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Country Report December 2002

Kuwait

December 2002

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

Kuwait at a glance: 2003-04

OVERVIEWPolitical inertia will continue, in part due to the ill health of the most seniortwo ruling Al Sabah, while entrenched Islamist-led opposition within theNational Assembly is likely to prevent the passage of a number of government-authored economic and political reforms. However, the much delayed ProjectKuwait proposals for foreign investment in the northern oil fields are expectedbe agreed in 2004. A possible US-led war against Iraq carries the risk thatKuwait will be targeted by Iraq in reprisal for an invasion from its soil. Attackson US personnel in the country could continue, and may suggest an al-Qaida-related cell in Kuwait that has some local infrastructural support. Despite warfears the Economist Intelligence Unit forecasts that increased oil productionand government spending in 2003 will drive an economic recovery, while thecurrent-account surplus will fall only slightly. In 2004 growth shouldstrengthen further as oil production slightly increases and domestic demand isbolstered by a likely end to the Iraq conflict. The forecast fall in oil prices in2004 will reduce projected current-account and fiscal surpluses.

Key changes from last month

Political outlook• Our forecast remains that progress on reform proposals under examination

in the National Assembly will be slow due to the opposition of the Islamist-tribal alliance. It is possible that there will be more attacks on US personnelin Kuwait, although relations between the two countries will remain strong.

Economic policy outlook• Kuwait will continue to pursue cautious economic reform, with efforts to

increase foreign investment in the oil sector and to Kuwaitise the labourforce. However, the comfortable cushion against a falling oil price providedby the reserve oil fund is likely to reduce the urgency of major change.

Economic forecast• We forecast that real GDP growth will rise by 3.4% in 2003 largely owing to

increases in oil production. Higher oil earnings should boost the current-account surplus to US$7.2bn (20% of GDP), before falling oil prices reduce thesurplus to US$5bn (14.5% of GDP) in 2004. Increased government spendingshould reduce the fiscal surplus to US$1.5bn in 2003, while in 2004 falling oilrevenue is forecast to reduce this to US$426m.

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Kuwait 1

Country Report December 2002 www.eiu.com © The Economist Intelligence Unit Limited 2002

Contents

3 Summary

4 Political structure

5 Economic structure5 Annual indicators6 Quarterly indicators

7 Outlook for 2003-047 Political outlook8 Economic policy outlook9 Economic forecast

12 The political scene

16 Economic policy

21 The domestic economy23 Oil and gas27 Financial and other services

28 Foreign trade and payments

List of tables9 International assumptions summary11 Forecast summary17 Public revenue and expenditure21 Money supply22 Credit to the private sector24 Trends in spot quotations for selected crudes25 Crude production and quotas25 World oil supply and demand: IEA estimates and forecasts28 Net foreign assets of local banks

List of figures

12 Gross domestic product12 Kuwaiti dinar real exchange rates23 Kuwait Stock Exchange Index24 Oil prices

Kuwait 3


Summary December 2002

Relations between the government and National Assembly are likely to remainfractious before and after the parliamentary election due in 2003. A likely US-ledattack on Iraq, possibly in the first few months of 2003, may have seriousrepercussions for Kuwait in the form of an Iraqi missile strike armed with achemical or biological warhead. Despite official indications of increases ingovernment spending in 2002, this will still leave a fiscal surplus owing tohealthy oil revenues. Higher government spending, combined with higher oilproduction, will drive real GDP growth of 3.4% and 3.5% in 2003 and 2004respectively. The trade surplus will fall sharply in 2004 as oil prices slide,reducing the current-account surplus from US$7.2bn in 2003 to just over US$5bnin 2004.

Kuwait has seen five attacks, either frustrated or actualised, against US soldiers inthe last quarter, while an allegedly important Kuwaiti al-Qaida operative wasalso arrested. These attacks have emphasised the tensions that the large USmilitary operation in Kuwait can cause. The Kuwaiti leadership and the majorityof Kuwaitis support US military action against Iraq. The new session ofparliament has been preoccupied with discussing the likely war, and has not yetexamined amended Project Kuwait proposals designed to attract US$7bn offoreign investment in the northern oil fields.

The Central Bank of Kuwait�s closing accounts for the fiscal year 2001/02 show a10.3% rise in government spending, including a 4% increase in the cost of public-sector employment. The government intends to enforce strict new criteria forKuwaitisation of the private-sector workforce. Efforts to raise non-oil income arebeginning to have an effect. The cabinet has confirmed that the dinar will befully pegged to the dollar from the beginning of 2003.

Broad money supply (M2) continued rising during the third quarter. Banklending to the private sector rose by 16% in the year to end-August. The UNCompensation Committee has paid out another US$700m. Relief at the returnof UN weapons inspectors to Iraq boosted the Kuwait Stock Exchange index.Uncertainty over Iraq has buffeted the oil price, but Kuwait has maintained oiloutput at high levels, partly to stockpile in readiness for war. A dispute betweenSaudi Arabia and Qatar could delay the agreement on exporting Qatari gas toKuwait. Saudi Arabia has approved the opening of a local branch of NationalBank of Kuwait. The Central Bank of Kuwait cut its discount rate from 3.75% to3.25% in November.

Firm oil prices brought Kuwait US$6.2bn in oil revenue during the first half of2002. Down on 2001, lower oil receipts make a reduced current-account surpluslikely, along with a government spending-fuelled increase in imports, a fall inforeign investment income, and a projected rise in workers' remittances.

Editors: Neil Partrick (editor); Hania Farhan (consulting editor)Editorial closing date: November 25th 2002

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] report: Full schedule on www.eiu.com/schedule

Outlook for 2003-04

The political scene

Economic policy

The domestic economy

Foreign trade and payments

4 Kuwait


Political structure

State of Kuwait

Emirate

The emir, chosen from the Al Sabah family. Currently Sheikh Jabr al-Ahmed al-Jabral-Sabah, who acceded in 1977

Based on the constitution of 1962, as amended or suspended by emiri decree

Unicameral National Assembly of 50 elected members plus appointed cabinet ministers.The assembly has been dissolved three times by emiri decree, in 1976, 1986 and 1999

July 1999; next election scheduled for the summer of 2003

No political parties are allowed, although informal groupings exist. The main ones aretwo Sunni Islamist groupings (the Islamic Constitutional Movement and the IslamicPopular Grouping, also known as the Salafi), and the Shia Islamists of the National IslamicAlliance. The Kuwait Democratic Forum is a secular political group with liberal and Arabnationalist tendencies; the National Democratic Grouping is a newer liberal group. Mostdeputies sit as independents, and many are primarily loyal to their tribal interests

Power is exercised by the emir through a Council of Ministers (last reshuffle on February14th 2001), headed by a prime minister who is chosen by the emir

Crown prince & prime minister Sheikh Saad Abdullah al-Salem al-SabahFirst deputy prime minister & minister of foreign affairs Sheikh Sabah al-Ahmed al-Jabr al-SabahDeputy prime minister & minister of defence Sheikh Jabr al-Mubarak al-Hamad al-SabahDeputy prime minister & minister of state for cabinet affairs & National Assembly affairs Mohammed Daifallah al-ShararDeputy prime minister & minister of interior Sheikh Mohammed al-Khaled al-Hamad al-SabahCommunications Sheikh Ahmed al-Abdullah al-Ahmed al-SabahEducation & higher education Musaad Rashid al-HarounElectricity and water & labour and social affairs Talal Mubarak al-AyyarFinance, planning & minister of state for administrative development affairs Youssef Hamad al-IbrahimHealth Mohammed Ahmed al-JarallahInformation Sheikh Ahmed al-Fahd al-Ahmed al-SabahJustice, Awqaf & Islamic affairs Ahmed Yaaqoub BaqrMinister of state for foreign affairs Sheikh Mohammed al-Salem al-SabahOil (acting) Sheikh Ahmed al-Fahd al-Ahmed al-SabahPublic works & minister of state for housing Fahd Dheisan al-MiyaTrade & industry Salah Abdel-Rida Khourshid

Jassem al-Khorafi

Sheikh Salem Abdel-Aziz Saud al-Sabah

Head of state

Legal system

Legislature

National elections

Political groupings

Executive

Council of Ministers

Official name

Form of state

National Assembly speaker

Central Bank governor

Kuwait 5


Economic structure

Annual indicators1998a 1999a 2000 a 2001a 2002b

GDP at market prices (KD bn) 7.7 8.9 11.0 10.1 10.4GDP (US$ bn) 25.1 29.2 35.8 32.8 34.2Real GDP growth (%) 3.2 -1.6 3.9 -1.0 -2.0Consumer price inflation (av; %) 0.2 3.0 1.9 1.6 2.0Population (m) 2.3 2.3 2.2 2.3 2.4Exports of goods fob (US$ m) 9,618.0 12,276.0 19,478.0 16,167.0 15,960.8Imports of goods fob (US$ m) 7,715.0 6,708.0 6,451.0 6,929.0 7,275.4Current-account balance (US$ m) 2,214.0 5,063.0 14,669.0 8,562.0 7,094.1Foreign-exchange reserves excl gold (US$ m) 3,947.1 4,823.7 7,082.4 9,897.3 11,000.0Total external debt (US$ bn) 9.5 10.5 9.3 9.6 b 10.4Debt-service ratio, paid (%) 10.5 b 4.9 b 4.4 b 3.8 b 3.4Exchange rate (av) KD:US$ 0.305 0.304 0.307 0.307 0.304

a Actual. b Economist Intelligence Unit estimates.

