EUROPEAN PARLIAMENT
DIRECTORATE-GENERAL FOR RESEARCH
International and Constitutional Affairs Division
PN/IV/WIP/2002/09/0007+0047
PNMMP/GD/rf
Luxembourg, 20 September 2002
NOTE
ON THE POLITICAL AND ECONOMIC SITUATION
IN KUWAIT AND ITS RELATIONS
WITH THE EUROPEAN UNION
This note has been drawn up for Members of the European Parliament. The opinions it
contains are those of the author and do not necessarily reflect the position of the
European Parliament.
Sources:
Economist Intelligence Unit (EIU)
European Commission
Eurostat
Reuters
Oxford Analytica
World Markets Country Analysis
CONTENTS
Page
I.
POLITICAL SITUATION .................................................................................3
II.
ECONOMIC SITUATION ...............................................................................10
III.
RELATIONS EU/KUWAIT ..............................................................................15
ANNEXES
For further information, please contact Mr Pedro Neves, European Parliament,
DG IV,Division for International and Constitutional Affairs, Tel. 4300-22548,
Fax: 4300-27724 / e-mail: pneves@europarl.eu.int
2
I. POLITICAL SITUATION
1. Introduction
1.1. Geographical data
The Emirate of Kuwait lies in the very north-western part of the Persian Gulf,
surrounded by Iraq to the north-west and by Saudi Arabia to the south. The State has a
mainland and small islands (17.818 sq.km superficies). The largest island is Bubiyan, the
most populous one is Failaka1. A neutral (partitioned) Zone of 5,700 sq. km lies right in
the south of Kuwait, along the Gulf. The Zone is shared between Kuwait and Saudi
Arabia. Much of Kuwait is an arid desert, and the climate is usually hot and humid. The
official language is Arabic. English is also used in commercial circles. Kuwait city is the
capital.
The non-Kuwaitis, either other Arabians, are mainly Iranians, Indians and Pakistanis. Sur
les quelques deux millions de personnes qui vivent au Koweït, on évalue les nationaux à
moins d'un million, dont deux tiers de sunnites et un tiers de chiites. Le départ des
Britanniques, au lendemain de l'indépendance, en 1962, le boom pétrolier, en 1973, puis
le départ forcé des Palestiniens suite à la Guerre du Golfe en 1991 ont encouragé les
grandes vagues de l'immigration asiatique. Il y a, donc, comme chez les autres
monarchies du Golfe, un emploi massif d'une main-d'oeuvre immigrée au service d'une
population indigène, qui, lorsqu'elle travaille, se réserve les emplois de haut niveau. En
outre, les étrangers ne peuvent pas participer à la vie politique locale.
1.2. History
Kuwait became a part of the Turkish Ottoman Empire in the 16th century. During the later
years of Ottoman rule Kuwait became a semi-autonomous Arab monarchy, with local
administration controlled by a Sheikh of the Sabah family, which is the ruling dynasty
since 1756. In 1899, fearing an extension of the Turkish control, the ruler of Kuwait
signed a treaty with the United Kingdom, accepting British protection while surrendering
control over external relations. The Turkish sovereignty over Kuwait ended in 1918, with
the dissolution of the Ottoman Empire, but since 1914, the emirate was already a British
protectorate.
Kuwait became fully independent on 19 June 1961, when the United Kingdom and
Kuwait agreed to terminate the 1899 Treaty. Kuwait was accepted in the League of Arab
States despite opposition from Iraq, which claimed that Kuwait was historically part of
Iraqi territory. The first elections in Kuwait took place in December 1961. The Assembly
drafted a new Constitution, which was adopted in December 1962. In 1977, Sheikh Jaber
Al-Ahmad Al-Sabah became the ruler of Kuwait, its Emir.
1
see Annex I, p. 16
3
2. Domestic policy
2.1. State organization
The political system is characterised by a division of power among the executive powers
of the hereditary monarchy and the democratically elected legislative Assembly.
Although Kuwait is nominaly a constitutional monarchy, power is still firmly held by the
emir, who has the power to appoint the Council of Ministers and push legislation through
when he deems it necessary. The relationship between the executive and the legislative
power is set out in the 1962 constitution, which created the Unicameral National
Assembly. However, the National Assembly has increasingly begun to assert itself in
recent years, and has slowed down various legislative reforms and often voiced strong
criticism of the government.
a) Executive branch
Emir: The Emir is the head of state, and is chosen from among two alternating branches
of the al-Sabah family. His authority is exercised through his chosen prime minister,
traditionally the crown prince.
Council of Ministers: The Council of Ministers (cabinet) is presided by the Prime
Minister, usually the crown prince. The key ministerial positions in the cabinet are
usually given to other important members of the royal family, with lower ranking
ministers increasingly appearing from the ranks of the elected National Assembly.
b) Legislative branch
National Assembly (Majlis al Umma): The Assembly consists of 50 elected members, in
addition to the ministers (ex officio members of the Parliament), who serve for a term of
four years. Voting rights are currently reserved exclusively for men who are over the age
of 21 and are of Kuwaiti nationality by right. However, a decision taken by Emir Jaber alSabah in May 1999 allowed women to vote and stand as candidates in parliamentary and
municipal elections as from 2003, a decision which needs Parliament's approval to come
into force.
c) Judiciary
Civil law system with elements of Islamic law.
d) Regional Administration
Local administration is carried out in five principalities – Kuwait City, Hawalli, Jahra,
Farwaniya, and Ahmadi – each of which has its own governor.
