Oil and Energy in Kuwait
Team Leader: Duncan Spilsbury
The country of Kuwait is located in the Middle East, bordering the Persian Gulf, situated between Saudi Arabia to the South, and Iraq to the North. It is one of the smaller countries in the region, with an area of 17,818 square kilometers. Kuwait has a harsh climate throughout the year, with long, hot and dry summers and cool, short winters. Due to the dry, desert climate, 8.5% of the land is used for agriculture, with 7.6% of being dedicated to pastures and the remaining 0.9% being arable crop land. The remaining land use is comprised of deserts, urbanized cities and infrastructure. The population of the country is estimated to be just over 2.8 million, with an ethnic composition of 31.3% Kuwaiti, 27.9% Arab, 37.8% Asian, and 1.9% African.
Political Stability
The state is classified as a unitary constitutional monarchy, with the Al-Sabah dynasty retaining power since the 18th century. The legislative branch is separate from the executive and judicial branches of government, with a national assembly of 65 members, 50 of them being elected by the public by a single non-transferable vote. The last election was held on the 26th of November, 2016, with the next scheduled to occur in 2020. The legislative branch in Kuwait is seen as the most independent legislature in the Arab world. Their power is derived from the constitution, allowing them to dissolve parliament upon non-confidence of the Prime Minster, remove ministers, and show virtually no partisan bias. The country’s Chief of State is Amir Sabah al-Ahmad al-Jabir al-Sabah, who has authority over the appointed Prime Minister, as well as the Prime Minister’s cabinet, which is also appointed.
During the widespread protests in the Middle East, known as the “Arab Spring,” the Kuwaiti government remained relatively unchanged. While other nations were calling for a complete change in government and government structure, the movement in Kuwait was directed solely at the Prime Minister at the time, Nāṣir Muḥammad. The protestors believed that Nasir was corrupt and not fit for office, ultimately leading to him stepping down on November 28th, 2011. The lack of protest towards the structure of the government indicates that the current system in place is generally accepted by the Kuwaiti population. The lack of social unrest in the country aids in it being one of the more politically stable country’s in the region.
Economic Analysis
The primary economic driver in the economy is the extraction and refining of crude oil. Petroleum accounts for more than half of the country’s gross domestic product (GDP), 92% of export revenues, and 90% of the government’s income. As oil comprises the majority of the country’s GDP, legislation geared toward the industry has been in place since 1973, with further implementations expected in the future. This was seen after Kuwait ran into a budget deficit in 2015 after 15 years of producing a surplus, with falling oil prices globally as a major cause. After the deficit continued into 2016, the government implemented economic reform with a 10% increased tax on corporate profits in an effort to reduce the deficit produced by falling oil prices. The government also considered raising the prices of water and electricity, wherein the latter is solely derived from the burning of fossil fuels. Lastly, the privatization of some of the state-owned airports as well as oil facilities is also being considered.
Additionally, industrial production is becoming an area of interest for the Kuwaiti government. Recent plans that were announced by the government indicate a 25% increase in industrial production over the next few years, which should aid in the diversification of the economy. Current industrial production in the country produce metal products, chemicals, petroleum products, coal, rubber and plastics. With a more diverse economy, the state can acquire finances through other means, and not solely rely on the production and distribution of oil. Their economy has promise however, they have high levels of openness to global commerce and high levels of currency stability. Once Kuwait addresses the issue of economic diversity, future areas of investment will be more promising.
Executive Summary
As Kuwait’s economy is structured around the production of petroleum, the political risks that can stem from government action are high for current and future investors. As the government begins to diversify its economy, these risks should decrease in their ability to affect the market. The risks that our team will be exploring are the economic, governmental, international, environmental, infrastructure, and social risks throughout the country.