Origins of gross domestic product 2000 % of total Components of gross domestic product 2001 % of totalAgriculture 0.3 Private consumption 47.7Industry 60.0 Government consumption 26.3Oil & mining 48.2 Gross fixed investment 8.6Services & others 39.7 Exports of goods & services 54.7

Imports of goods & services -37.4

Principal exports fob 2001 US$ m Principal imports cif 2000 US$ mCrude oil 14,975 Consumer goods 3,378

Intermediate goods 2,629Capital goods 1,515

Main destinations of exports 2000 % of total Main origins of imports 2000 % of totalJapan 21.2 US 12.9South Korea 12.7 Germany 9.5US 12.4 Japan 8.3Singapore 7.6 UK 7.3Netherlands 5.8 Italy 5.5Pakistan 3.8 France 4.5UK 2.5 Australia 3.5France 2.0 South Korea 2.5

6 Kuwait


Quarterly indicators2000 2001 20024 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Government finance (KD m)Revenue 1,802 1,438 1,445 1,495 1,254 1,118 1,490 1,414 Oil 1,701 1,238 1,270 1,294 1,026 936 1,323 1,261Expenditure 913 902 719 1,071 1,086 1,151 731 1,178Balance 888 536 726 424 168 -33 759 236PricesConsumer prices (1995=100) 109.9 109.9 110.9 111.1 113.2 113.1 112.6 112.0Consumer prices (% change, year on year) 0.1 1.0 1.3 1.3 3.0 2.9 1.5 0.8Wholesale prices (1995=100) 103.3 103.2 102.8 103.6 103.6 104.9 106.1 n/aCrude oil prices (US$/b; spot) Kuwait blend 26.1 22.2 23.8 22.7 16.9 19.8 24.2 n/a OPEC basket 28.8 24.4 25.7 24.1 18.3 19.9 24.4 26.2 Brent 29.7 25.8 27.4 25.3 19.4 21.1 25.1 26.9Financial IndicatorsExchange rate KD:US$ (av) 0.307 0.306 0.308 0.308 0.306 0.307 0.303 0.302Exchange rate KD:US$ (end-period) 0.305 0.308 0.308 0.308 0.308 0.306 0.302 0.302Deposit rate (av; %) 5.92 5.28 4.51 4.22 3.82 3.45 3.23 n/aDiscount rate (end-period; %) 7.25 5.75 5.50 4.75 4.25 4.25 3.75 3.75Lending rate (av; %) 9.07 8.75 8.13 7.69 6.93 6.76 6.73 n/aMoney market rate (av; %) 6.77 5.67 4.81 4.53 3.48 3.31 3.24 2.90M1 (end-period; KD m) 1,467.7 1,579.1 1,683.9 1,543.2 1,641.4 1,974.4 2,155.6 n/aM1 (% change, year on year) 7.0 14.6 16.9 14.9 11.8 25.0 28.0 n/aM2 (end-period; KD m) 8,163.2 8,864.5 8,525.6 8,599.7 9,208.7 9,673.8 9,691.7 n/aM2 (% change, year on year) 6.3 12.4 7.4 10.7 12.8 18.5 13.7 n/aKSE general index (end-period; Dec 29th

1993=1,000) 1,348 1,454 1,685 1,600 1,709 1,868 2,226 1987Sectoral trendsCrude oil production (m barrels/day)a 2.22 2.16 2.02 2.02 1.95 1.85 1.87 1.90Crude oil production (% change, year on year) 16.8 11.9 -1.5 -6.9 -12.2 -14.4 -7.4 -5.9Foreign trade (KD m)Exports fob 1,639 1,347 1,388 1,242 972 1,004 1,201 1,296 Oil 1,534 1,262 1,286 1,153 890 913 1,106 1,193Imports cif -622 -586 -591 -575 -618 -589 -594 -580Trade balance 1,017 761 797 667 354 415 607 716Foreign reserves (US$ m)Reserves excl gold (end-period) 7,082.4 8,221.3 8,867.5 8,982.2 9,897.3 10,187.7 11,033.4 10,315.0

a Excluding partly refined petroleum. Including half-share of Neutral Zone production.

Sources: IEA, Monthly Oil Market Report; OPEC bulletin; Central Bank of Kuwait, Quarterly Statistics Bulletin; IMF, International Financial Statistics.

Kuwait 7


Outlook for 2003-04

Political outlook

The fractious relationship between the government and the National Assemblyis set to continue. The government will continue to promote its economic reformprogramme, which aims to dismantle the country�s costly welfare system,stimulate foreign investment, and create private-sector employment for Kuwaitinationals. However, the dominant Islamist-tribal alliance of MPs is likely tocontinue to oppose the reform process, in part reflecting the perspectives of asignificant portion of the Kuwaiti electorate. The welfare system providesKuwaitis with comfortable government jobs and a range of subsidies that theyare reluctant to surrender.

A number of Islamist MPs in particular are opposed to Project Kuwait, theUS$7bn plan to allow foreign investment in the Kuwaiti oil industry, as theydislike concessions over a strategic national resource and believe that well-placed Kuwaitis are set to gain from its go-ahead. Despite urgings from the rulingfamily, the parliament is likely to take its time over agreeing to a number ofmeasures that would liberalise the economy. Furthermore, elections for a newfour-year legislative term are expected by June next year, and a number of MPswill calibrate their populist opposition to reform in order to enhance their re-election prospects.

Despite the conflict between parliament and the government, there is broadsupport for the ruling Al Sabah family, which dominates the government, and itsleadership will remain unchallenged. However, the issue of succession isincreasingly discussed, given the poor health of the ageing emir, Sheikh Jabr al-Ahmed al-Jabr al-Sabah, and his nominated successor, the crown prince, SaadAbdullah al-Salem al-Sabah. In recent months the foreign minister and deputyprime minister, Sheikh Sabah al-Ahmed al-Jabr al-Sabah, has become the defacto leader of the country. However, his age strengthens the likelihood that thesuccession issue will continue to be raised in the National Assembly, andactively discussed in wider elite circles. Although complicated by claims fromdiffering branches of the ruling family, the succession issue is unlikely togenerate a political crisis. Furthermore, despite the likelihood of a number ofsuccessions occurring within a relatively short number of years, these can beexpected to be orderly.

Extremist Islamist cells, possibly linked to al-Qaida, are likely to seek to exploitregional tensions in the build-up to possible military conflict with Iraq bycontinuing to stage attacks on US military personnel in the country. Theseattacks are likely to compound the disquiet, especially in liberal Kuwaiti circles,about the power of Islamist forces more widely in the country. The governmentwill continue to closely monitor the activity of radical Islamic preachers, as wellas possible financial support for al-Qaida from within Kuwait.

A US-led military overthrow of the Iraqi regime is highly likely during theforecast period, probably beginning in the first four months of 2003. Kuwait hasstepped up military and civil preparedness, in tandem with the efforts of the US

International relations

Domestic politics

8 Kuwait


and some of Kuwait�s other Western allies to enhance the country�s defences.The government is likely to carry the country behind involvement in US effortsto overthrow the regime of Saddam Hussein. However, even if the governmentdoes not give its overt support, it has already clearly said that it would not beopposed to a conflict enjoying UN legitimacy, and that the ongoing build-up ofUS and UK troops in Kuwait and the use of Kuwaiti bases in a war would comeunder the requirements of its bilateral defence agreements with the US.

Economic policy outlook

The five-year development plan for 2002-06 sets out the main policy issuesconfronting the country. They include its over-reliance on oil for fiscal revenueand economic output, weak and declining capital expenditure, public-sectordominance of economic activity, and the deficiencies in the educational system.Privatisation is likely to remain a broad ambition, but major state holdings areunlikely to be offered to private ownership during the forecast period. Thegovernment also acknowledges the need to curtail the growth of the costlywelfare system, and ease Kuwait�s reliance on the public sector for job creation.Currently, the public sector employs around 94% of the Kuwaiti workforce,absorbing new Kuwaiti entrants to the labour market every year and payingmany of them to occupy unnecessary and sometimes absentee positions. Somemeasures to encourage the private sector to employ Kuwaitis have beenintroduced, including a change in the benefits system and a reduction in hiring bythe public sector. However, the impact of these steps is likely to be extremelylimited during the forecast period.

The Economist Intelligence Unit�s forecast for Kuwait�s fiscal account traditionallyshows a healthier outturn than government budget forecasts owing to thegovernment�s highly conservative oil price assumptions and its exclusion ofincome from overseas investments. We expect that oil income will increasemodestly in fiscal 2003. Overall revenue will be boosted by improved returns onthe government�s large stock of overseas assets. We have adjusted ourexpectation of total revenue down slightly to stand at KD7.2bn (US$23.7bn) due toa slight amendment to the expected differential of Kuwaiti crude on dated BrentBlend, an increase of 3% on the estimated outturn for fiscal 2002. Investmentincome is estimated to fall by around 10% to KD1.6bn. Expenditure is expected toshow strong growth of around 10% in 2003 to KD5.7bn (US$18.8bn), as recurrentspending is likely to be particularly strong. As a result, the fiscal surplus isexpected to decline from an estimated KD1.8bn this year, to KD1.5bn in 2003. Wehave raised our forecast for the fiscal balance September because of an increase inour forecast oil price. At 13.8% of GDP, the surplus in 2003 will remain very strong.

