KUWAIT

COUNTRY OVERVIEW

LOCATION AND SIZE.

Kuwait lies at the northwestern corner of the Persian Gulf. With a total area of 17,820 square kilometers (11,073 square miles), it covers an area slightly smaller than the state of New Jersey. To the south and southwest, it shares a 222-kilometer (138-mile) border with Saudi Arabia. To the north and west, there is a 242-kilometer (150-mile) borderline with Iraq. Most major towns, including the capital, Kuwait City, are located along the Gulf, toward the south.

POPULATION.

Kuwait's population totaled 2,041,961 in July 2001, of which almost 60 percent were foreign residents. The population increased 1.6 percent per year between 1980 and 1997. The population growth rate was estimated by the CIA to be 3.38 percent in 2001. Most of the growth stems from the arrival of foreign immigrants who come to Kuwait looking for jobs, rather than from a high birth rate. Nevertheless, an estimated 70 percent of the population is under the age of 24.

In 1998, the population density of Kuwait was 102 inhabitants per square kilometers (264 per square mile), with most people living in towns; the urbanization rate is 97 percent. The majority is Muslim (85 percent), with an almost equal split between Sunni Muslims (45 percent) and Shiites (40 percent). Christian, Hindu, Parsee, and other religious minorities make up the remaining 15 percent.

OVERVIEW OF ECONOMY

Kuwait is a small, open economy that depends to a large extent on oil. Worldwide, Kuwait's oil reserves are second only to those of Saudi Arabia, representing about 10 percent of total global reserves. Oil accounts for nearly half of the gross domestic product (GDP), more than 90 percent of exports, and 75 percent of government income. Over the last 20 years, the government has tried to broaden the country's importance as a player at all levels of the oil industry by purchasing petroleum distribution networks and gas stations in other parts of the world.

In 1990, Iraq invaded and annexed Kuwait and was then driven out by United Nations (UN) forces under the leadership of the United States. A decade later, Kuwait has fully recovered: the economy is on the upswing and the infrastructure has been restored. Kuwait operates the world's most generous state welfare system for its indigenous population. Nationals enjoy access to a free (local) telephone service, electricity at 10 percent of production cost, and water supplies at a third of cost. In addition, as the constitution stipulates, nationals are provided with lifetime guaranteed employment in the civil service, with subsidized housing for married employees.

Like many other Gulf states, Kuwait is heavily dependent on international oil prices. Therefore, it needs to develop a viable non-oil related industrial base and is pressed hard to create jobs for the growing number of young nationals entering the job market every year. The government is, in principle, committed to economic reform. It presented a package of structural reforms to the National Assembly in 1999, which are designed to enhance overall efficiency and growth potential. However, implementation has been slow, and privatization programs have met stiff resistance because of fears over job losses between nationals and the possible elimination of consumer subsidies.

POLITICS, GOVERNMENT, AND TAXATION

The State of Kuwait is a hereditary constitutional monarchy, headed by an emir chosen from the Al-Sabah family. The current emir is Sheikh Jaber al-Ahmed al-Jaber al-Sabah, who acceded to the throne in 1977. Sheikh Jaber al-Sabah is head of state and head of the executive council of ministers, and he rules by decrees agreed to by the council of ministers and, in theory at least, approved by the 50-member National Assembly.

Kuwait can be considered a typical rentier state, that is, a state benefitting from large revenues from the sale of natural resources, in this case oil. As in another oil-dependent sheikhdom, Bahrain, the government distributes the income to its citizens by providing them with jobs and welfare and keeping taxation low. In return, Kuwait's citizens are tied to the state and remain loyal to an undemocratic regime. The concept may be captured in the phrase, "no taxation, no representation."

