Kuwait’s recent parliamentary elections were supposed to be a fresh start, both for the country’s political process and its stuttering economic development. The country has been hit hard by the global economic downturn. Its stock market, the Kuwait Stock Exchange (KSE), lost more than 50% of its value in 2008, falling from about 15,600 points to 7600. Perhaps even worse was the collapse of a $17.4bn deal between the government and US firm Dow Chemical, which was largely blamed on political infighting.
The government, although far more democratic than any other in the Gulf region, largely remains an autocracy led by Emir Sabah IV Al Ahmad Al Jaber Al Sabah. Although there is an elected 50-member parliament, which has the authority to propose laws and interrogate the Emir’s cabinet, power remains largely with the Emir himself. He appoints all of his cabinet ministers, with the key positions, such as minister of the interior and minister of oil, frequently going to members of the ruling Al Sabah clan. Most importantly, he also has the right to dissolve parliament whenever he wants, although he is required to hold new elections within months of a dissolution. The recent election was the second in less than a year.
The results of this election could therefore be a sign of better things to come. Although the Kuwaiti public is sceptical about the parliament’s ability to work together and survive, there will be more than 20 new faces in the new government. Remarkably, four of them are women. The KSE was up sharply after the poll.
Economic reform was a top priority of nearly every candidate for parliament. Most seemed concerned that there was insufficient regulation at the KSE. Massouma Al Mubarak, one of the women who won a parliamentary seat, says that she is very concerned about Kuwait’s economy and its regulatory framework. “I am definitely concerned. Kuwait has been affected by this economic crisis that is all over the world. I believe the Kuwait authorities are a bit late in regulating such measures in order to face this problem,” she says.
“There was a law that passed a few weeks ago that was not passed during the parliament session. It was passed after the dissolution of the parliament and, definitely, this law was helpful, but we need a much more serious measure to deal with the issue. I believe that the coming national assembly should deal seriously with this problem and also give it a higher priority. We cannot afford to waste more time without regulating the issues and policies dealing with such issues.”
Accessing the market
For foreign investors, the KSE has been the most common and least complicated way of accessing the notoriously bureaucratic Kuwaiti market. Foreigners are allowed to buy as much stock in a Kuwaiti company as they would like, apart from banking stocks where they are only allowed a 5% stake. It is possible to obtain a higher level, but it must be approved by the central bank. Investing in Kuwaiti funds is also a possibility and there have been recent discussions about launching an exchange traded fund based on the Kuwaiti market.
FDI, apart from oil-related projects, has been relatively low because the country has so much money of its own to spend. In fact, the country has the fourth highest GDP per capita in the world at $57,400, according to the CIA World Factbook, trailing only behind Liechtenstein, Qatar and Luxembourg. Many of the people on both the men’s and women’s trading floors of the KSE (they have separate floors), are independent investors, making trades with their own and their family’s money.
Paradoxically, the political infighting could create some new opportunities for FDI as public projects for roads, hospitals, education and general infrastructure have been slowed down because the government has been unable to agree on the appropriate level of funding. Another problem for the government has been the highly volatile oil price. The country enjoyed record revenues from high oil prices earlier last year, but the dramatic fall in price later in the year significantly tightened the government’s coffers. Although the government still has plenty of money, this has been another factor causing many public and infrastructure projects to be short of funding.
However, the main issues that both foreign and domestic investors face with the KSE are insufficient transparency, and the potential for conflicts of interest with the KSE’s regulator, the Central Bank of Kuwait. Wafa Mohamed Al Rasheed, director of the technical bureau at the KSE, has been working there for 24 years. She was also directly responsible for the creation of the women’s trading floor. Mrs Al Rasheed says that the regulations are very outdated and the possibilities for conflicts of interest are rife.
“We’re looking into separating the regulation from the execution, because right now they are together. The stock market is run by a committee and those are the people who are managing the regulation. So the members of the board are overlooking the operations and they won’t issue regulations that would be beneficial for the other investors,” she says. “The legislation is lacking in every aspect. The decree on trading came out in 1983 – that’s 25 years ago. The stock market has changed a lot in the past decade, especially in its operations. It is much more sophisticated now.”
There is not much, apart from statements of ‘determination’ and ‘hope’, that indicates that this parliament will be able to succeed where those before it failed. When asked how this parliament would be different from others, former minister of finance and speaker of the parliament, Jassim Al Kharafi, admits that it will not be easy but he remains confident in the country’s prospects. “The message we have received from the people is very clear. They want us to concentrate on the future and to see that laws that are necessary for our future are implemented,” says Mr Al Kharafi.
“The first step is to put confidence in our country and our laws. There shouldn’t be hesitation in the decisions we take. We are still in a good position. We have no deficit and our income is still higher than our expenditure. What we need is a plan for the future, and seriousness in implementing this plan,” he says.
Population: 2.6 million
Pop. growth rate: 3.55%
Area: 17,820 sq km
Real GDP growth: 8.5%
GDP per capita: $57,400
Current account: $65.21bn
Largest sector (% of GDP): Industry 52.2%
Labour force: 2.23 million
Unemployment rate: 2.2%