In 2004 we forecast that total fiscal revenue will contract by nearly 8.4% toKD6.6bn in line with an expected 22% decline in the oil price. While income onforeign assets is expected to strengthen further, in line with an expected rise inglobal interest rates, this will be insufficient to compensate for an anticipated fallin oil earnings. At the same time, capital spending will increase significantly astwo major petrochemical projects are expected to get under way. As a result in2004 the fiscal surplus is forecast to fall substantially, to KD426m, or 4.1% of GDP.

Policy trends

Fiscal policy

Kuwait 9


In a move towards establishing a common Gulf Co-operation Council (GCC)currency pegged to the US dollar, Kuwait has officially announced that fromJanuary 1st 2003 the Kuwaiti dinar will be pegged exclusively to the US currency.As the dinar is presently pegged to a dollar-heavy basket of currencies, andKuwaiti interest rates track trends in US interest rates, this is not expected tomake much difference to the dinar. We do not expect the US Federal Reserve tobegin raising rates until the second half of 2003, and as a result we forecast thatthe Kuwaiti discount rate will remain at 3.75% into next year, when local rates,following US rates, are likely to average 3.25%. However with the US economyforecast to show stronger growth in 2004 and interest rates to be adjustedsignificantly upwards as a result, we expect average Kuwaiti interest rates to risefurther, to around 5.5%.

Economic forecast

International assumptions summary(% unless otherwise indicated)

2001 2002 2003 2004Real GDP growthWorld 2.0 2.7 3.3 3.9OECD 0.7 1.6 1.9 2.6EU 1.4 0.9 1.6 2.2Exchange rates¥:US$ 121.5 125.5 128.8 130.5US$:� 0.896 0.948 1.070 1.053SDR:US$ 0.785 0.771 0.737 0.744Financial indicators� 3-month interbank rate 4.26 3.33 2.75 3.38US$ 3-month Libor 3.78 1.85 1.44 3.25Commodity pricesOil (Brent; US$/b) 24.5 24.9 24.5 19.1Gold (US$/troy oz) 271.1 308.0 307.5 290.0Food, feedstuffs & beverages (% change in US$

terms) -1.9 15.4 14.5 0.2Industrial raw materials (% change in US$ terms) -9.8 0.2 6.1 9.7

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

We expect the benchmark dated Brent Blend to average US$24.9/barrel in 2002,(Kuwaiti blend is estimated at US$23.5/b), remaining firm at US$24.5/b in 2003(or fractionally under US$23/b for Kuwaiti blend) as fears of a US-led war againstIraq keep prices high in the first half of the year. The war-risk oil-price premium,presently weakening as UN weapons inspectors resume their work in Iraq, isexpected to resume in 2003. Regional tensions are expected to ease later in 2003and into 2004, when the removal of the war-risk premium is likely to seeaverage Brent prices ease to US$19.1/b (or US$17.9 for Kuwaiti blend).

The main downside risk is rooted in concerns over the strength of the globaleconomic recovery. The beginning of a US recovery has led us to estimate thatglobal economic growth at market exchange rates this year will be 1.8%, or 2.7%at purchaser power parity (PPP) exchange rates. In 2003, we forecast that growthshould pick up to 2.4% (3.3% at PPP rates). This is higher than expected in

Monetary policy

International assumptions

10 Kuwait


September, largely as a result of the expected strengthening in the economicrecovery in the second half of the year. By 2004 the pace of internationaleconomic growth should be above trend, increasing by 3% (3.9% at PPP rates).However, should this recovery fail to materialise, the downturn in oil pricescould be deeper than we currently forecast.

We estimate that real GDP will contract in 2002 by 2%, chiefly as a result of a 7.8%fall in oil production. However, expected production increases in 2003 shouldboost Kuwaiti economic growth to around 3.4% as Kuwaiti oil production increasesby around 6.2%. We expect a strong increase in government capital expenditure,which will boost private consumption. Kuwaiti oil output will also rise if Iraqisupplies are cut in the event of a US-led attack on Iraq, adding to Kuwaiti exportgrowth. In 2004 we expect preliminary spending related to the US$7bn oilfielddevelopment, Project Kuwait, and spending of approximately US$3bn on tworelated petrochemical facilities. This, combined with higher oil output and risingprivate consumption, should lead to real GDP growth of about 3.5%.

Official figures show that as of June 2002 the year-on-year rise in the consumerprice index was just over 2% and we estimate that price growth remained closeto this level for the remainder of the year. Buoyant domestic demand, coupledwith a forecast rise in import prices of non-oil commodities, is likely to raisedomestic prices to around 2.5% in 2003-04. At the same time, continuedpayments to Kuwaiti citizens and businesses through the UN CompensationCommittee will boost domestic liquidity. Europe and Japan are key sourcemarkets for Kuwaiti imports, and the currency�s link to the US dollar will makenon-US imports more expensive in dinar terms given the expected relativeweakness of the dollar during the forecast period.

Kuwait has pledged, as part of moves towards the creation of a single GCCcurrency, to peg the dinar to the US dollar from the start of 2003. If and whenthe peg to the US dollar happens, it is unlikely to significantly impact on thedinar because the US currency already dominates the existing currency basket.As a result, the dinar rarely trades outside of a narrow band betweenKD0.301:US$1 and KD0.308:US$1, the band within which it is expected tocontinue to be fixed.

We expect Kuwait�s export earnings to strengthen slightly in 2003 as oilproduction rises, offsetting the marginal drop in oil prices. Despite ourexpectation that private consumption growth will be weaker next year, as warfears undermine confidence and lead to some Kuwaitis leaving the country,increases in government consumption are expected to help boost importspending by 3.5%. As a consequence the trade surplus will increase from US8.7bnin 2002 to US$8.9bn (25.4% of GDP) in 2003. Kuwait�s invisibles deficit isexpected to fall during the forecast period primarily as a result of a significantstrengthening of income credits in 2004. This is largely explained by returns onKuwait�s overseas investments, which are projected to rise from the second halfof 2003, given that US and European interest rates should increase as the globalrecovery strengthens. Income debits will increase only marginally as profitrepatriation by foreign oil operators is expected to decline slightly as oil prices

Inflation

Exchange rates

External sector

Economic growth

Kuwait 11


fall. Services debits will rise in line with import spending. The current-transferdeficit is forecast to remain high given that there is little prospect of significantreductions in the number of foreign workers in the labour force. Overall weexpect this to result in a current-account surplus of US$7.2bn (22.1% of GDP) in2003, slightly above the 2002 level.

In 2004 export receipts are forecast to fall by 15%, in line with the expected 22%decline in the price of oil. Imports are expected to continue to rise, largely owingto an increase in capital goods imports associated with the expected beginningof major energy projects. As a result, the trade balance will fall by nearly 40%, tojust under US$5.4bn.

Income credits should rise in line with global interest rates, and services debitswill rise in line with the increase in imports, leaving an overall current-accountsurplus of US$5bn, a fall of 37% on the forecast 2003 outturn but still equivalentto a healthy 14.4% of GDP.

Forecast summary(% unless otherwise indicated)

2001 a 2002b 2003 c 2004 c

Real GDP growth -1.0 -2.0 3.4 3.5Oil production ('000 b/d) 2,041 1,881 1,998 2,045Crude oil exports (US$ bn) 14,998.7 14,798.4 15,540.4 12,444.4Consumer price inflation (av) 1.6 2.0 2.5 2.5Consumer price inflation (year-end) 1.8 2.3 2.5 1.3Short-term interbank rate 4.6 3.8 3.4 5.1Government balance (% of GDP)d 20.2 17.8 14.3 4.1Exports of goods fob (US$ bn) 16.2 16.0 16.4 13.3Imports of goods fob (US$ bn) 6.9 7.3 7.5 7.9Current-account balance (US$ bn) 8.6 7.1 7.2 5.0Current-account balance (% of GDP) 26.1 20.8 20.0 14.5External debt (year-end; US$ bn) 9.6 b 10.4 10.7 11.4Exchange rate KD:US$ (av) 0.307 0.304 0.303 0.302Exchange rate KD:¥100 (av) 0.252 0.242 0.235 0.232Exchange rate KD:� (year-end) 0.271 0.311 0.323 0.319Exchange rate KD:SDR (year-end) 0.387 0.405 0.409 0.410

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Breakin series�fiscal year 2000/01 (2000) nine months (July to March). Figures are annualised.

12 Kuwait


The political scene

In early November a Kuwaiti national, Mohsen Fadhli, was arrested and accusedof being a senior figure in the al-Qaida terrorist organisation in the Gulf. Thenetwork, formed by a Saudi-born dissident, Osama bin Laden, and alleged tohave carried out the suicide attacks in the US on September 11th 2001, comprisesmany Arab nationals who previously fought Russian forces in Afghanistan andChechnya. Kuwaiti newspapers said the accused had collaborated with a retiredKuwaiti army officer to collect over US$120,000 to finance the planned bombingof a hotel used by Americans in the Yemeni capital, Sanaa. The press reportsdescribed Mr Fadhli as head of al-Qaida operations in the Arabian peninsula,who had taken part in two attacks on ships in Yemeni waters. One of these wasthe attack on the USS Cole in October 2000, which killed 17 US servicemen. Theother was the attack on a French oil tanker in October 2002. However hisimportance as a senior al-Qaida operative may have been exaggerated. Shortlyafter news had emerged of the arrest of Mohsen Fadhli, the US releasedinformation on the arrest, seemingly in Pakistan, of Abdel-Rahim Nashiri, whomWashington described as al-Qaida�s chief of operations in the Gulf, and as theman who masterminded the attack on the French tanker off Yemen�s coastearlier this year.