4
2.2. Key political players
Formal political parties are illegal, with deputies sitting as independents - although
informal groupings do exist. These include the Islamic Constitutional Movement, the
Islamic Popular Grouping, the Shi'a group, two Sunni Islamic and some traditionalist
groups, a group of independents close to the al-Sabah, and a secular group known as the
Kuwaiti Democratic Forum.
HH Sheikh Jaber al-Ahmed al-Jaber al-Sabah became Emir in 1977, after serving as the
first Finance Minister of the state from 1949 and, later, as a Prime Minister. As such, he
has been the centre of power in the rapid oil-led development Kuwait. The Sheikh has
been reluctant to share his power. In 1986, he dissolved the National Assembly,
reinstating it in 1992 under pressure from Western powers after the Gulf War, only to
dissolve it again in 1999 when relations between the government and parliament had
become tense. Iraq's invasion of Kuwait severely damaged public respect for the Emir
and the ruling family, who were blamed for lack of preparation in threat of war. He has
now handed much of the day-to-day running of the state over to the Crown Prince, partly
due to his ill health.
The Crown Prince and Prime Minister: HH Aheikh Saad al-Abdullah al-Salem al-Sabah
was able to resume most of his responsibilities in 1998, after a period of seven months
spent out of the country in 1997 to receive medical treatment. According to observers, he
has been a cautious Prime Minister, unwilling to commit himself to unpopular and
controversial decisions that would bring him into conflict with the National Assembly.
This has helped him preserve his popularity among Kuwaitis, but has prevented the
implementation of essential reforms necessary to reduce oil dependency and welfare
spending. Sheikh Saad has come under increasing pressure to resign, due to his bad
health.
The Foreign Minister and First Deputy Prime Minister is Sheikh al-Ahmed al-Jaber alSabah's. His relations with the Crown Prince are stormy, and he has tendered his
resignation on several occasions. During Sheikh Saad's illness, he acted as a Prime
Minister. Sabah is said to be particularly unhappy with the lack of progress in economic
reforms and the slow pace of reconciliation with the Arab countries that voiced support
for Iraq during the Gulf War.
Sheikh Jaber Mubarak al-Sabah was appointed Deputy Premier and Defence Minister in
February 2001. He has been an advisor to the emir since 1992. Prior to this he held the
Social Affairs Ministry in 1986 and was an Information Minister between 1988 and 1990.
Deputy Premier and Interior Minister: Sheikh Mohammed Khaled al-Sabah retained his
position in the new government, which was appointed in February 2001.
Youssef Hamad al-Ibrahim, Finance and Planning Minister, is a leading liberal activist.
He held the Education portfolio in the previous government. His appointment has been
interpreted as a signal of governmental commitment to reforms. As a Finance Minister,
al-Ibrahim will oversee the state-run Kuwaiti Investment Authority (KIA).
Adel Khaled al-Subaih, the Oil Minister, previously held the Electricity portfolio and
was a State Minister for Housing. A pro-Islamist, al-Subaih's appointment to the Oil
Ministry in February 2001 is expected to soften opposition to proposals for the
5
development of the northern oil state fields by foreign companies. Al-Subaih has been a
member of the Supreme Petroleum Council (SPC) since 1993.
Ahmed al-Saadun is a controversial reforming democrat, re-elected as a Spokesman of
the National Assembly in 1996 after a vote. He made a number of accusations of
corruption against the government in 1998, and this undoubtedly played a role in
precipitating the Emir's decision in May 1999 to dissolve parliament and call for early
elections. Al-Saadun remained openly critical of what he considered to be government
incompetence and mismanagement in the running of July 1999 elections, in which he
easily retained his seat. Al-Saadun is one of 16 liberal MPs sitting in the parliament.
2.3. Developments and policy prospects
Relations between the Parliament and the al-Sabah–dominated government were
expected to improve after the 1996 elections, in which government candidates reversed
the 1992 result. However, MPs continued to oppose measures affecting the subsidised
lifestyle of their constituents, insisting that the government must reform its own
administration first. Attacks on ministerial corruption and incompetence were common,
particularly on the allocations of state contracts and the government’s failure to pursue
charges against the former Oil Minister, Sheikh Ali Khalifa al-Sabah, and on missing
funds from the Kuwait Oil Tankers Corporation. The case faces the problem of mixing
political appointments with the ruling family and the perceived immunity of the al-Sabah
family into sharp focus, and is one of the most contentious issues dividing the
increasingly vocal parliament and appointed government.
Perceptions of weakness and mismanagement in the heart of government were reinforced
by the illness of Crown Prince/Prime Minister Sheikh Saad and his rivalry with his
Deputy Prime Minister/Foreign Minister and probable successor, Sheikh Sabah. Sheikh
Saad became the focus of criticism from MPs, the press and even some ruling family
members who questioned his belief in democracy for Kuwait and the validity of his
holding of two offices. The latter issues were of particular concern, given that Sheikh
Saad's standing in the top echelons of the ruling family prevents him from being
questioned by MPs in his role as a Prime Minister.
