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Return to the pioneer spirit

Modern buildings reflect a wealthy country with one of the highest GDP per capita figures in the world.

HISTORICALLY, Kuwait has always been one of the most dynamic and pioneering countries in its region. Situated at the northern end of the Arabian Gulf, it has been a center of trade and commerce for centuries.

Today, the emirate boasts one of the Gulf’s most open and progressive societies, and has been making significant strides towards greater democratization. The oil-fueled economy is booming, budget surpluses have filled state coffers, and a new sense of optimism has unleashed a wave of investment and major development projects.

For more than a decade after the 1990 invasion by Saddam Hussein’s Iraqi forces, Kuwait feared that history could repeat itself. However, with the Iraqi dictator’s permanent removal from the scene, the focus is shifting away from security and toward the future.

High price of oil could boost this year’s budget surplus to $20 billion

Business confidence has increased and the government has been encouraged to press ahead with far-reaching economic and political reforms under the leadership of Prime Minister Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah.

Record high oil prices, low interest rates, and even lower inflation have powered economic growth. Real gross domestic product (GDP) increased by 4.6% in 2004, and has been forecast to rise by more than 6.5% in 2005. Kuwait’s leading banks have been ringing up record profits and the Kuwait Stock Exchange has been booming.

The strength of the economy has been reaffirmed by international ratings agencies; Fitch has given Kuwait a AA country ceiling rating, placing the emirate on a par with countries such as India, Hong Kong, and Taiwan.

The emirate has rebuilt its foreign assets since its liberation by U.S.-led forces in1991 to a level estimated at close to twice its GDP.

Oil income in 2004/2005 was three times higher than expected, reaching $27.8 billion and accounting for 91% of total revenues. Kuwait posted a budget surplus of $11 billion, with actual revenues reaching a record $30.5 billion.

The current budget is based on a cautiously forecast oil price of $21 per barrel. Since the start of the current fiscal year, however, the price of Kuwait export crude has been averaging more than double that estimate, at around $44 per barrel. With the outlook for international oil prices remaining strong, independent analysts are predicting that Kuwait could post a surplus for 2005/2006 of more than $20 billion.

Six consecutive years of budget windfalls have reduced the need for precautionary saving and are allowing the government to invest tens of billions of dollars in a variety of mega projects.

Capital spending has been rising sharply, and the 2005/2006 budget proposes an 11% increase in expenditure compared to 2004/2005.

In the past two fiscal years, spending on infrastructure has jumped from 14% of Kuwait's budget to 23%. Oil, petrochemicals, power, and water projects are planned or already under way, and there are a host of schemes to develop the country’s transport infrastructure of ports, roads, and the airport.

Real estate projects planned by the private sector are valued at $8 billion and include entertainment complexes, hotels, and shopping malls, housing units, and commercial office space.

Investor confidence has risen significantly as opportunities have opened up both in Iraq and other neighboring countries. Minister of Foreign Affairs Sheikh Mohamad Al-Salem Al-Sabah says the emirate is positioning itself as a financial, commercial and transport hub for the region and emphasizes its advantages as an investment destination. He elaborates:

The oil industry accounts for almost half of Kuwait’s GDP and 95% of export revenues.

“Kuwait has a critical geographical position in the region, which is something that many international companies do not realize. There are numerous opportunities for foreign firms that establish themselves here.”

The government is taking action not only to make the most of the country’s oil resources, but also to explore new sources of income and to encourage the development of the private sector. A number of state-run enterprises are to be privatized.

Petroleum accounts for almost half of Kuwait’s GDP and almost all export revenue. Kuwait has proven crude oil reserves of about 98 billion barrels and production remains at close to full capacity, at 2.8 million barrels per day (bpd).

Aiming to raise production to 4 million bpd by 2020, the government is determined to press ahead with the long delayed Project Kuwait, a multi-billion-dollar plan that would almost double output from the northern oil fields.The scheme is controversial because it would allow the participation of international oil companies, but Prime Minister Al-Sabah says it is of strategic importance for the country’s economy.

At the same time, the government recognizes the need to diversify the economy to reduce dependence on a sole—and ultimately finite—source of income and to generate employment in other areas.

Concerted efforts are being made to streamline bureaucracy and encourage the private sector to expand non-oil sectors of the economy, such as tourism.