Marcopolis presents the Kuwait Report focused on the investments, doing business, economy and other topics featuring interviews with Kuwaiti leaders. The sectors under review in this issue are industry, oil and gas sector, investments, banking sector, telecom sector and many more.
Bader Al Humaidhi, Kuwait's Former Minister of Finance
Interview with Bader Al Humaidhi, Former Minister of Finance
Kuwait is seemingly one of the most—if not the most—liberal countries in the Gulf with the Kuwaiti parliament being fully elected by people. In your perception, how is this affecting the economy?
Kuwait is a vital state; it has been democratic for many years since 1962, one year after independence. From that year until the end of the 80s, i.e. from 1962 until the invasion of Kuwait I think it had had very democratic processes. After the invasion and the reparations many factors have affected things. First of all, the demographic structure of Kuwait has changed a lot. Secondly, all of the old politicians that created and developed the political system in Kuwait are no longer here and at the same time we have not seen a very good respect for democracy from some of the members of the royalty. Also since the 90s until now, we have seen that many members of the parliament were using their right to question the ministers and sometimes even the Prime Minister. This sometimes lead to the resignation of that minister, like what happened yesterday or a couple of days ago actually, when there was a debate about one of the ministers, no vote of confidence was taken but only a calculation that the parliament would vote against him so he has already submitted his resignation. From the 90s up to 2012 we have had between eight to ten elections as no parliament has completed its four year duration because every time there is dissolution of parliament. There is no stability at the political level; sometimes every few months we have new ministers and a new cabinet and that means that there is no stability and no good relations between the executive and the legislative power. Also it means that no ministers can implement their plans and so development has been hampered by that. Nevertheless since 2013 we have had a new parliament but unfortunately it has been on standby because they did what the government wants but the government does not seem to like that parliament in the proper way and doesn’t seem to like it for the sake of development. Development has not been good. Corruption is rife, Kuwait jumped up 20 places in the ranking for corruption. Unfortunately up to now, democracy has not been helping the development of Kuwait as it used to in the 60s, 70s and partially in the 80s.
What would you suggest as a solution going forward?
It has to be a kind of national contract with all parties especially the leaders and intellectuals from this side or that putting together a change in the constitution. The constitution of Kuwait was drawn up and has been accepted since 1962. That is almost 60 years. Things are changing though, with the economy and the culture changing there has to be a change. I remember I spoke to one of the old politicians of Kuwait who was involved in writing the constitution and he said to me that if he knew the composition of the population of Kuwait were to change as dramatically as it has nowadays, we wouldn’t have the same constitution as we made in 1962. There has to be a change to the constitution. Secondly, I think we should adopt what we call the two system of democracy like in America where you have the Representative parliament and you have Congress and like in the UK where you have the Commons and the Lords. We have to have this kind of system because you need to have one to check on the other. Then I think there has to be an acceptance by the legislative side that these members of parliament have the right to question. They have the right to follow all of the implementation. Most importantly we have to select good ministers. I shouldn’t select a minister because he comes from this tribe or the next, he should be selected properly. I don’t want to generalise but some of the ministers if not most of them today are not the best for the country. Some ministers have been in power for many years and have not done anything but they are still there because they belong to this side or to that side. In the 60s and 70s, Kuwait used to be number one in the Gulf. Now we are at the bottom, for many reasons. I am not saying that democracy is not good but if you don’t use it in the proper way it doesn’t work.
Bureaucracy in Kuwait is killing everything.
Kuwait’s non-oil GDP is forecasted to grow by 3% in 2017. Is this predication realizable?
For us, our GDP growth goes up and down according to the oil prices. A year ago the price of oil was around 30 US dollars per barrel, today it is between 50 and 55, and Kuwaiti oil is worth around 55 US dollars. To calibrate between expenditure and revenues of the budget we need to get to around 69 US dollars per barrel. For us the main thing is the oil prices but no one can control oil prices, they go up and down according to supply. Nowadays there is an agreement between Russia, Saudi Arabia and Iran about the projection level and that is why oil prices are stabilising and increasing gradually but if that agreement is lost you will see the prices go down.
As you say the prices are stable at around 50-55 US dollars per barrel and they are going to stabilise more and some people predict that the demand will be higher than the offer in the second half of 2017.
I have a friend who is a specialist in oil, he said to me “if you ask me tomorrow what would be the price of oil, I would not judge it”. In the past, if you remember, the oil prices in a week or even a month could go up or down by 50 cents or maximum by a US dollar, but now they can drop or rise by one US dollar or by three. Last night it went up by one US dollar so the volatility in the oil demand and supply is very high. If you look at Iran, they want to pump as much as they can, the same applies to Iraq, there are no controls happening. Saudi Arabia wants to maintain their share of the market. Also the demand comes from China, it is the main source of demand for us, not America, but China and India. And as you know, growth in China three years ago was at 9% and now it is at 6% or so. Don’t forget also the other sources of energy, solar etc.