2.3.1. Last Elections (July 1999)
A dispute between the parliament and the government arose in April 1999, when MPs
accused the government of attempting to prevent them from questioning the Minister of
Justice and Islamic Affairs, Ahmed Kleib, over a scandal concerning 120.000 misprinted
copies of the Koran. When the entire cabinet threatened to resign in order to prevent a
proposed no-confidence vote in Kleib by parliament, the Emir dissolved the assembly
and called new elections for 3 July 1999. This action provoked outrage among opposition
MPs. They accused the Emir of dissolving the Parliament in order to hide some
potentially damaging allegations concerning the Finance Minister Sheikh Ali al-Salem alSabah.
Although, political parties are illegal, loose groupings of candidates organised joint
campaigns for the July 1999 elections. Opposition candidates accusing the government of
organising a vote-buying operation in order to secure the election of a more compliant
6
parliament grouped under a banner "Political Forces". Their first action was to organise a
fund to combat alleged government efforts to bribe the electorate in 15 strategic
constituencies.
Following an Emir’s decree, the government continued to exist in the interim period
before members of the new Parliament were elected. It took advantage of the absence of
opposition obstruction from the Parliament to pass a number of bills, in particular the
setting up of a legal and financial committee, and in controversial areas such as tax and
welfare reforms. In the past, MPs had been wary of passing such legislation, afraid of
damaging their constituents' standard of living.
A total of 287 male candidates contested the 3 July 1999 elections for the 50-seat
National Assembly - the largest number of candidates since the 1991 elections. The
opposition gained victory with a two-thirds majority, while the number of seats held by
pro-government candidates was reduced to 14. The new Assembly is composed of 20
Islamists, 16 Liberals and 14 pro-government candidats.
The opposition gained a clear two-thirds majority in the parliament, controlling only 21
seats in the last house. This majority puts both the liberals and Islamists in a strong
position to block controversial legislation. Without doubt, the biggest winner in the polls
was the liberal group, which previously held four seats. Among the liberal victors was the
former Assembly Speaker, Ahmad al-Saadun, who had led much of the opposition to the
government in the run-up elections, openly accusing the government of mismanagement
and incompetence, and who had easily regained his seat. Les Islamistes, chiites et
sunnites, sont donc devenus la force principale du Parlement, dont ils contrôlent 20 des
50 sièges. Les parlementaires islamistes sunnites ont créé un groupe qui, avec les
islamistes chiites et d'autres personnalités, a condamné à la fois les attentats du 11
septembre 2001 et l'intervention américaine contre l'Afghanistan.
Les Islamistes veulent étendre le rôle de la loi islamique, la Charia. Ils demandent depuis
longtemps l'amendement de l'article 2 de la Constitution, qui affirme que la Charia est
"une source principale de la législation". Pour eux, elle est "la source de la législation".
Reste à savoir si le gouvernement et le palais sont prêts à accepter le jeu des élus en
faisant du parlement un véritable instrument de contrôle de l'exécutif.
3. Foreign policy
3.1. International organizations
Le Koweït est membre du Conseil de Coopération du Golfe, de la Ligue arabe, de
l'Organisation de la Conférence islamique, de l'ONU et de l'OPEP.
3.2. Neighbouring countries
The efforts of Kuwait to ensure its defence involve a twin strategy of building up its own
armed forces and concluding defence agreements with its Western allies and Middle
Eastern neighbours. Defence spending reached 30% of total government expenditure in
1996, with imports of high-technology equipment serving the dual purpose of upgrading
the military capability of Kuwait and directly involving the US, France and the UK - the
chief arms suppliers of Kuwait - in the defence of the country. However, its lack of
7
manpower - currently only 25 000 soldiers - and its lack of experience in using its
complicated new military hardware limit the effectiveness of the Kuwaiti armed forces.
The only realistic possibility of an overland attack seems to be for the north, where
Kuwait has no natural line of defence and its oil facilities are near both Iran and Iraq. In
early 1992, Kuwaiti officials disclosed plans to construct an electronic fence stretching
more than 200 kilometres along the Kuwait-Iraq border. The main purpose of the fence is
to prevent infiltration. Border guards of the Ministry of Interior of Kuwait are to patrol
the fence area.
a) Iraq
March 2002 saw a somewhat unexpected thawing in relations between Kuwait and
neighbouring Iraq. At the Arab Summit in Beirut, Iraqi Vice-President Ezzat Ibrahim
announced that Iraq recognises the sovereignty and independence of the country that it
had occupied in 1990. A deal was struck at the summit, under which Iraq promised it
would not repeat its invasion of the oil-rich emirate. The sudden resumption of ties came
against the backdrop of Arab opposition to the threat of US military strikes against Iraq,
as well as widespread anger amongst the Arab nation at the Israeli army's incursions into
Palestinian territories.