Khaled al-Shimmiri, a Kuwaiti policeman, shot and wounded two US soldierson November 21st. The incident happened along a stretch of desert highway asthe soldiers, in civilian clothes, travelled in an unmarked car from the US base atCamp Doha toward Araifijan, about 60 km south of Kuwait City, where the USis establishing a new military base. Both US servicemen were expected tosurvive the incident as this report went to press. In an added twist to the story,the policeman escaped across the border with Saudi Arabia before beingreturned to the Kuwaiti authorities.

This was the fifth incident involving Kuwaiti attacks on American soldiers in thecountry since October, and the first directly involving official Kuwaiti personnel.The attacks are acutely embarrassing for Kuwait. It was originally reported thatthe man was mentally ill, which is the long-standing excuse used by countries in

Kuwaiti policeman tries to killUS soldiers

Arrested Kuwaiti is allegedsenior al-Qaida operative

Kuwait 13


the region to explain politically embarrassing killings. However, several Kuwaitinewspapers reported a few days later that Mr Shimmiri was known to have ahatred for Americans and Jews. There is no evidence as yet that he was part ofan organised Kuwaiti network, and or that he was related to the al-Qaidaorganisation. The US military authorities in Kuwait emphasised this, and impliedthat Mr Shimmiri was a lone operator. A joint committee between Kuwait andthe US Criminal Investigation Command is presently investigating. An al-Qaidalink cannot be discounted. However, it could suit the Kuwaiti authorities toencourage the impression that, although the attacks were undeniably mainlyconducted by Kuwaitis, they were the work of a �foreign� organisation. The factthat a number of the perpetrators, including Mr Fadhli, had fought inAfghanistan and Chechnya, where they may well have come in contact with al-Qaida operatives, makes it possible that there is a connection.

Two Kuwaiti gunmen fired at US marines taking part in a military trainingexercise on the island of Failaka on October 8th, killing one and woundinganother. US troops returned fire, killing the two attackers. Later investigationssuggested that the two Kuwaitis, who carried out the shooting from a pick-uptruck, had received weapons training in Afghanistan. Further shots were firednear US troops on October 14th and again on November 2nd, but no-one washurt and no arrests appeared to have been made. Some officials suggested thatthe shots on these occasions had been fired by people on sports or hunting tripsand had not been targeted at soldiers.

After the fatal Failaka shooting, the Kuwaiti minister of Justice, Awqaf andIslamic Affairs, Ahmed Yaaqoub Baqr, announced that the attackers were linkedto Mr bin Laden and the al-Qaida terrorist network. The Kuwaiti authoritiesarrested 18 people, including 13 Kuwaiti nationals and five Bangladeshis, andstated that a number of those arrested belonged to a terrorist cell that wasplanning to strike at five other US and foreign targets in Kuwait. One of thearrests was of a 17-year-old who had been stopped a week after the Failakashooting near Fintas Towers, a residential complex housing US militarypersonnel, and found to have ten petrol bombs in the boot of his car. Twofurther arrests were made on November 6th of suspected members of al-Qaidaworking in the interior ministry and at a military base north of Kuwait City.

The fact that a former Kuwaiti citizen and one-time influential preacher,Suleiman Abu Gheith, serves as a spokesman for the al-Qaida organisation, andsome 12 Kuwaitis are held among the suspects detained in Guantánamo Bay bythe US authorities, has been seen by some as suggesting that a network ofal-Qaida operatives could be in existence in the country. In a potentially moresignificant development, there have been suggestions by al-Qaida itself of a linkwith the Kuwaitis accused of plotting and carrying out the recent attacks onWestern targets. Ayman al-Zawahiri, widely seen as Mr bin Laden�s second-in-command, was shown by the Qatar-based al-Jazira satellite channel, on the dayof the Failaka shooting, threatening further attacks on US targets and boasting ofstrikes carried out by al-Qaida since September 11th 2001. A statementpurportedly emanating from al-Qaida was later published on an Islamistwebsite. It �hailed� the Failaka shooting as a �courageous and successful

Authorities link the Failakaattack to al-Qaida

Gunmen shoot dead a USmarine

Al-Qaida associates suggestlink to Kuwait attacks

14 Kuwait


operation� and claimed that the US marines had sustained �huge losses�, whichthe US authorities had �covered up� by preventing Kuwaiti police and securityforces from gaining access to the area where the incident took place. OnOctober 15th al-Jazira broadcast news of a fax it had received, allegedly signedby Mr bin Laden, congratulating the perpetrators of attacks against �USoccupation forces� in Kuwait and Yemen. No evidence was offered of theauthenticity of the faxed message, however.

One of the difficulties for Kuwait is that as much as a quarter of its nationalterritory has been given over to the US for military preparations for a possiblemilitary conflict with Iraq. It was politically expedient, as well as good militarysense, to remove the US troops from the more populous parts of the countryand to concentrate in the area proximate to Iraq, the expected target of theireventual campaign. However, the large and increasing US military presence hasalso increased the tensions that the country�s strong relations with the US werealready creating among a significant number of Kuwaitis. The great majority ofKuwaitis remain grateful to the US for effectively saving the country in 1991, andare acutely conscious of the potential external dangers that might occur withoutUS protection. A significant proportion of the same Kuwaiti public vote forIslamist representatives to the National Assembly. While these Islamist MPs havejoined with other Kuwaiti opinion in vehemently condemning attacks on USpersonnel, the Islamists are also very unhappy with Kuwait�s ongoing securitydependence on Washington, and strongly opposed to any US-led attack on Iraq,despite having no political sympathy with the regime in Baghdad.

There have also been allegations in the US of financial links between theIslamists and al-Qaida, specifically between the Salafi Muslim grouping withinthe Kuwaiti parliament and an international charity with connections toMr bin Laden�s organisation. Washington has put pressure on Kuwait to tightenup on potential financing from individuals within the country, as it has with anumber of other Arab countries since the attacks of September 11th 2001. Thismay suggest that any local terrorist infrastructure is able to enjoy broadersupport than among its own narrow ranks, and is in part why the authoritiesare continuing to maintain a close watch on both mosques and financialnetworks inside and outside the country, and, in the long term, are expected topush ahead with educational reforms.

Two men, one of whom is the head of information in the Ministry of Justice,Awqaf and Islamic Affairs, went on trial on November 5th for praising the twodead men who staged the attack on Failaka Island and �broadcastingpropaganda at a time of war�. The official was accused, among other things, ofmaking remarks that damaged military preparations to defend Kuwait by tellingthe al-Jazira satellite channel that the gunmen were �martyrs� who would go toheaven, and that the Kuwaiti people supported their action. Al-Jazira alsoscreened an interview with an older brother of one of the alleged terrorists inwhich the latter was said to have blamed the US for causing turmoil in Muslimcountries, especially Palestinian areas. In giving airtime to these views, al-Jaziramay have contributed to the Kuwaiti authorities� decision to close down thestation�s office, although �insulting� references about Kuwait in the context of a

Attacks may be aided by wideropposition in Kuwait

Qatari TV broadcast leadsKuwaitis to close local office

Kuwait 15


live debate on its relations with Iraq were more directly responsible. The closure,announced on November 4th, was ordered for security reasons and attributed toal-Jazira's allegedly �hostile stand� towards the country. Damages were evenawarded in the Kuwaiti courts against the satellite station. Kuwaiti officialsstressed that their dispute was with al-Jazira and not with the Qatarigovernment. A summit of Gulf Co-operation Council (GCC) foreign ministers inthe Qatari capital, Doha, on November 20th was not attended by the mostsenior foreign ministers of Kuwait, Saudi Arabia or Bahrain, suggesting that theirshared complaints (see Oil and gas) against the satellite station motivated thesending of their (more junior) ministers of state for foreign affairs.

Security concerns have heightened in Kuwait as the prospect of a US attack onIraq has loomed closer. The foreign minister and deputy prime minister, SheikhSabah al-Ahmed al-Jabr al-Sabah, informed parliament of steps the governmentwas taking to prepare for conflict in the region, based on the threat that Iraqwould react to a US-led attack by sabotaging oil production or other activities inKuwait. He noted preparations for possible Iraqi chemical or biological attacksand declared that, in the event of war breaking out, no Iraqi refugees would beallowed into Kuwait beyond the 10-km demilitarised zone between the twocountries. He also stated that arrangements were in hand for drasticallyreducing, or even halting, oil production if necessary. Both the German andCzech governments have agreed on a year-long extension to the technicalassistance they have been providing Kuwait in defending itself against a nuclear,biological or chemical weapons attack. Germany�s involvement, part of itscontribution to the post-September 11th �war on terror�, consists of a 52-memberunit and six armoured vehicles equipped to detect non-conventional weapons.The Czech unit, which is specialised in chemical warfare, is largely paid for byKuwait.

The Pentagon ordered the army to move headquarters staffs to Kuwait inOctober, the day after the US Senate approved a motion authorising the USpresident, George W Bush, to act against Iraq with or without backing from theUN Security Council. This was the first non-routine despatch of US groundforces to the Gulf region during the current phase of efforts to disarm Iraq. In allthe US has around 10,000 military and 5,000 civilian personnel in Kuwait,many of them at the Camp Doha military base on the outskirts of Kuwait City.US tanks, heavy artillery, bombers and C-130 gunships have been repositionedat the base from other parts of the region, including Saudi Arabia. Theimpending deployment of up to 15,000 British troops to Kuwait was reported inLondon in mid-November.