Unfortunately in our country 95% of our revenues in the budget is derived from oil. We don’t have any other source of income. If you go to Dubai for example, they have tourism and other revenues. Even Saudi Arabia derives 70% of its revenue from oil and now they have 30% from other sources. We have not done anything to diversify. I shall give you an example; just yesterday the Minister of Finance said that our budget for 2017-18 will be 21.3 or 21.4 billion Kuwaiti dinars and this is comparing with 19 billion Kuwaiti dinars previously so it is about a 10% increase. But you know what? 50% is wages and salaries, 25% subsidies, so that leaves 25% and out of that 25% only 13% is for developmental projects. Furthermore there is going to be a deficit in the budget. In 2015-2016 the deficit was 3 million; now in 2016-17 the deficit may rise to 6 or 7 million and so on because in the budget we have some items which you cannot reduce or stop such as the salaries and wages, whereby every year there is a 5% increase. The budget is building up and the oil reserves we have are our income but we don’t have controls on that income. In Saudi Arabia they have cut salaries, not the basic salary but other wages, some have been cut by 40%; they have to accept it, it is the way of life. We are countries, we are not like human beings; human beings live 60, 70 or 100 years; Kuwait has been here for three hundred years and hopefully will be here forever. What if after 10 or 20 years we run out of money? What will happen then? No one thinks about that unfortunately.
It is lack of vision. You talk of the budget, the deficit in 2015-2016 reached 5.98 billion Kuwaiti dinars which is around 18 million euros, and is 20% higher than the past two years. It is growing. Do you think that Kuwait will carry on having this budget deficit until 2025?
And maybe more. Nobody knows. In the end, IMF and World Bank only give projections. Have you seen that from time to time either World Bank or IMF change their mind? They say that GDP all over the world will grow by 3.5%, and then three months later they change that to 3.2% or 3.6%. Everything changes. We are a country that cannot live on a projection. The late Emir established the Future Generation Fund in the 70s, and now it is worth around 600 billion US dollars. During the invasion of Kuwait we utilised that fund for feeding the Kuwaitis outside Kuwait, for supporting the liberation of Kuwait etc. If we didn’t have that at that time, what would have happened? No one can liberate Kuwait if you don’t have money, no one can feed the people without money. If you are going to finance the deficit in the budget from this Fund, at one point in time there will be nothing left. Then what will we do?
Non-oil GDP growth was up 3%. It is also affected by the projects in infrastructure under the development plans. How do you see this growing? What is the progress in the development plan?
You have to look at Kuwait and see where we can derive the other sources of income from. I can give you an example, in the last few years if you look at FDI, Kuwait is the only country in the Gulf who has positive outflow and negative inflow. The net shows we are exporting more than we are importing. Unfortunately the investment environment in Kuwait is not attractive. If you want to establish a company in Dubai, you can do it in one day over the computer. I had the experience of changing the structure of my company and it took me almost one year to do it here, I don’t mean to establish a company but to change the structure of one existing company. Bureaucracy and corruption is so great in the country. If you are going to get electricity for your factory, sometimes you have to pay money to get it, to bribe people to get it. How can you create a sector to be a source of income like this? Kuwait in the 60s and 70s and part of the 80s used to be the best financial centre in the Gulf, it was in fact the main centre in the Gulf. It is still a financial centre and some people debate whether we should create a new financial centre or revive the existing one. There are many multinational and Arabian companies based in Kuwait, but we don’t add to them and some are leaving to go to Abu Dhabi, Bahrain etc. Other places like Abu Dhabi, Bahrain, Dubai and even Doha became much more attractive to foreign investors. If you ask me, the only hope we have is within the financial track. We do have Citi, HSBC, etc. but they have very small offices. Just a few days ago I asked my colleagues at Citi and they said they have 500 people in Dubai. It is easy to get visas for them, it is easy for the social life there... It is very difficult here. We do have to diversify but it is not easy. Yesterday the Prime Minister and some ministers came and talked about the vision of Kuwait for 2035, they talked about general things and many people doubt it. I am one of them. If you want to diversify, you have to have a plan, a project, and to tell us how it will be implemented, who will finance it, who will run it etc. It is not just the vision itself. I am sorry if I am very negative. I am sorry, and everybody feels sorry in Kuwait, even some officials will tell you these things.
KDIPA is saying that the new FDI law is actually very attractive for foreign investors and you are saying that there is higher outflow of investment, which is contradictory.
Last year or the year before, I think we had 2 major investments that came in and improved the FDI but they didn’t change it from negative to positive. One was from Microsoft and the other from Huawei. They were only 2 investments, no more than that comes now you see. For example, there is a Privatisation Agency of Kuwait that was established I think 5 years ago, but they have done 0 projects. I spoke to their manager; he said “how can I do it if it takes me sometimes 6 months to get the permission from the civil labour agencies for my structure and so on. They have done 0 projects. The Public Private Partnership Agency was established around 8 years ago and they have only done around 3 or 4 projects up to now. Bureaucracy in Kuwait is killing everything.
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