turn, Kuwaitis regard private sector employment as unattractive, with most individuals desiring a job in the public sector as the sector is seen as offering more benefits vis-à-vis welfare and wages. Hence, although Kuwait has made progress on its privatisation ambitions, further measures may be required to fully realise the potential of the private sector in achieving the goals of Vision 2035.
14 June 2021
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