Kuwait welcomed the passage of UN Security Council Resolution 1441 andurged Iraq to take the resolution seriously and spare the region further tensionand instability. The resolution includes a reference to Kuwaiti prisoners of war(POWs) believed to be held in Iraq. However this was in the preamble and wassimilar to the references made in previous UN resolutions concerning Iraq.Kuwaiti ministers declared that Syria, as a non-permanent member of theSecurity Council, had done the Iraqi people a favour by voting in favour of theresolution. They also confirmed that US forces would be permitted to use

Kuwait supports UN SecurityCouncil Resolution 1441

More US and British troopshead for Kuwait

Preparations against Iraqiretaliation are announced

16 Kuwait


Kuwaiti bases for an attack on Iraq, now that such action had UN backing.Nearly a quarter of the country was sealed off to all but US and Kuwaiti troopsin early November, in order to protect troops and the public during militaryexercises being conducted in the area. Ministers were also adamant, however,that the Kuwaiti army would not enter Iraq in the event of a US-led militarystrike. General public reaction to the UN Security Council resolution was reliefthat Kuwait had gained a few more weeks in which to prepare itself for the fall-out from any US-led attack on its unpredictable neighbour. The biggest fear inKuwait is that a military strike will fail to topple the Iraqi president, SaddamHussein, resulting in prolonged instability and conflict.

An amnesty, declared in Iraq in October, for prisoners held in Iraqi jails, raisedhopes in Kuwait that some Kuwaiti POWs believed to have been held in Iraq forthe past 12 years would be freed. The Kuwaiti authorities immediately requestedthe Arab League to pursue the matter with the Iraqi government, which AmrMoussa, the secretary general, duly did. Baghdad denies that it holds any POWsand claims Kuwait has failed to help find 1,150 missing Iraqis. The issue speaksto the inevitable tensions that continue to figure despite the much-publicisedbeginning of an Iraq-Kuwaiti �reconciliation� at the Arab summit in Beirut inMarch 2002. In addition to progress on the issue of prisoners, the Qatari-brokered reconciliation was supposed to bring a return of the Kuwaiti property,including state archives, stolen by Iraq during the occupation in 199o. Howeverwhile 409 boxes of items were given back, Sheikh Sabah al-Ahmed has sincesaid have since said that they were �of a routine character and do not in anyway amount to what can be considered state archives�.

Economic policy

The government increased spending by KD490m (US$1.6bn) in the fiscal yearthat ended on March 31st 2002, according to the closing accounts released by theCentral Bank of Kuwait. As a result of the big increase, actual public spendingcame much closer to the budgeted amount than has generally been the case inrecent years. At KD4.8bn, compared with total budget allocations amounting toKD5.27bn, actual spending reached 90% of the budget total. In 2000/01, incontrast, the equivalent figure was just 63%. The fiscal �year� 2000/01 wasexceptional, covering a transitional period of nine months from July to March, toenable the government to change its fiscal year from July-June to April-March. Ifactual spending in 2000/01 is annualised, it stands at KD4.25bn. Compared withthat figure, the KD4.8bn of expenditure in 2001/02 represents an increase of11.8%. Actual expenditure in both 1998/99 and 1999/2000 was almost exactlyKD4bn. Nearly half of the hike in expenditure in 2001/02 (KD233m, or US$756m)did not involve explicit cash outlay and therefore did not reduce resourcesavailable to the state. These were expenditures incurred by an increase in theamount of housing loans being written-off by the state, and the rise in fuel costsborne by the Ministry of Electricity and Water (MEW).

New land purchases (KD83m) made up a large part of the other spendingincreases. These will be either for genuine government projects or forspeculation. Traditionally the reselling of prime real estate at below market rates

Public spending rises by 12%

Iraqi amnesty raises hopesabout POWs

Kuwait 17


has been a good way of solidifying the political support of the merchants.Furthermore, government spending on projects and maintenance rose for thefirst time in four years, following the cutbacks that followed the oil price fall in1998. This was the result of significant increases in capital spending by a numberof ministries, including the MEW.

The rise in spending in 2001/02 contributed to the fact that the final budget wasalmost balanced, with a surplus of just KD57m. Another major reason for thiswas the big increase in allocations to the Reserve Fund for Future Generations(RFFG). The government is required by law to transfer 10% of its oil revenue tothis fund. When oil revenue comes in over budget, the sum transferred to theRFFG also rises, reducing the final surplus. Total revenue in fiscal 2001/02 was infact KD1.5bn over budget, very largely owing to the fact that the budgeted priceof oil per barrel was US$15 and the actual price of dated Brent Blend over thisperiod was US$23.3/barrel. Even allowing for increased spending and RFFGpayments, the consequence was that, instead of an estimated fiscal deficit ofKD1.8 bn, a small surplus resulted.

Public revenue and expenditure(KD m)

2000/01a 2001/02 2002/03Outturn %

over budget Budget ActualbOutturn %

over budget BudgetRevenue 214 3,832 5,337 139 3,522 Oil 235 3,263 4,525 139 2,970 Non-oil 115 569 812 143 552Expenditure 63 5,274 4,746 90 5,428 Wages & salaries 93 1,557 1,472 95 1,604 Misc.,transfers & otherc 48 3,717 3,274 88 3,826Balance -211 -1,438 591 n/a -1,906RFFG allocationd 215 383 534 139 352Final balance -173 -1,821 57 n/a 2,258

a Provisional data for shortened fiscal year, from July 2000 to March 2001. b Provisional data.

cIncludes defence. d Reserve Fund for Future Generations.

Sources: Central Bank of Kuwait; National Bank of Kuwait.

One of the biggest single items in the annual state budget is wages and salariesfor government employees. Actual spending under this heading rose from anannualised figure of KD1,414m in 2000/01 to KD1,472m in 2001/02, representingan increase of 4.1% and bringing the actual total to 95% of the budgetedallocation. This reflects continued hiring of Kuwaiti nationals by publicinstitutions, despite the government's long-term aim of shifting the balancebetween public- and private-sector employment so that more Kuwaitis find jobsin the private sector. Data in the Central Bank of Kuwait's Annual Report for 2001show that the Kuwaiti labour force rose by 7.1% between end-2000 and end-2001, from 233,000 to just under 250,000, compared with a 6.1% increase in thenon-Kuwaiti labour force, from 963,000 to around 1,021,500 over the sameperiod. Employment of Kuwaitis in the government sector increased by 5.5%,tilting the balance of employment in the sector still further in favour of Kuwaitis,so that they held 72% of government jobs at end-2000. The statistic the govern-ment is most anxious to alter is the percentage of Kuwaitis employed by the

Labour policy has yet to makean impact

18 Kuwait


state contrasted with the private sector. The Central Bank�s Annual Report gaveno tabular breakdown of the current situation. It mentioned only that thenumber of Kuwaitis working in the private sector rose by 6.2% in 2001, from13,482 to 14,319. The latter figure represents only 5.7% of the total Kuwaitilabour force.

The Central Bank report showed that both the government and the privatesector accounted for lower proportions of the labour force as a whole at end-2001 than at end-2000, despite the increase in employment in both sectors(about 75,500 in total). This is explained by the 6% rise in the labour force duringthis period (and according to the National Bank of Kuwait, NBK, it increasedmore significantly in the first half of 2002). The number of non-Kuwaitis, whorepresent about 80% of the workforce, increased by 6% to end-2001, mainly asthe result of a significant increase in the �household sector� (domesticemployment). Domestic employees� share of the labour force rose from 21.9% to23.8%, representing 53% of the overall increase in the labour force in this period.According to the Central Bank of Kuwait, the unemployed rose from 0.8% to 1.1%of the labour force over the period.

The proportion of those employed in the household sector without educationalqualifications rose from 71.1% at end-2000 to 72.8% at end-2001. Around 93% ofthe overall increase in non-Kuwait labour by mid-2002 was among thosewithout educational qualifications, according to the NBK. In other words therehas been a significant increase in the hiring of unskilled domestic servants byKuwaiti nationals. Significantly, the proportion of unemployed people with higheducational qualifications increased from 2.5% of the total number ofunemployed at end-2000 to 9.7% at the end of 2001, albeit representing less than400 people in total.

Those the Central Bank calls the �economically active�, that is those agedbetween 15 and 60, have grown from 71.3% to 72.3% of the population. Thedifference between the number of �economically active� and the actual labourforce is some 394,000. This is a reflection of the fact that the latter are thoseregistered as seeking work, while the former includes students, the early retired,and a large proportion of females who are less likely to be actively seeking work.

In order to speed up the hiring of Kuwaiti nationals in non-government jobs, inlate September the government began requiring non-government firms andinstitutions to ensure that nationals occupy a specific percentage of their labourforce. The prescribed percentage varies from sector to sector, the highest beingthe 39% and 38% set for banks and telecommunications companies respectivelyand the lowest being levels of 1% and 2% established for sectors such asconstruction, agriculture, transport, hotels and catering and social services.Private insurance companies will be expected to fill 9% of their posts withKuwaitis, petrochemical and refinery companies 8%, and financial institutions5%. In addition, companies with 100 employees or more are required to ensurethat Kuwaitis fill prescribed percentages of legal, management, accountancy andother professional jobs. The requirement will be enforced through restriction ofgovernment support, so that only those firms complying with the new criteriawill be awarded government contracts or benefit from government hand-outs.