Although developments at the Beirut summit represented for the first time that Iraq had
pledged in writing not to repeat its 1990 invasion of Kuwait, it is very unlikely that full
harmonisation of relations between the two countries will occur in the short term. The
prevailing belief across the political spectrum of Kuwait is that Iraq remains a threat to
the territorial integrity of the country, and the government of Kuwait opposed military
attacks against Iraq on the grounds that such action would harm the Iraqi people and not
the regime of Iraqi President Saddam Hussein. Kuwait can be expected to exercise
pressure on Iraq to readmit UN weapons inspectors back into the country. Iraq had
previously made hazy commitments to abandon claims against the country, but has
continued to insist that Kuwait is part of Iraq.
The kuwaiti government has sought to maintain international pressure on Saddam
Hussein to comply with UN resolutions, recognise the sovereignty of the emirate and
release the estimated 600 Kuwaiti prisoners of war still held in Iraq. The UK and the US
remain firmly behind the sanctions imposed on Iraq in 1990. However, growing regional
and international pressure to re-admit Iraq into the international community will force
some form of normalisation of relations in the short to medium term. Kuwait will,
therefore, have to decide whether to allow some form of conciliation with Iraq still led by
Hussein, or continue to keep distance from its aggressive neighbour.
b) Iran
In contrast, relations with Iran have been improving steadily, particularly since the
victory of the moderate Iranian President Khatemi in the 1997 elections. Military clashes
between the two countries occurred during the Iran-Iraq war in the 1980s, when Kuwait
was a major backer of the military effort of Iraq. During the last few years, a series of
high-level visits between the two countries has led to growing ties between them,
inspired, in part, by a mutual mistrust of Iraq.
8
c) Others arabic countries
Kuwait has been slower to normalise relations with the countries that did not clearly
oppose the Iraqi invasion in 1990, such as Yemen, Jordania and the Palestinian National
Authority. This has been a matter of contention within the ruling family, as Foreign
Minister Sheikh Sabah is seeking a more rapid rapprochement than the Emir and Crown
prince have been willing to allow. In early 1998, a number of Jordanian prisoners were
released in a unilateral gesture that may herald a Kuwaiti effort to restore diplomatic
links. This was followed in September 1999 by a visit by Jordanian King Abdullah. The
visit by a Jordanian monarch was the first of its kind for almost a decade.
d) EUA
L'émirat est encore traumatisé par l'invasion irakienne d'août 1990 et reconnaissant aux
États-Unis et à leurs alliés de l'avoir libéré. Washington maintient des bases militaires au
Koweït et vient d'y doubler le volume de ses stocks d'armement.
9
II. ECONOMIC SITUATION
1. Overview
The economy is supported by its substantial oil reserves (oil and oil products account for
95 % of the country exports), together with investment income from considerable
externally held foreign assets. These assets were secured by the past accumulation of
sizeable current account surpluses, dating back to the oil price hikes of the 1970s. Given
the relatively low "investment absorption" capacity of the country, the size of the
financial assets are proportionately larger than other oil producers. The vast majority of
citizens are dependent on public salaries paid for by government revenues from
hydrocarbon exports, creating inflexible public expenditure commitments that are
vulnerable to a decline in oil prices on the world markets. Attempts to reduce the
budgetary burden have been limited, although a privatisation programme is now under
way. The financial markets have recovered strongly from the damage caused by the Iraqi
occupation of 1990-1991, which saw short term debts rise quickly to help finance
considerable reconstruction, including in the banking sector, but these have since abated.
La balance commerciale est redevenue excédentaire - 3 milliards de dollars - dès 1993 et,
la même année, la balance de paiements a retrouvé l'équilibre. Le Koweït reste, donc, un
État financièrement solide et, en dépit des gaspillages financiers, les autorités ont géré
très prudemment les conséquences de l'occupation irakienne et l'effort de reconstruction.
2. Economic policy trends2
The huge rise in oil prices in 2000/2001 led to budget surplus in excess of US$5bn for a
nine-month year (due to an alternation in the financial year start/end dates). The
downturn in prices, while not approaching the troughs of 1998, will put more pressure on
the government to reign in spending, as budgets become tighter.
Kuwait boasts the third largest bourse in the Middle East in terms of market capitalisation
(after Egypt and Saudi Arabia) - the Kuwait Stock Exchange (KSE) - but it has
performed poorly in recent years.
A number of significant reforms have been passed by parliament or are on the way.
Restrictions on foreign investment and foreign ownership have been eased, the KSE will
be opened to foreigners and legislation to open up the banking industry is planned. The
free trade zone (FTZ) of Kuwait also continues to expand. However, plans to open the
upstream oil sector to foreign companies have been slowed by a reluctant parliament.
The government approved the creation of a new authority to oversee the economic reform
programme of the country in April 2001 - the "Committee for development and economic
reforms". The new body is to be headed by Foreign Minister Sheikh Sabah al-Ahead alSabah, and will be charged with overseeing the reform programme. The programme calls
for gradual measures that will meet short and long- term targets set by the programme.
Legal and administrative reforms had to be achieved by 2002, as they only required
decisions to be made. Privatisation of a number of state-run companies was expected to
2
see Annex II, p. 17
10
be the main thrust of the reforms in combination with legal changes aimed at boosting
private sector involvement.
The fiscal position of Kuwait has been strengthened considerably by the rebound in oil
prices over 2000/2001. The surge in oil prices - 55% higher for the year ending 31 March
2001 than the previous year - led to a healthy budget surplus of US$5,7bn.