No political parties are allowed in Kuwait although informal groupings do exist. The largest are the religiously motivated Islamic Patriotic Coalition, the Islamic Constitutional Movement, and the Islamic Popular Grouping, also called the Salafi. The Kuwait Democratic Forum is the largest secular political group and is the voice of liberal and Arab nationalist opinions. The legislature, Majlis Al-Umma, is a unicameral National Assembly of 50 elected members, plus appointed cabinet ministers, serving for a 4-year period. The Assembly's legislative power is restricted, since the emir can simply dissolve it at will and rules by decree. In fact, the National Assembly was temporarily dissolved by decree of the emir in 1976, 1986, and 1999. Kuwaitis under the age of 21 and women cannot vote. Though the issue of women's suffrage (right to vote) is heavily debated, in January 2001, Kuwait's constitutional court followed a lower-court ruling refusing to grant women their voting rights.

The Kuwaiti emir also has ultimate authority over major decisions relating to oil. In December 1975, the country nationalized its domestic and foreign oil assets and created the Kuwait Petroleum Company (KPC), which is an umbrella company for subsidiaries handling oil production and marketing. The economy is heavily dominated by state-owned enterprises.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Kuwait's infrastructure is modern and well developed. Within a few years after liberation from the Iraqi occupation, Kuwait managed to restore facilities and services to pre-war standards.

TRANSPORTATION.

A network of 3,800 kilometers (2,361 miles) of good paved roads and modern multi-lane expressways link all areas of the country, extending south and west from Kuwait City to neighboring cities and to Iraq and Saudi Arabia. The ports—Shuwaykh, Shuaybah, and Mina Al-Ahmadi—handle commercial shipping and petroleum exports.

POWER.

Kuwait has several major electric power-generating plants. These incorporate desalination operations, which remove salt from seawater to provide the country with drinking water. Currently, the country has enough electric capacity from plants fired by natural gas or oil, but with demand rapidly rising as the population increases, expansion projects are already underway to increase capacity. To meet demand, the Middle East Eco-

nomic Digest (MEED) estimates that Kuwait will need to spend US$3.6 billion over the next 10 years to install 5,000 megawatts (MW) of generating capacity to add to the 6,900 MW that was already available at end-1999.

TELECOMMUNICATIONS.

Before 1990-91, the telephone system had more than 250,000 subscribers, with work under way to increase this number to more than 500,000. Since demand is running at only 400,000 lines, the emphasis is on upgrading rather than expanding the system. There is a mobile cellular system in operation, which had 150,000 subscribers in 1996. By 2000, Kuwait had 3 Internet service providers and 5,000 hosts registered under their own domain. The Ministry of Communications retains control over these services and access is expensive, but the Internet is hugely popular and, according to the U.S. State Department's Country Commercial Guide for 2001, the number of individual users is expected to jump to 300,000 by 2003.

ECONOMIC SECTORS

The economy of Kuwait relies heavily on industry and services. In 1996, agriculture accounted for none of the country's GDP, while industry accounted for 55 percent and services accounted for 45 percent. Agriculture only contributed 0.4 percent to the GDP in 1999, while industry accounted for 51.4 percent, and services for 48.2 percent. These figures, however, can be misleading, since oil dominates the Kuwaiti economy. Except for petroleum industries, Kuwait's only other industrial enterprises are desalination, salt production, food processing, and construction.

AGRICULTURE

Because Kuwait is desert and has almost no water, agriculture has seen minimal development. As a result, Kuwait imports over 96 percent of its food, while over 75 percent of its drinking water has to be distilled or imported.

Pollution, dating from the deliberate oil spillage and torching of wells under Iraqi occupation, has further hindered agricultural development in the aftermath of the war.

In the 1970s, over-fishing by many states in the Gulf considerably reduced catches of fish and shrimp. In the late 1980s, war and environmental damage, including oil spills, also harmed the fishing industry. Large-scale commercial fishing takes place as far afield as the Indian Ocean and the Red Sea but serves domestic demand.

INDUSTRY

Industrial development in Kuwait has faced formidable obstacles. The country, so rich in oil, is poor in most other resources. The small domestic market restricts production for local consumption to small-scale operations, while the small Kuwaiti labor force, possessing limited skills, and high labor costs are further constraints.

MINING/HYDROCARBONS.

