| Kippreport.com

Why Kuwait’s political infighting is leaving its economic plans on ice

June 15, 2012 6:25 by Reuters

The ruling against Petrochemical Industries Co (PIC) is final and believed to be one of the largest ever arbitration awards. Kuwait pulled out of the $17.4 billion “K-Dow” joint venture with the U.S. company as the global economy sunk into a deep recession nearly four years ago.

 

Kuwait’s losses from the project amount to more than just the compensation sum, said Naser al-Nafisi from the Al-Joman Centre, an independent economic consultancy based in Kuwait.

 

The country has lost an estimated $6-10 billion in business and damaged its image with an important trade partner, he said, adding, “The negative consequences are both visible and invisible.”

 

Hussein, a former chief executive officer of Kuwait Petroleum Corporation, has declined to comment on the case.

 

As for the development plan, which is spread over four years until 2014, Nafisi said it was only about 15 percent complete with work on smaller projects and general maintenance rather than progress on the big ticket items.

 

The development plan timetable is at risk unless Kuwait’s government and parliament push through an agenda which improves the investment climate, the International Monetary Fund said in a report last month.

 

Implementation of the plan has suffered from “red-tape bureaucracy, an outdated legislative base, deficiencies in laws that have been passed in recent years, and holdups in passing new legislation,” it said.

 

While the row between Kuwait’s cabinet and parliament has been a major factor in stagnant policymaking and reform, it has also led to a lack of fiscal dynamism said Liz Martins, senior Middle East economist at HSBC in Dubai.

 

“For better or worse, this has tended to leave Kuwait with some of the largest budget surpluses in the Gulf, and as such, oil prices would have to drop quite substantially before it became fiscally vulnerable.”

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