While Kuwait generally maintains a tight fiscal policy, a deficit was recorded in 1998 due almost entirely to plunging oil prices. With more than 80% of government revenue
obtained from oil and oil product export receipts, the budget of Kuwait is highly
dependent on international oil markets. With an estimated 93% of Kuwaitis employed
directly by the government, or government owned industries, the government wage bill is
the largest single government expenditure. Public services and subsidies also add to the
government's spiralling spending burden. Beyond this, with more than 50% of GDP
accounted for by state spending, Kuwait has a structurally unbalanced fiscal sector that
will require reform now before it becomes a problem later.
This reliance on oil and oil product exports means that the ability of Kuwait to plan
strategic investment in the economy is limited. Although the government always
forecasts a prudent oil price for the year ahead, the volatility of the market can lead to a
huge surplus or deficit. Inflexibility over fiscal policy is becoming an increasing problem
as the costs of maintaining public services and providing employment for nationals
spirals due to a growing population, threatening to reduce the huge "nest-egg" of overseas
investment. The level of government held foreign investments (some US$100bn) does
provide some levelling of revenue when oil prices are depressed, but ultimately a modern
taxation system and a diversified economy must emerge to provide the government with
secure sources of revenue in the long term and allow more strategic planning for
investment in the domestic economy.
The country is perhaps (in proportional if not absolute terms) the most oil dependent
economy in the region. The high oil income provides a source of revenue that could help
fund a more diverse economy and the level of oil reserves mean that Kuwait will have
high and secure export earnings for many years ahead. Equally there have been
significant strides made towards economic and foreign investment liberalisation.
The efforts of Kuwait to reform are dogged by conflicting influences. The government
recognises the need to create a diverse economy and ease the financial burden on the
state. However, the parliament is not keen to begin dismantling a generous state system
that has taken decades to create, though the imperatives for doing so are seeping through
gradually.
3. Economic growth
The recovery of oil prices in 1999/2000 restored growth in Kuwait to a positive figure
and pushed government revenue to record levels. The rapid return to fiscal health and
towering growth rates had little to do with a still sluggish non-oil sector. Non-oil GDP is
rising by approximately 1% a year, barely keeping ahead of inflation. Meanwhile, the
more recent downturn in oil prices and production limits imposed by OPEC quotas means
that the growth figures of Kuwait for 2000 and 2001 are unlikely to be matched over the
next five years. Government attempts to liberalise the domestic economy and encourage
foreign investment have been slow to develop, despite the acknowledgement of the
11
government that the medium-term health of the country depends upon it. The National
Assembly is yet to fully come round to the thinking of the government on economic
reform. The non-oil economy of Kuwait is dominated by overseas investments US$100bn worth of foreign investments generate the second largest source of GDP of the
country, with an average annual return of around 10%.
Non-oil GDP growth has been sporadic and precipitous. An 8,7% decline in non-oil GDP
hit Kuwait in 1997 - before the oil price collapse. Non-oil growth has recovered from that
low point, but despite the record rise in oil revenue through 2000, the non-oil sector has
continued to lag. A number of reform measures were finally approved by the National
Assembly in 2000/2001, but observers believe that bureaucratic inefficiency and state
subsidies continue to hold back growth and must still be addressed. Banking and foreign
investment reform - as well as a plan to attract foreign oil companies to the Kuwaiti oil
sector - are now beginning to move. Friction between the National Assembly and
government over ending subsidies, privatising state industries and allowing foreign oil
companies still continues. Paradoxically, the steep falls in oil prices in late 2001/early
2002 have given the reform process more impetus, as the need for more non-oil revenue
is once again brought to the fore.
On the 10 July 2002, the Parliament passed the state budget for 2002-2003, with a deficit
of US$6,26bn, up 32% from the previous fiscal year. The shortfall has raised tension in
the legislative assembly, which has in recent months been rocked by a failed attempt by
Islamist opposition groups to oust Finance Minister Yussif al-Ibrahim.
4. Employment and wages
The state currently employs the vast majority of the 212 000 working nationals, with
citizens guaranteed a public sector job. Some observers maintain that many are
effectively underemployed, being paid salaries for jobs that do not exist. With a youthful
population adding 14 000 to the labour market every year, the government has
increasingly struggled to cope with the demand for jobs - particularly as the level of
education and career expectations has risen. The wage bill now accounts for more than
half state revenues of US$7,3bn. In the private sector, some 5% of the work force are
Kuwaitis - the rest are made up of foreign workers. The government has begun to address
this problem by imposing regulations to encourage the employment of nationals and
penalise the employment of foreigners.
Kuwait still relies upon expatriate workers to fill a number of technical roles. Efforts to
train Kuwaitis to assume management roles in the utilities and to train more technical
staff receive a high priority. Unemployment is a growing problem and the government
will need to reduce the employment and wage expectations of many Kuwaitis as higher
unemployment looms. Public-sector workers use the threat of strikes to back up their
wage and benefit demands.
Kuwait is a welfare state and heavily subsidises many social needs. The social sector of
course was heavily damaged during the Iraqi occupation but strenuous efforts are
underway to get the welfare system back to where it was on 1 August 1990.