Rise in unemployment anddomestic employment

Government setsKuwaitisation requirements

Kuwait 19


Similarly, fees will be levied on firms in proportion to the number of non-nationals employed over and above the percentages decreed. Foreign workershired on temporary contracts are also included in the criteria.

Development spending as part of the 2001/02 budget was provisionallycalculated at KD406m, which is relatively high by the standards of the threeprevious fiscal periods but still below the KD414m actually spent in 1997/98 andequivalent to only 70% of the amount budgeted for this purpose in 2001/02.This is partly because spending on development of electricity and watersupplies remained limited during the year, reaching only KD156m out of abudget allocation of KD289m. Members of the Kuwait National Assembly havecomplained in recent months at the government�s persistent underspending andasked the Ministry of Planning for a report of reasons for the failure to meetspending targets.

On the revenue side of the government's fiscal performance there are signs thatnew policies are beginning to have some effect. The closing accounts for 2001/02put non-oil revenue for the year at KD812m compared with a budgeted figure ofKD569m. Much of the extra income is accounted for by payments received fromthe UN Compensation Committee (UNCC), which processes and awardscompensation claims against Iraq arising from its 1990 invasion and occupationof Kuwait. Even if these payments are excluded, however, non-oil revenue stillshowed significant increases in certain areas. Income from the health insuranceprogramme rose by 42% to KD34m, while rents from property rose by 41% andincome from fees and charges rose by 38%.

The Gulf Co-operation Council (GCC), of which Kuwait is a member, is seekingadvice from the European Central Bank, the issuer of the euro, on how best tolaunch a single currency. Sheikh Salem Abdel-Aziz Saud al-Sabah, governor ofthe Central Bank of Kuwait, joined central bankers from the five other GCCcountries�Saudi Arabia, Bahrain, Oman, Qatar and the UAE�at a meeting inRiyadh in October to discuss plans for monetary union and the launch of asingle currency. GCC heads of state agreed in Oman at the end of 2001 to worktowards introducing a single GCC currency by 2010 at the latest. The Riyadhmeeting decided to pursue this objective by commissioning a study, to bedelivered in March 2003, explaining how lessons learned during the launch ofthe euro could be applied in the introduction of a single GCC currency.

Since all six GCC currencies are already either partially or fully pegged to thedollar, the process of achieving monetary union and a single currency is morelikely to present political rather than economic problems. It will, for example,require the full support of the GCC�s major player, Saudi Arabia. The benefitsare likely to include the elimination of transaction costs in trade among GCCstates, although this trade is not yet substantial. The Kuwait governmentconfirmed on October 13th that it would proceed with its plan to fully link thedinar to the dollar at the start of 2003. The move was announced immediatelyafter a weekly cabinet meeting, which approved the necessary decree and sent itto the emir, Sheikh Jabr al-Ahmed al-Jabr al-Sabah, for ratification. For the pastquarter of a century the Kuwaiti dinar has been linked to a trade-weighted

Capital underspendingremains significant

Fees and charges boost non-oilincome

GCC central bankers aim atsingle currency by 2010

Kuwait's dinar-dollar link totake effect in Jan 2003

20 Kuwait


basket of currencies. It has not been the Central Bank�s practice to providedetails of the basket, but since 95% of exports are oil, and oil products aredenominated in US dollars, the basket was clearly heavily weighted in favour ofthe US currency. For the past five years, the dinar has traded within a bandbetween KD0.301:US$1 and KD0.309:US$1. A Central Bank of Kuwait studyshowed that the exchange rate of the dinar to the dollar moved within a narrowmargin of 1.2% during 2001, whereas the dollar fluctuated by 12.5% against theyen and the Swiss franc over the same period.

Prospects for the scheme to attract US$7bn worth of foreign investment in the oilsector, known as Project Kuwait, have not become much clearer since the currentsession of the National Assembly began in mid-October. Kuwait plans to boostits oil production capacity to 3.5m barrels/day (b/d) by 2005/06 from 2.5m b/dnow, and the doubling of production in the northern fields from the current450,000 b/d to a projected 900,000 b/d over five years is a key part of this. Thecurrent parliamentary session is the last before an election due in 2003, andexpected in May or June, and members of the Assembly will be anxious todemonstrate to their constituents that they have upheld what they perceive tobe Kuwait�s national interests and the interests of the public at large. Jassem al-Khorafi, speaker of the National Assembly, predicted in early October thatparliament would pass the draft legislation on Project Kuwait before the end ofthe year. This would require the Assembly�s Finance and Economy Committeeto reach a conclusion on deliberations that have been on-going since 2000.

However, one factor possibly in favour of the project�s eventual agreement isthat recent press reports have suggested that the original blueprint is in theprocess of being simplified. This version, due to be seen by oil companiesshortly, has not yet been seen by the Assembly. Under the emerging newproposal, the project would be split into four separate �franchises� for the fourfields of Raudhatain, Sabriya, Abdali and Ratga, making them open toinvestment by one major international oil company, with possibly other smallercompanies in support. This would also have the practical advantage of avoidingthe problem seen with the Saudi Arabian �Gas Initiative� of progress beingbeholden on agreement with �lead� companies heading a large consortium ofoil majors. Reliable reports indicate, perhaps unsurprisingly, that the US and theUK will be favoured in any awarding of contracts, given the two countries� leadrole in defending the country in 1991 and ongoing participation in Kuwait�sexternal security.

Another related factor is that the information and acting oil minister, SheikhAhmed al-Fahd al-Ahmed al-Sabah, continues to assiduously court opinion inthe National Assembly. This genuinely popular and relatively young ministerruns the Kuwaiti sports committee, and is widely regarded given that his fatherwas killed during the Iraqi invasion in 1990. He may well be a contender forfuture leadership once top positions pass to the next generation. Sheikh Ahmedremains politically (and familiarly) close to the deputy prime minister andforeign minister, Sheikh Sabah al-Ahmed al-Jabr al-Sabah, who is keen tomaintain him in this pivotal position for the time being. Sheikh Sabah himself,given the illness of the emir and crown prince, has enhanced authority in

Project Kuwait prospects stilluncertain

Potential future ruler mayassist Project Kuwait

Kuwait 21


Kuwait. He also heads the Supreme Petroleum Council, in which importantcapacity he is driving the foreign investment plan.

However, regardless of new blueprints, there remain long-standing objectionsstrongly expressed by Islamists in particular, but also among some othermembers of the National Assembly. These have reflected a certain degree ofanti-Western and nationalist suspicion of foreign investment in such astrategically vital asset. This is despite the fact that under the proposals a foreignoil company would be paid a fee rather than own the oil produced, making itessentially an enhanced version of Iran�s �buy-back� formula. Opposition is alsomotivated by the more prosaic belief that certain elite sections of the Kuwaitipopulation will benefit disproportionately from contracts generated by foreignoil companies taking part in development of the country�s northern oilfields.One additional delaying factor is the possibility of war in Iraq in 2003 affectingprecisely the area close to the Iraqi border in which the fields are situated, andwhere US troops are presently based However, providing there is not significantdamage done to the fields of the kind seen when Iraqi forces withdrew fromKuwait in 1991, it could be that the project will go ahead at some point in 2004.

The domestic economy

Kuwait�s money supply (M2), including currency in circulation, sight depositsand quasi-money, continued rising in the third quarter, even though the narrowmoney supply (M1) slipped back from its end-June peak of KD2,156m toKD1,962m at end-August, before increasing slightly to KD1,998m at end-September. Quasi-money, at KD8,064m at end�September this year, pushed M2to KD10,061m, which was 17% higher than at end-September 2001. Bank lendingto the private sector was largely responsible for the rise, as local banks' totalclaims on the private sector rose by 21% in the 12 months to end-September2002, from KD6,380m to KD7,714m. Consumer loans rose by 8.4% in the 12months to the end of June 2002.

Money supply(KD m; % change quarter on quarter unless otherwise indicated)

2001 20021 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

M1 1,579.1 1,683.9 1,543.2 1,641.4 1,974.4 2,155.6 1,997.7 % change n/a 6.6 -8.4 6.4 20.3 9.2 -7.3Quasi money 7,285.4 6,841.7 7,056.5 7,567.1 7,699.4 7,536.1 8,063.9 % change n/a -6.1 3.1 7.2 1.7 -2.1 7.0M2 8,864.5 8,525.6 8,599.6 9,208.5 9,673.7 9,691.7 10,061.5 % change n/a -3.8 0.9 7.1 5.1 0.2 3.8Claims on the private sector 5,805.5 6,136.0 6,380.3 6,851.6 6,982.5 7,130.1 7,714.3 % change n/a 5.7 4.0 7.4 20.3 a 16.2 a 20.9 a

a % change year on year.

Source: Central Bank of Kuwait, Monthly Monetary Statistics, September 2002.

Kuwait�s net foreign assets declined 3.5% in the year to end-September 2002. Thiswas partly the result of a 41% increase in deposit banks� foreign liabilities overthe same period. This occurred at a time when international interest rates were

Money supply and banklending continue rising

Net foreign assets decline asbanks borrowing increases

Islamists lead opposition onnationalist grounds

22 Kuwait


falling and claims on the private sector were correspondingly rising. Themonetary authorities� foreign assets increased by 13.5% over the same period, buttended to fluctuate, for example falling 6.5% from the end of the second quarterto the end of the third quarter this year. This ran counter to the increase in theaverage price of oil, which for dated Brent Blend rose from US$25.02/barrel toUS$26.95/b. The counterpart to the fall in the value of foreign assets was a 37%fall in the value of central government deposits with the monetary authorities inthe year to end-September 2002. Furthermore, these deposits fell nearly 24%from the second to the third quarter of 2002. This is in line with the official risein government expenditure in the year to end-March 2002 (see Economicpolicy), a trend which is likely to have continued through to end-September.Kuwait�s total reserves minus gold fell 6.5% from the second to the third quarterof 2002. However, this is out of kilter with a 15% rise in reserves on the year toend-September 2002 that is broadly in line with increase in the oil price overthis period.