Kuwait's oil production of 2.095 million barrels per day (bpd) in 1998 accounted for 3 percent of total world output. Although Iraqi forces set fire to over 60 percent of Kuwaiti oil wells and thus destroyed about 2 percent of Kuwait's total reserves, the country holds about 10 percent of known world reserves. The U.S. Department of Energy estimates that Kuwait's importance as a world oil producer will steadily increase. Kuwait and Saudi Arabia hold about 80 percent of the world's excess production capacity, which means that the 2 countries can easily produce more or less oil at will, thus influencing the prices in the world markets. The emirate plans to invest US$15 billion over the period 1995-2005 to increase its output capacity to 3.5 million bpd. There are also plans to modernize 3 refineries to increase total domestic processing capacity from 800,000 barrels per day (bpd) to 1 million bpd and to allow for environmentally cleaner products. At present, Kuwait produces about 2 million barrels of crude oil per day. With oil prices remaining high throughout 2000, earnings amounted to an estimated KD5.4 billion (US$17.5 billion).

The emirate also ranks among the nations with the world's largest natural gas reserves. Most of its gas is used for domestic needs rather than export, but Kuwait estimates that it has 1.5 trillion cubic meters, or 1.1 percent of global reserves.

MANUFACTURING.

Most industry is concentrated in petrochemicals and production of fertilizers. The Petro-chemical Industries Company (PIC), a subsidiary of the Kuwait Petroleum Company (KPC) and the leading industrial enterprise, is involved in the production of petroleum-based fertilizers. Kuwait's capacity to produce fertilizer stands at approximately 1.65 million tons per year. In recent years, however, the market has been hit by technical problems, weak prices, and the imposition of European Union (EU) tariffs. Other light industries include chemicals, food processing, textiles, furniture, paper, mineral and metallic products, cement, sulphur processing, detergents, and construction materials.

SERVICES

Aside from oil, services dominate the Kuwaiti economy. Most people are employed by the government, whose over-staffed bureaucracy and generous welfare system provides most Kuwaitis with their income. Since there is hardly any tourism, banks and financial services are the only commercial services involving the private sector.

FINANCIAL SERVICES.

By the 1980s, Kuwait's banks were among the Gulf region's largest financial institutions. Because of the high oil revenue in the 1970s, many private individuals with money to dispose began to speculate. This action prompted a small crash in the official stock market in 1977 and a much larger crash in the alternative stock market, the Souq al-Manakh in 1986. The debts from the crash (US$64 billion) left all but one bank in Kuwait technically insolvent and held up only by support from the Central Bank. A government imposed reform program for the banking sector was still incomplete in 1990 when the Iraqi invasion changed the entire financial picture.

After liberation, new plans were announced for reform, which involved the government purchase of the banks' outstanding debts, but the reform has not yet been completed. Only the National Bank of Kuwait (NBK), the largest commercial bank, which handled the exiled government's finances during the crisis, survived both crises intact. The NBK, with current assets of over US$12 billion, is one of the 5 biggest banks in the Arab world and ranks in the top 250 banks worldwide. the jointly owned Bank of Bahrain and Kuwait and 6 other Kuwaiti banks are also in the top 1,000.

INTERNATIONAL TRADE

Ever since the era of oil began after World War II, the priceless mineral has been Kuwait's main export product. Thanks to the huge revenue from oil sales, the government accumulated surplus money and invested abroad. Many of these reserve investments were cashed in during the Iraqi occupation and the liberation period to meet the expenses of Kuwait and the allied coalition. By the mid-1990s the value of exports exceeded the costs of imports by US$4 billion. Trade surplus hit a low in 1998, due to declining oil prices but began rising again in 1999. Figures show a US$2.7 billion increase to US$13.5 billion in the value of exports, and a US__BODY__ billion drop in imports, which totaled US$8.1 billion, compared to 1998. By 2000, the World Factbook estimated

that exports totaled US$23.2 billion and imports totaled US$7.6 billion.