12
5. External sector and attitudes towards foreign investment
In the 1950s and 1960s, Kuwait began investing overseas in property and businesses in
Britain. In 1952 Kuwait established an office in London, staffed with experienced British
investment counsellors who guided the government's placement of funds. In the same
year, Kuwait created investment relations with a large New York bank. Because of the
vastly expanded oil revenues of the 1970s, the overseas investment program of Kuwait
grew tremendously. In 1976 the government established the Reserve Fund for Future
Generations, into which it placed an initial US$7 billion. It decided to invest 10 percent
of its revenues annually in the reserve fund. Money from the fund, along with other
government revenues, was invested in overseas property and industry. In the 1970s, most
of these funds were invested in the United States and in Western Europe: in German
firms (such as Hoechst and Daimler Benz, in each of which Kuwait owned 25 percent), in
property, and in many United States Fortune Five Hundred firms. In the 1980s, Kuwait
began diversifying its overseas investments, placing more investments in Japanese firms.
By the late 1980s, Kuwait was earning more from these overseas investments than it was
from the direct sale of oil: in 1987 foreign investments generated US$6,3 billion, oil
US$5,4 billion. The Financial Times of London estimated the overseas investments of
Kuwait in early 1990 at more than US$100 billion, most of it in the Reserve Fund for
Future Generations.
The Iraqi invasion proved the importance of these investment revenues. With oil
revenues suspended, the government and population in exile relied exclusively on
investment revenues, including sales of investments for sustenance, for their share of
ongoing coalition expenses and for post-war reconstruction and repair of the vital oil
industry.
Kuwait is receptive to foreign investment in those areas of the economy not dominated by
the public sector. There are no foreign-exchange controls, and profits, capital gains and
royalties are all freely transferable in and out of the country. However, at present, nonKuwaiti investors are subject to taxation of profits. Foreign ownership of real estate is not
- apart from a few exceptions - permitted. Foreign firms may only tender for government
contracts that are specified for international bidding.
Kuwait took several steps forward in attracting more foreign investments during 2001. A
new package of foreign investment incentives was passed by Parliament and a draft bill
to reduce taxes on foreign companies was approved by Parliament. A number of
difficulties still have to be addressed, but the government is slowly moving forward in its
efforts to improve the climate for foreign companies in Kuwait.
In May 2000, Parliament voted in favour of allowing non-Gulf Co-operation Council
(GCC) foreigners to hold shares in the Kuwait Stock Exchange (KSE). There are 90
companies listed on the KSE, with market capitalisation at some US$20bn. Investors
have also been encouraged by reform measures to increase transparency on the bourse
and curb inside trading and volatility.
The challenge for Kuwait is not simply one of changing the economic structure, foreign
investment regulations and the legal and business environment, but also one of competing
with the increasingly aggressive GCC neighbours. Dubai and Bahrain have been quick to
open up their economies to tourism, finance and trade. They have geographic advantages
(better for trading with Iran and international markets, for example) and more liberal
13
religious regimes. Kuwait will not simply have to equal these competitors in economic
liberalisation, but surpass them if the economy of the country is to become more
diversified.
The country attempts to encourage telecommunications and light industry through the
Kuwait Free Trade Zone (KFTZ), established in 1996. The latest efforts of Kuwait are
aimed at establishing itself as the leading country in the region for telecommunications.
In this it is again up against Dubai, which is itself well advanced in efforts to attract
telecom companies. For Kuwait, non-oil economic sectors are more potential than
established.
14
III. RELATIONS ENTRE L’UNION EUROPÉENNE ET LE KOWEÏT3
1. Contexte politique
Il n'y a pas de véritables relations bilatérales entre l'Union européenne (UE) et le Koweït
Cependant une coopération existe: elle s'inscrit dans le cadre des relations entre le
Conseil de Coopération du Golfe (CCG) et l'UE. En effet, en 1989, la Communauté
européenne et le CCG ont conclu un accord de coopération qui prévoit, entre autres, une
rencontre annuelle des ministres des Affaires étrangères. Les objectifs affichés de cet
accord est de promouvoir les relations commerciales, ainsi que de renforcer la sécurité
dans la zone stratégique que constitue le Golfe. Des groupes de travail ont été établis dans
les domaines de la coopération industrielle, de l'énergie et de l'environnement. En 1996,
la mise en place d'une coopération décentralisée (coopération universitaire, coopération
dans les domaines des affaires et des médias) a été prévue.
L'accord de coopération de 1989 prévoit aussi un engagement des deux parties d'entrer en
négociation pour la conclusion d'un accord de libre-échange entre le CCG et l'UE. La
condition préalable à la conclusion de cet accord est l'établissement d'une union
douanière parmi les pays membres du CCG. L'Union douanière devrait être en place au
1er janvier 2003.
La douzième rencontre ministérielle dans le cadre de la coopération UE-CCG a eu lieu à
Grenade, en Espagne, le 28 février 2002. Lors de cette rencontre, a été réaffirmé l'idée
selon laquelle le commerce, les investissements et la coopération constituent les bases sur
lesquelles on pourra développer les relations économiques entre les deux entités. L'UE a,
par ailleurs, pris la décision d'envoyer une délégation à Riyadh courant 2002 afin de
favoriser les relations avec les six pays du CCG. En outre, des points de vues communs
ont été adoptés sur la situation internationale, concernant notamment la situation au
Moyen Orient, l'Irak, l'Afghanistan et la lutte contre le terrorisme.