Data are not yet available to indicate how far these trends have impacted onconsumer price inflation. The general consumer price index averaged 215.2during the second quarter of 2002, compared with 211.9 during the same quarterof 2001, representing an increase of 1.5%, compared with 1.3% between thesecond quarters of 2000 and 2001. The main contributory factors seem to havebeen small increases in the cost of services, including housing, education andmedical care, added to a substantial rise in the cost of beverages and tobacco.The index for the latter item rose from 316 in June 2001 to 358 one year later.

Credit to the private sector(KDm; end of period)

2001 20021 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Personal facilities 1,679.5 1,851.2 1,870.0 2,022.6 2,100.0 2,274.1Trade 976.2 1.005.8 1,052.8 1,076.3 1,053.8 1,053.4Real estate 868.2 842.9 1,089.4 1,165.3 1,143.4 1,138.1Industry 383.6 429.0 431.2 439.6 482.2 503.0Construction 415.8 441.1 377.0 376.6 398.7 387.8Non-bank financial institutions 384.9 390.6 563.1 711.9 688.1 596.7Agriculture & fisheries 10.4 11.2 13.2 13.9 18.6 17.2Total, incl others 5,215.5 5,482.0 5,772.0 6,125.9 6,235.6 6,344.3 Consumer loans 567.7 591.9 613.0 633.5 646.3 641.9

Source: Central Bank of Kuwait.

Underlying the increase in domestic liquidity over the year to date are paymentsmade to Kuwaiti individuals and institutions by the United NationsCompensation Committee (UNCC), which uses Iraqi oil receipts to financereparations relating to the 1990-91 invasion and occupation. Under the mostrecent awards, the committee approved a payment of US$700m to Kuwait topay for the removal of mines laid by Iraqi troops and the disposal ofunexploded ordnance left after the US-led coalition forces expelled the Iraqiarmy from Kuwait. In a previous round of settlements in 2002, individualKuwaiti claimants received US$213m, while corporations and public-sector

Consumer price inflation was1.6% to June

UNCC pays another US$700mto Kuwait

Kuwait 23


enterprises received US$277m (September 2002, page 28). Kuwait's receipts fromthe UNCC amounted to US$2bn in 2000 and just under US$3bn in 2001.

The outlook regarding a US-led military strike on Iraq has had a direct impact onthe Kuwait Stock Exchange (KSE) in recent months. The stockmarket index rosestrongly during the first half of the year, reaching 2,309.5 in mid-July, its highestpoint since 1997. UNCC payments, combined with unexpectedly firm oil pricesand good company results contributed to the upward trend. After reaching theJuly peak, the index fell back as the likelihood mounted of the US attacking Iraq.By October, however, with the UN Security Council debating a resolution thatwould give weapons inspectors unfettered access to Iraq, the index rose stronglyagain. By late November it stood at 2,298 points, representing an increase of42.3% since the start of the year.

Oil and gas

Changing prospects for UN weapons inspections in Iraq were reflected influctuating international oil prices during the quarter under review. Politicaluncertainties on one hand, and evidence of high levels of oil output from OPECmembers on the other, exerted contradictory pressures. During the first half ofNovember, signs of a likely delay in US-led military action against Iraqcombined with news of increases in US oil stocks to bring the price of Brentcrude for December delivery down by nearly US$2/b below the level of US$25/bregistered at the beginning of the month. However, by the end of Novembersignals that the US was intent on taking a tough stance toward the operations ofarms inspectors helped to push the barrel price of dated Brent blend up again toapproaching its price level seen at the start of the month.

Nevertheless, with only a few weeks of 2002 remaining, the EconomistIntelligence Unit estimates the average price of dated Brent Blend for the year asa whole at close to US$24.9/b. This projected average reflects the steep rise ofsome 40% that occurred between January 2002, when OPEC oil ministers actedto defend the price through production cuts, and mid-September, when they metin Osaka and decided to keep tight quotas in place. Prices rose sharply again in

KSE index fluctuates on newsabout Iraq

Uncertainty over Iraq causesoil price volatility

24 Kuwait


September as world attention focused on the prospect of a US-led militaryoverthrow of the Iraqi regime. The price of Brent jumped from an average ofUS$26.7/b in August to US$28.4/b in September, before falling to US$27.6/bin October.

This easing of prices saved OPEC from having to decide whether to activate itsprice stabilisation mechanism. This is the arrangement whereby members haveagreed to adjust output up and down to keep the OPEC basket price within arange of US$22-28/b. Had the basket price remained above US$28/b for 20consecutive trading days, the mechanism would have called for quota increases.However, the present situation suits OPEC members, including Kuwait, ratherwell. �Quota-busting� by OPEC producers in October approached 3m barrels ofoil per day, and price levels are likely to remain firm until the US-led stand-offwith Iraq is resolved. Despite current and likely increasing levels of market over-supply, we assume that OPEC will not be in a hurry to rein back official quotasnor to make present over-production official by raising them.

Trends in spot quotations for selected crudes(US$/barrel)

2001 2002 Jan-Jul2000 3 Qtr 4 Qtr Year 1 Qtr 2 Qtr Jul Average

Arab Light - 33° API 26.81 24.52 18.77 23.06 20.41 24.42 25.13 23.06OPEC reference basketa 27.60 24.13 18.4 23.13 19.83 24.51 25.15 22.65Brent 28.44 25.37 19.4 24.46 21.02 25.09 25.79 23.49West Texas Intermediate 30.37 26.76 20.51 26.00 21.43 26.29 26.87 24.35

a Includes Saharan Blend, Minas, Bonny Light, Arab Light, Dubai, TJ Light and Isthmus.

Source: Middle East Economic Survey.

Production by the ten OPEC countries adhering to the organisation�s collectivequota agreement has regularly exceeded the agreed amount throughout 2002.However, the levels of excess production broke new records in August andSeptember. With the collective quota fixed at 21.7m b/d, the 23.76m b/d producedin August represented an excess of 2m b/d, and this rose to nearly 2.7m b/d inSeptember when the OPEC-10 together produced nearly 24.4m b/d. That samemonth Kuwaiti crude production continued climbing, to reach 1.87m b/d, anddropped only slightly in October, reaching 1.85m, compared with its quota of

Kuwaiti output rises far abovequota

Kuwait 25


1.741m b/d. Average Kuwaiti production rose from January to end-October 2002to 1.868m b/d, with the consequence that, at an estimated 1.81m, Kuwait is likelyto end the year approaching 15% over quota. OPEC quotas will next be reviewedat ministerial meetings in January and March 2003.

One consideration behind Kuwait's over-production, which is in keeping withthat of other Gulf Arab oil producers, is the possibility that its output may haveto be suspended for security reasons at some point in the near future in theevent of war against Iraq. Reports in mid-October indicated that the state-ownedKuwait Petroleum Corporation (KPC) had stockpiled 13m barrels of crude and2m barrels of refined petroleum products to ensure continuity of supplies toKPC�s overseas refineries.

Crude production and quotas('000 b/d)

Output Quota2001 2002 2002Year 1 Qtr 2 Qtr 3 Qtr Sep Oct Jan

Kuwaita 2,005 1,845 1,865 1,895 1,875 1,885 1,741OPECb(excl. Iraq) 24,680 22,794 22,700 23,610 23,990 24,180 21,701OPECb(incl. Iraq) 27,040 25,177 24,240 25,360 25,870 26,630 n/a

a Includes 50% share of Neutral Zone output. b Excludes Non-Gas Liquids

Source: International Energy Agency Monthly Oil Market report.

The effectiveness of any future adjustments in OPEC�s collective output willdepend heavily on production policies adopted in non-OPEC states, which iswhy non-OPEC producers such as Russia, Mexico and Oman are now invited tosend representatives as observers to OPEC meetings. According to theInternational Energy Agency (IEA), non-OPEC supplies can be expected to risesubstantially in 2003. This in turn is seen as ensuring that the implied call onOPEC crude rises only slightly. The IEA forecasts that a large part of theadditional supply of non-OPEC oil will come from countries of the formerSoviet Union, which will together put an additional 0.5m b/d on the marketnext year. The agency predicts that world oil demand will grow by 1.1m b/d in2003, jumping from 77.7m b/d in the third quarter to 79.3m b/d in the last threemonths of the year.

World oil supply and demand: IEA estimates and forecasts(m b/d)

2001 2002 2003Year 4 Qtr Year 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year

World oil demand 76.5 78.1 76.7 77.8 76.3 77.7 79.3 77.8Non-OPEC supply (incl OPEC

NGLsa) 49.8 51.9 51.5 52.3 52 52.2 52.9 52.3Call on OPEC crude 26.6 26.1 25.2 25.5 24.2 25.5 26.4 25.4

a Natural gas liquids.

Source: International Energy Agency, Monthly Oil Market Report, September 2002.