Because of Kuwait's small domestic manufacturing sector, the country's imports for its high-income economy are finished products, which come primarily from the United States and Japan. In 1999, according to the Economist Intelligence Unit, 15.4 percent of imports came from the United States, 10.2 percent from Japan, 7.3 percent from Germany, and 7.1 percent from the United Kingdom. Japan, however, led Kuwait's export markets, absorbing 22.8 percent, followed by the United States at 11.5 percent, Singapore 8.2 percent, and the Netherlands 7.3 percent.

MONEY

The Kuwaiti dinar's exchange rate is pegged to the U.S. dollar and has remained stable throughout the last few decades. The International Monetary Fund (IMF) has praised the Central Bank of Kuwait, established in 1959, for its successful policies in keeping the Kuwaiti currency stable. One dinar roughly equals 3 dollars.

Kuwait is one of the few major capital-exporting countries, that is, the state has more income at its disposal than it spends, and this surplus money is invested overseas or lent to the international banking sector. The Kuwait Investment Authority (KIA) controls 2 portfolios, the Reserve Fund for Future Generations and the State

General Reserve Fund. The combined value of these funds is estimated at between US$60billion and US$90 billion; although impressive, these figures are well below the pre-1990 Gulf War peak of US$117 billion. KIA's investments include bonds and international stocks listed on the New York and London stock exchanges, as well as real estate property, in Europe and North America. The (official) Kuwait Stock Exchange is small and is characterized by intensive trading, of only a limited number of stocks, among local investors.

POVERTY AND WEALTH

In a state such as Kuwait, class based on private property and wealth becomes less important than the power of access to the state that distributes the large (oil) revenues. Although Kuwait is a wealthy country and poverty is almost non-existent, there are still important divisions within society. There are divisions between long-settled tribal families and those who only settled in the last 3 decades and do not benefit from long established ties to the powerful. Some of the latter have not even been granted Kuwaiti citizenship and are usually called Bidoon, meaning "without" (nationality) and thus face grave disadvantages. Another important determinant of proximity to the state apparatus is the sectarian division between Sunni Muslims and Shiites. The Shi'a community (immigrants from neighboring countries) has often been excluded from the government bureaucracy that provides Kuwaiti Sunnis with work and social security.

The provision of social services to Kuwaiti citizens, compared with most Western countries, is extensive. The state welfare system especially cares for the needy, providing direct transfers to widows and students, and aiding families in need because of divorce, old age, disability, parental death, illness, or financial difficulty. Educational and marital status are taken into account in granting aid.

WORKING CONDITIONS

Kuwait's vast wealth has attracted many immigrants from poorer countries who come looking for work. Thus,

after decades of immigration, at least 55 percent of the total population of Kuwait are foreign, and the rate within the workforce is even higher (84 percent). In the private sector, 94 percent of employees are expatriates, working in shops, services and, frequently, as domestic servants. Only about 26 percent of Kuwaitis participate in the workforce, as opposed to 70 percent for expatriates. The Kuwaiti participation rate, although still low, has been gradually increasing (it was 22 percent in 1989) owing to a rise in female participation in the workforce. For cultural and social reasons this rate is still low, and, because of Kuwait's oil wealth, many women do not need to work.

Kuwaiti citizen workers—95 percent are government employees—are entitled to join unions. However, according to the U.S. State Department's Country Commercial Guide for 2001, in June 1998, there were only 50,000 union members. There is a legal minimum wage in the government sector, but none in the private sector. Public health care is free to citizens, but a health insurance charge is levied on employers to cover expatriates (most workers in the private sector). Foreigners thus do not benefit equally from the state social services, which favor Kuwaiti nationals.

About 40 percent of Kuwaitis are under the age of 14, and young Kuwaitis are seeking jobs in steadily increasing numbers. These factors are a cause for growing government concern, and the government will at some point have to abandon its guarantee of a public sector job for every university-educated citizen. One recent measure is the "Kuwaitization" of the economy, promoting the employment of Kuwaitis over foreign labor in the private sector and limiting immigration. It has been nearly impossible for foreign workers to obtain Kuwaiti citizenship; those who do achieve it are not entitled to vote for another 20 years.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1756. Part of the Ottoman Empire since the 16th century, Kuwait gains semi-autonomy under the Sheikh of the Sabah family.