2. Relations commerciales
La zone constituée par les pays membres du CCG représente le sixième plus important
marché d'exportation de l'UE. De plus, l'UE a toujours eu un excédent commercial dans
ses relations avec le CCG. Ainsi en 2000, le montant des importations de l'UE s'est élevé
à 22 milliards d'euros, alors que le montant des exportations est chiffré à 29 milliards
d'euros. Le pétrole brut représente presque deux tiers des importations de l'UE dans sa
relation avec le CCG. Les exportations de l'UE vers les pays du CCG sont diversifiées,
mais concernent principalement l'équipement de transport et la machinerie. L'UE exporte
aussi des médicaments et des produits manufacturés.
Les statistiques récentes montrent que les investissements de l'UE dans la région du Golfe
ont nettement diminué. Ainsi, en 1999, l'UE avait investi pour 3 milliards d'euros, contre
seulement 1,5 milliard d'euros en 2000. En revanche, les investissements des pays du
CCG ont augmenté de plus de 15 % pendant la même période, passant de 4 milliards
d'euros en 1999, à 4,6 milliards d'euros en 2000.
3
voir annexes III, IV et V, pp. 18-20
15
ANNEX I
MAP OF KUWAIT
16
ANNEX II
KUWAIT - ECONOMIC DATA (1)
1997
1998
1999
2000
2001 e
2002 f
Domestic Data
GDP Growth %
Inflation %
Budget Balance % GDP
Leading Interest Rate %
Unemployment Rate %
GDP $ bn
GDP Per Capita $
Interest Rate Spread, basis points
2,3
0,7
20
8,8
/
31,4
16532,8
30
2
0,1
15,3
8,9
/
25,2
12931,3
40
-2,4
3
-1,3
8,6
/
29,9
14764,6
25
3,5
2
28,6
7,3
/
40,4
19230,3
25
1,5
2,5
37,2
4,3
/
42
/
30
0
1,5
14,7
3,8
/
42,6
/
25
External Data
Exchange Rate to $
Exports $m
Exports Growth %. y-on-y
Imports $m
Imports Growth %.y-on-y
Trade Balance $m
Current Account Balance $m
Current Account % GDP
Reserves $m
Reserves Import Cover- Months
Foreign Direct Investment $m
FDI % GDP
Total External Debt $m
Short Term Debt US$m
Total Debt % GDP
Total Debt Service Ratio %
Total Debt % Exports
Short Term Debt % Total Debt
Short Term Debt % Reserves
0,3
14280,6
-4,5
-7746,9
-2,5
6533,7
7934,8
25,3
3556
5,5
19,8
0,1
/
/
/
/
/
/
/
0,3
9617,5
-32,7
-7714,4
-0,4
1903,2
2214,9
8,8
4052
6,3
59,1
0,2
/
/
/
/
/
/
/
0,3
12276
27,6
-6710
-13
5566
5062,2
16,9
4928
8,8
72,3
0,2
/
/
/
/
/
/
/
0,3
21700
76,8
-7620
13,6
14080
11200
27,7
7300
11,5
90
0,2
/
/
/
/
/
/
/
0,3
19500
-10,1
-8500
11,5
11000
8500
20,2
8000
11,3
100
0,2
/
/
/
/
/
/
/
0,3
16200
-16,9
-8700
2,4
7500
4100
9,6
8100
11,2
100
0,2
/
/
/
/
/
/
/
(1) Source: IMF, World Bank
17
ANNEX III
Trade relations EU-Kuwait: 2001
Structural analyses
EU-imports (cif)
1000 €
Total (A+B+C)
of which:
A: Raw materials
Food, beverages and tobacco (0+1)
Raw materials (2+4)
Energy (3)
B: Manufactured articles
Chemicals (5)
Machinery and transport eq. (7)
Other manufactured products (6+8)
-%-
Main products (SITC division):
SITC
3rd
rev.
1000 €
2.380.465 100,0 PETROLEUM, PETROLEUM PRODUCTS AND RELATED MATERIALS
33
2.183.583
ORGANIC CHEMICALS
51
43.097
2.188.489 91,9 POWER GENERATING MACHINERY AND EQUIPMENT
71
31.437
503
0,0 OTHER TRANSPORT EQUIPMENT
79
27.060
4.403
0,2 PLASTICS IN PRIMARY FORMS
57
22.967
2.183.583 91,7 PROFESSIONAL, SCIENTIFIC + CONTROLLING INSTRUM. + APPARATUS,
87 N.E.S. 18.037
187.753
7,9 GENERAL INDUSTR. MACH. + EQUIPMENT, N.E.S., MACHINE PARTS, N.E.S.
74
9.617
67.092
2,8 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S.
