Infrastructure and Reforms Stifled in Only Gulf State Where Voters Matter

(Bloomberg) -- Winter is coming and residents in one of the world’s richest nations are bracing themselves. Last year, heavy rain flooded parts of Kuwait City. Speed boats zipped along palm tree-lined avenues past half-submerged cars, prompting talk of ineffective drains and corruption in road-surfacing contracts.

Despite public outrage, many streets are yet to be fixed. Instead, the government spent much of the year pondering plans to build a massive new conurbation called “Silk City,” the centerpiece of a 15-year plan to diversify away from oil, which has been endlessly delayed while existing infrastructure projects fall by the wayside. Even civil servants have given up.

“Maybe it’ll work in 2050,” said Abdullah Mohammed, who’s employed at the information ministry. First, “everything has to change.”

Weeks of anti-government protests in Iraq and Lebanon foreshadowed rare demonstrations in Kuwait on Wednesday against perceived official corruption and mismanagement. Thousands responded to a call for peaceful protests in the evening at Al-Erada Square in front of the legislature amid a heavy police presence. Speakers demanded both the government of Prime Minister Sheikh Jaber Al-Mubarak Al-Sabah and parliament quit.

Protests in 2011 and 2012 slowly gathered momentum and led to the removal of the premier, but underlying frustrations remained.

‘Can’t Continue’

Kuwait, alone in the Gulf, has given people a genuine say in how they’re governed and in doing so, it’s created a conundrum. The prime minister is appointed by the emir, Sheikh Sabah Al-Ahmed Al-Sabah, and governments routinely butt heads with an elected parliament filled with populist lawmakers. Parties are banned, so there’s no coherent opposition, but a noisy political gridlock amplified by the Gulf’s freest press means little gets done. The region’s only unionized oil industry remains a powerful opponent of privatization.

Kuwaitis can’t help looking at nearby Dubai and wondering how they fell so far behind.

People support the ruling family and are “happy in their economic lives,” Mohammad Al-Dallal, a lawmaker, said in an interview. “At the same time, we’re sad with the corruption and lousy management and lousy services. We can’t continue like this.”

Assets of $592 billion and the world’s fourth-largest sovereign wealth fund give Kuwait a substantial cushion, yet by its own admission alarms are ringing. With projects like Silk City, the government aims to ease its addiction to oil revenues and trim handouts in an echo of regional power Saudi Arabia.

But political paralysis has complicated efforts to staunch financial drains -- like the Gulf’s most generous welfare system.

‘Big, Big Trouble’

State benefits on housing, fuel and food can total $2,000 a month for an average family. After a free education, university graduates receive $650 a month while they find a job. Government salaries and subsidies soak up nearly three-quarters of spending as Kuwait heads for its fifth consecutive deficit since the 2014 oil slump. Kuwait is home to 1.4 million citizens and 3.3 million expatriates.

At the same time, parliamentary opposition has stalled plans to impose Kuwait’s first ever tax -- a 5% VAT agreed by the six-nation Gulf Cooperation Council nearly four years ago -- and a law allowing the government to make its first bond issue since 2017.

Kuwait must realize that an “uncontrolled” fiscal policy is impossible to sustain, Kuwait-based Al-Shall Economic Consultants said. “Success, if it wants it, is to promote the country to the Norwegian model while failure means to drop it to the Venezuelan model.”

Or in the words of Yousef Al-Ebraheem, an adviser to the Emiri Diwan, or royal court, Kuwait’s in “big, big trouble” in five years if governance and spending habits don’t change.

Silk City Dreams

Silk City is being portrayed as a critical moment for Kuwait, a test-bed for participatory politics in a region dominated by near-absolute monarchies also struggling to make deep economic and social changes.

Touted as a replacement capital for 700,000 people, the decade-old plan includes the world’s tallest building, a wildlife sanctuary, tourist spots, and a new airport. But in a reminder of the obstacles, an earlier proposal was rejected by lawmakers concerned it would create a state within a state, where taboos like alcohol consumption may be sanctioned.

Spearheaded by the emir’s eldest son, Sheikh Nasser, Silk City pits a reformist royal against the country’s powerful merchant families who want to retain historic privileges.

It’s “just the tip of the iceberg of a big struggle that’s coming,” said Hasan Johar, head of Kuwait University’s political science department. One “that could change the country and redesign its structure, political philosophy, power distribution.”

The government says it’s determined to deliver and last month sent the Silk City legislation back to parliament, which is holding its last session before elections next year.

Commercial Hub

Despite the slow pace, the country has scored some successes. MSCI Inc. will add Kuwait to its main index tracking stocks in emerging markets in June 2020.

“We think we have the muscles, the know-how, and all the opportunity to become a commercial hub,” Minister of Commerce and Industry Khaled Al-Roudhan said in an interview.

Asked about Silk City, however, many say they’d be happy with improvements to the existing capital, starting with its roads. The government promised to fix the damage by the end of 2019, though last year’s storms happened in November.

“A half democracy is worse than none as it gives the illusion of legitimacy while it’s only a cover-up for corruption,” said Hamad Al-Jasser, a 58-year-old activist with 40,000 Twitter followers. “When they can make streets that don’t dissolve in the rain, then we can talk about economic visions.”

To contact the reporter on this story: Fiona MacDonald in Kuwait at fmacdonald4@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Mark Williams

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