1899. The ruling Sabah family accepts British protection to counter the spread of Turkish influence and grants control of external relations to Britain.

1918. The end of World War I ends what is already nominal Turkish control over Kuwait.

1938. Oil is discovered in Kuwait, but World War II interrupts further exploration. Drilling resumes after the war and Kuwait soon develops into a thriving commercial center. The government begins to use oil revenue to develop the country's infrastructure and a modern and comprehensive welfare system.

1960. Kuwait becomes a founding member of the Organization of Petroleum-Exporting Countries (OPEC) on 14 September.

1961. Kuwait's status as a British protectorate ends, and the country assumes independence on 19 June. The ruling sheikh becomes the emir and assumes full executive power.

1961-63. Iraq moves troops to the border, threatening to annex Kuwait but draws back due to international pressure and a coup within Iraq.

1974-75. The Supreme Petroleum Council is created, followed by the nationalization of domestic and foreign oil assets and the creation of the Kuwait Petroleum Company (KPC).

1977. Sheikh Jaber Al-Ahmad Al-Sabah becomes emir, succeeding Sheikh Sabah Al-Salem Al-Sabah.

1990-91. Iraq invades Kuwait. The international community condemns the invasion and, led by the United States, deploys armed forces to Saudi Arabia. The allied forces launch an aerial bombing campaign against Iraqi forces in Kuwait and Iraq on 17 January 1991. On 24 February 1991, American-led ground forces enter Kuwait, and on 28 February Iraq agrees to accept UN resolutions concerning Kuwait.

1999. A draft law granting women full political rights is narrowly rejected in December.

FUTURE TRENDS

At the beginning of the 21st century, Kuwait is facing major challenges. Political reform, including women's right to vote, is under debate and cannot be put off in the long run. Economic reform is even more pressing. Kuwait's oil reserves will last for another 100 years, but the country has to restructure its economy and reduce its dependence on oil. Many young Kuwaitis will demand their share in the country's wealth and need to be provided with work opportunities and prospects if they are not to challenge the country's political power structures. The government is currently debating various reform packages in both the economic and political arenas. And, however much resistance there may currently be to economic reform, privatization and liberalization might prove to be the only way to sustain the country's wealth in a post-oil era.

DEPENDENCIES

Kuwait has no territories or colonies.

BIBLIOGRAPHY

Chalk, Nigel Andrew, and others. Kuwait: From Reconstruction to Accumulation for Future Generations, Washington, D.C.: IMF Occasional Papers No. 150, April 1997.

Cordesman, Anthony H. Kuwait: Recovery and Security after the Gulf War. Boulder, CO: Westview Press, 1997.

Crystal, Jill. Kuwait: The Transformation of an Oil State. Boulder, CO: Westview Press, 1992.

Economist Intelligence Unit. Country Profile: Kuwait. London: Economist Intelligence Unit, 2001.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed October 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Kuwait. <http://www.state.gov>. Accessed August 2001.

U.S. Library of Congress, Federal Research Division. Kuwait: A Country Study. <http://lcweb2.loc.gov/frd/cs/kwtoc.html>. Accessed January 2001.

—Markus R. Bouillon

Ralph Stobwasser

CAPITAL:

Kuwait City.

MONETARY UNIT:

Kuwaiti dinar (KD). One Kuwaiti dinar is divided into 1000 fils. Bills come in denominations of ¹/4, ¹/2, 1, 5, 10, and 20KD. There are coins of 5, 10, 20, 50, and 100 fils.

CHIEF EXPORTS:

Oil and oil-related products and fertilizers.

CHIEF IMPORTS:

Food and livestock, construction materials, vehicles and parts, clothing.

GROSS DOMESTIC PRODUCT:

US$29.3 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$23.2 billion (f.o.b., 2000). Imports: US$7.6 billion (f.o.b., 2000).