89
6.981
87.914
3,7 TELECOMMUNIC. + SOUND RECORDING + REPROD. APPARATUS + EQUIPMENT
76
6.370
32.747
1,4 MACHINERY SPECIALIZED FOR PARTICULAR INDUSTRIES
72
5.849
% of
total
91,7
1,8
1,3
1,1
1,0
0,8
0,4
0,3
0,3
0,2
Intraindustry
trade
intensity (1)
199,2
154,9
45,9
56,1
127,7
37,9
9,7
8,3
7,9
13,4
EU-exports (fob)
1000 €
Total (A+B+C)
of which:
A: Raw materials
Food, beverages and tobacco (0+1)
Raw materials (2+4)
Energy (3)
B: Manufactured articles
Chemicals (5)
Machinery and transport eq. (7)
Other manufactured products (6+8)
Source: COMEXT 2 database, EUROSTAT
-%-
Main products (SITC division):
SITC
3rd
rev.
1000 €
2.749.092 100,0 ROAD VEHICLES (INCLUDING AIR-CUSHION VEHICLES)
78
377.203
ELECTR. MACH., APP. + APPLIANCES, N.E.S. + ELECTR. PARTS THEREOF
77
211.724
271.360
9,9 GENERAL INDUSTR. MACH. + EQUIPMENT, N.E.S., MACHINE PARTS, N.E.S.
74
189.409
239.668
8,7 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S.
89
161.876
21.276
0,8 TELECOMMUNIC. + SOUND RECORDING + REPROD. APPARATUS + EQUIPMENT
76
155.697
10.416
0,4 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES
84
131.431
2.437.722 88,7 MEDICAL AND PHARMACEUTICAL PRODUCTS
54
108.430
290.003 10,5 POWER GENERATING MACHINERY AND EQUIPMENT
71
105.593
1.281.647 46,6 NON-METALLIC MINERAL MANUFACTURES, N.E.S.
66
96.960
866.072 31,5 MACHINERY SPECIALIZED FOR PARTICULAR INDUSTRIES
72
81.232
Production: JDa/Parliamentary Documentation Centre/European Parliament
(1) The index can vary between 0 and 200: 0 means only exports, 200 only imports and 100 means balance in trade
Index: (((x+m)-(x-m))/(x+m))*100
18
% of
total
13,7
7,7
6,9
5,9
5,7
4,8
3,9
3,8
3,5
3,0
Intraindustry
trade
intensity (1)
0,9
3,9
9,7
8,3
7,9
2,3
0,1
45,9
0,6
13,4
ANNEX IV
Trade of the EU with Kuwait by Member States
EU-imports (cif)
Total
2001
1000 €
-%2.380.465
100,0
January-May:
2001
2002 (1) % change
1.086.704
720.136
-33,7
of which:
France
Netherlands
Germany
Italy
United Kingdom
Ireland
Denmark
Greece
Portugal
Spain
Belgium
Luxembourg
Sweden
Finland
Austria
398.503
1.167.541
34.703
153.324
485.351
102
50.974
3.885
9.056
15.711
44.462
144
377
16.242
89
16,7
49,0
1,5
6,4
20,4
0,0
2,1
0,2
0,4
0,7
1,9
0,0
0,0
0,7
0,0
116.313
579.856
8.350
132.137
209.734
47
12.504
799
1
4.100
6.733
115
154
15.844
18
133.506
358.033
12.844
12.361
164.481
9
1.642
2.749.092
100,0
1.074.598
1.181.094
356.717
165.319
746.337
432.834
570.435
63.479
56.692
10.160
8.940
126.689
94.387
1.559
46.942
36.335
32.269
13,0
6,0
27,1
15,7
20,7
2,3
2,1
0,4
0,3
4,6
3,4
0,1
1,7
1,3
1,2
147.685
64.726
273.893
163.992
236.202
33.583
15.222
3.491
3.958
50.422
39.150
761
17.386
12.516
11.609
213.357
72.846
331.865
176.457
195.063
23.099
25.722
10.144
11.670
13.944
0
150
326
218
EU-exports (fob)
Total
of which:
France
Netherlands
Germany
Italy
United Kingdom
Ireland
Denmark
Greece
Portugal
Spain
Belgium
Luxembourg
Sweden
Finland
Austria
Source: COMEXT database, EUROSTAT
Production: JDa/Parliamentary Documentation Centre/European Parliament
(1) Total includes only January-February for Greece
19
4.125
52.061
27.194
531
14.861
27.407
15.328
9,9
ANNEX V
Trade of the EU with Kuwait: 1995-2001
1000 ECU/€
EU-imports (cif)
1995
1996
1997
1998
1999
2000
2001
Jan-May: 2001
Jan-May: 2002
Source: COMEXT database, EUROSTAT
EU-exports (fob)
1.367.249
1.588.897
1.480.473
709.662
1.474.065
3.201.536
2.380.465
1.086.704
720.136
2.424.483
2.195.381
2.293.762
2.162.681
2.008.393
2.330.437
2.749.092
1.074.598
1.181.094
Balance
1.057.234
606.484
813.289
1.453.019
534.328
-871.099
368.627
-12.107
460.958
Production: JDa/Parliamentary Documentation Centre/European Parliament
Trade of the EU with Kuwait: 1995-2001
3.500.000
3.000.000
2.500.000
1000ECU/€
2.000.000
1.500.000
1.000.000
500.000
0
-500.000
-1.000.000
1995
1996
1997
EU-imports (cif)
1998
1999
EU-exports (fob)
Production: JDa/PDC/EP
20
2000
Balance
2001
Jan-May: Jan-May:
2001
2002