Oil Money Can’t Buy Progress for Gulf’s Laggard State Kuwait

Fiona MacDonald
·6 min read
9

(Bloomberg) -- After driving over a potholed street in one of the world’s wealthiest petrostates, Fatima Al-Sane joined an online protest. Instead of taking her complaints to a local authority or railing against the government, she posted a banned rainbow flag.

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The global LGBTQ rights symbol gained wider resonance during the World Cup in Qatar, but in the neighboring conservative Gulf state of Kuwait it’s taken on a more unusual role. It’s not being used to rally for rights, but to bait authorities into fixing a country citizens like Al-Sane say is falling behind as some politicians focus on issues like gender segregation rather than the economy.

“It was just basically a message, about the priority crisis, weak education, weak medical and health sectors, no development,” said Al-Sane, 42, who works in the public sector. She posted the image to poke fun at conservative Kuwaiti lawmakers, some of whom have hit out against rainbow-colored toys and Christmas trees in the Muslim-majority state.

In a region that’s plowing ahead with everything from hosting global sporting events and building whole new cities in the desert to sending a mission to the moon, Kuwait stands out more for what it’s not doing.

Home to the most powerful elected parliament among its Gulf peers, Kuwait has long been at the mercy of dysfunctional politics. In 2022, Kuwait’s increasingly powerful octogenarian crown prince had promised to shake things up in the vein of his millennial Saudi counterpart Mohammed bin Salman.

Yet many Kuwaitis — more than half of whom are under 25 — say they’re still waiting. They blame self-serving politicians and a sclerotic leadership for a malaise at home and a loss of clout abroad. And the problem isn’t a lack of money.

Kuwait is home to one of the biggest wealth funds in the world, is one of the least indebted nations, and its historically strong banking system has plenty of liquidity. The country’s economy is estimated to have grown nearly 8% in 2022 thanks to high oil prices and it’s likely to bank a $23 billion surplus in the current fiscal year ending in March, according to economists at Kuwaiti consultancy Al Shall.

Even so, Reem Al-Eidan, who runs a life-coaching consultancy focusing on female entrepreneurs, said she’s struggled to secure investment to back projects that could help build the non-oil economy, something seen as critical across the region as the world tries to move away from fossil fuels.

“We feel envious of success around us,” said Al-Eidan, another Kuwaiti who vented her frustration online. “We need to open the door to globalization and investment.” Many people are getting impatient, she said: “A lot of Kuwaitis tell me they want to get out.”

Weaning Kuwait off the crude that has made it rich is a pressing task, though a tough one when life remains comfortable for most citizens, giving little incentive for immediate change.

While other Gulf states have poured billions into developing their non-energy economies and passed laws to draw in foreign investment, Kuwait has focused on protectionist measures. Diversification is really only favored by a more liberal minority and businesses.

“Our neighbors and brothers are creative in finding ways to make their people happy, to welcome others in their countries, and to celebrate joy!” liberal newspaper columnist Ahmad Al-Sarraf wrote in early December.

Instead, Kuwait has closed its doors to the world, Al-Sarraf said, referring to rules limiting the number of foreigners that can work in a country driven by expatriate labor. “We have managed to make hating the other and the weak a way of life.”

As Kuwait turns inward, one of Washington’s closest Middle East allies is losing diplomatic power in a region where it historically has balanced autocrats and quietly cooled disputes between them.

The country has stepped back on the international stage since the death of the former emir, a long-serving diplomat, in 2020. Its more powerful Gulf neighbors, meanwhile, have asserted their influence internationally.

In recent months, Saudi Arabia and the United Arab Emirates have been involved in prisoner swaps linked to the war in Ukraine and have tightened their grip on an oil cartel with Russia that’s key to global energy supplies. Riyadh, in particular, has clashed with Washington over oil.

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Some Kuwaitis cite the 1990 invasion by Iraq that triggered the Gulf War as the reason for a mindset that is still cautious to open up. They look back to a time when the country was ahead of its regional counterparts in terms of trade, culture and education.

Since he was handed most ruling powers by his ailing 85-year-old brother a year ago, Crown Prince Sheikh Meshal Al-Ahmad Al-Sabah has overhauled boards of state entities — some of which handle the country’s vast wealth — and flushed out officials associated with the former leadership or suspected of corruption.

But, if anything, Kuwait has moved away from reforms to diversify the economy. Long-vaunted plans to become a business and commercial hub by 2035 with better regional and global connections haven’t moved beyond a blueprint. In that sense, the Gulf’s most democratic state has become it’s least progressive.

Instead, Sheikh Meshal has overseen handouts and compensation running to billions of dollars for those among the 1.5 million citizens who were rewarded for their service during the pandemic and in response to higher living costs. That’s out of a total population of about 4.5 million. Of the working Kuwaiti population, about 80% are employed by the state.

“The welfare system is like a father who is spending on his kids, but isn’t expecting them to work,” said Hamad Al-Bahar, a partner in a fintech startup and former corporate banker who is in his 30s. He pointed to Saudi Arabia’s efforts to slowly ease its citizens off state support.

Nevertheless, Al-Bahar said he believes economic reforms will come soon and like others cited a strong financial system and economy. Business is thriving despite the challenges, he said. “I live in financial and physical security,” Al-Bahar said.

In the private sector, recent moves to exert control have shaken the confidence of international investors and local businesses, a senior Kuwaiti company executive told Bloomberg, requesting anonymity in order to speak freely.

A new wave of price controls had hurt businesses, the executive said and some multinationals in the consumer goods and other import-dependent sectors are turning away from the Kuwaiti market or reduced shipments and were focusing on other regional markets instead.

It’s been easier for Saudi Arabia, the UAE and Qatar to use their petrodollars to take huge gambles. Their younger leaders are driven by regional competition and are also unrestrained by the parliamentary politics and dissent that makes Kuwait unique.

Some Kuwaitis say that’s a price worth paying in a country where there’s unlikely to be a sudden shift to younger generations of leadership any time soon. “Kuwait is going backwards, no one disagrees,” said social media commentator Hamad Al-Jasser. But that doesn’t mean its neighbors are the right model to follow, he said. “Beyond that concrete and glass jungle, their political, judicial and social identity is lost.”

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