IEA sees non-OPEC oilincreasing in 2003

26 Kuwait


We believe that this assumption may overstate demand given the sluggishinternational recovery envisaged in 2003. It is therefore likely that the currentmarket over-supply will continue into next year as a result of increasing OPECover-production, or upwards quota adjustment, that will constitute the bulk ofsurplus oil on the market in 2003.

Kuwait has officially informed Japan�s Arabian Oil Company (AOC) that it willbe permitted to continue operations in the Kuwaiti portion of the Khafji oilfieldafter its 40-year concession in the field expires in January 2003. AOC lost itsconcession in the Saudi Arabian part of the field when it expired in January2000. Kuwait decided earlier this year to form a new KD120m (US$395m) state-owned company called Kuwait Gulf Oil Company (KGOC) to take over theconcession from AOC, while retaining AOC�s services under contracts coveringoil supply and technical and financial support (March 2002, pages 24-25). OnNovember 8th, Mohammed Sabah al-Salem al-Sabah, the minister of state forforeign affairs, met Japan�s minister of economy, trade and industry, TakeoHiranuma, in Tokyo, and informed him that AOC would be given rights tocontinue operating in the concession area. AOC has meanwhile merged withFuji Oil.

Doubts have arisen about the timetable for implementing an agreement underwhich Qatar would supply Kuwait with around 1bn cu ft/day of natural gas via a590-km pipeline that would pass through Gulf waters belonging to Bahrain andSaudi Arabia. A protocol agreement was signed by Qatar and Kuwait in January2002, based on an earlier accord reached in 2000. When the January agreementwas signed it was expected that a final deal would be completed by July, with gasdeliveries likely to start by the beginning of 2006. Since then, however, eventshave intervened that could delay the project. Recent months have seen escalatingtension between Saudi Arabia and Qatar over foreign policy issues. These boiledover at the end of September when Saudi Arabia finally broke with precedentand announced that it had recalled its ambassador to Qatar after criticism ofSaudi government policy aired on a Doha-based satellite TV station, al-Jazira. It isnot unusual for the Qatari station to upset relations between Qatar andneighbouring Gulf states, however. In fact in early November its offices in Kuwaitwere closed (see The political scene). These sources of tension, especially thosebetween Riyadh and Doha, may set back negotiations between Saudi Arabia,Qatar, Kuwait and Bahrain for construction of the pipeline, but are unlikely toprevent the agreement eventually going ahead.

The Ahmadi refinery resumed production at its full capacity of around440,000 b/d in late September, following repairs necessitated by an explosionand fire at the plant more than two years ago. Two separate accidents occurredat both the Shuaiba and Ahmadi refineries in June 2000, killing a total of eightpeople and injuring more than 50. Output at Ahmadi plunged from 431,000 b/din 1999/2000 to 136,700 b/d in the nine-month fiscal year from July 2000 toMarch 2001. Construction of a new crude distillation unit at the refinery meansit now has three units, one of which has a 200,000 b/d capacity and the twoothers capacity of 120,000 b/d each. Ahmadi is the biggest of Kuwait�s threerefineries. Mina al-Abdullah has capacity of some 260,000 b/d, compared with

AOC to remain active in Khafjiconcession

Saudi-Qatar dispute coulddelay gas supplies

Ahmadi refinery is back to fullcapacity

Kuwait 27


Shuaiba�s 196,000 b/d. The Ahmadi refinery is part of a major expansion projectinvolving construction of storage capacity for 11.4m barrels. The scheme isscheduled for completion in 2005, which is the date by which new capacity isscheduled to be brought on stream from the northern oilfields under theUS$7bn Project Kuwait.

Financial and other services

The Saudi government has agreed to issue a licence to National Bank of Kuwait(NBK) to open a branch in Saudi Arabia. NBK�s chairman, Mohammed Abdel-Rahman al-Bahar, announced the news on September 24th. The branch will bein Jeddah and could open early in 2003. NBK has recently pursued opportunitiesto expand its presence in Gulf Co-operation Council (GCC) countries generally,having upgraded its offshore presence in Bahrain to an onshore one, and heldtalks on buying a stake in a Qatari bank. NBK is by far the largest bank inKuwait, with assets worth US$14.6bn at end-2001 and a net profit in 2001 ofUS$342m. It wins regular acclaim for its performance, having forged ahead inareas such as Internet banking, which are not well developed in some otherregional banks.

Commercial Bank of Kuwait (CBK), the country�s fourth largest in terms ofassets, has made significant progress in controlling credit expansion andenhancing its profitability, according to the US ratings agency, Standard & Poor�s(S&P). S&P had previously rated CBK�s outlook as stable. However, in SeptemberS&P upgraded this to positive to reflect improvements inside the bank, but alsoin part because of the improved economic and banking environment in Kuwait.CBK achieved a net profit of US$116.6m in 2001, up from US$99.9m in 2000 andUS$67m in 1999. Its return on average assets rose from 1.5% in 1999 to 2.1% in2000 and 2.2% in 2001. The bank�s return on average equity improved in stagesover the same period from 11.7% to 16.6%.

The Central Bank of Kuwait cut its discount rate on November 7th by half apercentage point to 3.25%. The cut, in line with the movement in interest rates inthe US, follows a series of cuts over the past two years. During 2001 alone theCentral Bank of Kuwait cut its discount rate seven times, bringing it down from7.25% at the start of the year to 4.25% at the end. The year 2002 has now seenfurther falls totalling one percentage point, with little prospect of a rise in interestrates until the second half of 2003.

The net foreign assets of local banks declined to KD236m (US$776m) at the endof the second quarter of 2002, before rising again during the first two months ofthe third quarter. The drop during the first half of the year continued a trendestablished in 2001. It resulted mainly from a rise in banks� foreign liabilities,generated by increased dealings with foreign banks and other non-resident non-bank institutions. This was accompanied by an increase in foreign investments.According to the Central Bank of Kuwait�s Annual Report for 2001, the yearmarked a shift in direction for local banks in their dealings with non-residententities, whereby they pushed up their liabilities while rebuilding and

NBK to open a branch in SaudiArabia

S&P acknowledges CBK�simproved performance

Discount rate is cut to 3.25%

Rise in liabilities affects netforeign assets position

28 Kuwait


restructuring the composition of their foreign assets. These developments aresaid to have generated a net cash inflow from foreign sources.

Net foreign assets of local banks(KDm; end-period)

2001 20021 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Jul Aug

Total assets 2,215 1,966 2,052 2,030 2,118 2,272 2,415 2,449Deposits with foreign banks 836 547 550 541 543 633 680 706Credit facilities to non-residents 1,053 1,072 1,071 1,041 1,024 1,075 1,094 1,086Foreign investments 272 290 371 407 511 525 602 616Other assets 55 57 61 39 39 39 39 40Total liabilities 1,145 1,336 1,545 1,571 1,806 2,036 2,005 2,046Net foreign assets 1,070 631 507 459 312 236 410 402

Source: Central Bank of Kuwait

Foreign trade and payments

The latest indicators of trends in Kuwait�s balance of payments suggest that thecurrent-account surplus for 2002 will be somewhat lower than the US$8.6bnachieved in 2001, even though oil prices have remained relatively high for mostof the year. The Economist Intelligence Unit estimates that the average price ofthe benchmark dated Brent Blend was US$24.9/barrel in 2002, and that theaverage export price of Kuwaiti crudes was US$23.5/b, up by around 5% on 2001.It is reported by the Central Bank of Kuwait, however, that oil exports earnedUS$6.2bn during the first half of 2002, which, pro-rata, is down on the US$15bnvalue of oil exports in 2001. This reflects lower oil output and a lower oil pricethan in the first two quarters of 2001. Against this, however, are various factorsaffecting imports, investment income and workers� remittances. It is likely thatimports rose in 2002, reflecting the government�s more expansionary fiscalpolicy and high levels of consumer spending, backed by bank loans at lowinterest rates, and boosted by substantial payments received from the UNCompensation Committee.

With international interest rates remaining at historic lows in 2002, incomecredits for the year will have come in at less than the US$5.48bn recorded in2001. General government income from external investments includesinvestment income accrued by the Kuwait Investment Authority, the KuwaitPetroleum Corporation, the Public Authority for Social Security, the Kuwait Fundfor Arab Economic Development, Kuwait Airways Corporation and the Bank ofCredit and Savings. The same low rates of return on financial instruments andinvestment assets in the main financial markets will also have affected incomesand profits realised from residents� assets invested abroad and the investmentactivities of Kuwait�s private financial and non-financial sectors. In 2001, wheninternational interest rates were already substantially below 2000 levels, theaggregate income of non-government overseas investors declined from KD725mto KD465m.

Current-account surplus set tofall in 2002

Further decrease in investmentincome

Kuwait 29


The Ministry of Information and Kuwait Chamber of Commerce and Industryheld a seminar on intellectual property rights (IPRs) at the end of October. Theevent, which also involved the Ministry of Commerce and the InternationalBusiness Software Alliance (BSA), was intended to increase awareness ofcopyright and piracy issues among Kuwaiti businesses. Although a member ofthe World Trade Organisation since the mid-1990s, Kuwait only introducedcopyright legislation in February 2000. The lack of a sense of urgency has led toa situation in which software piracy is still believed to be widespread. Aspokesman for the BSA said that one of its aims was to persuade internationalvendors to offer more favourable prices for their software on Gulf markets, as anincentive against illegal copying.

Authorities revisit issue ofintellectual property

kuwait - iuj.ac.jp€¦ · • we forecast that real gdp growth will rise by 3.4% in 2003 largely...

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