* 2010 may prove to be a turning point for the Kuwaiti economy, with the Kuwaiti Parliament’s approval of one of the most ambitious development plans in the region.

* This KD 31 billion, 4-year plan is the first of six consecutive development plans that it is hoped will achieve Kuwait’s vision of becoming the region’s financial and trade center by 2035.

* The plan also calls for the issue or revision of 21 economic laws and regulations in areas such as privatization, PPP, competition, and corporate governance. Three such laws have already been passed.

NBK’s latest GCC Brief stated: The year 2010 may prove to be a major turning point for the Kuwaiti economy. The trigger is the Kuwaiti Parliament’s approval of one of the most ambitious development plans in the region. Following years of sub-par government spending on infrastructure and development projects, which slowed economic growth in the past and put Kuwait’s economy behind other Gulf countries, there are improved signs of the government’s commitment to implement vital reforms and development programs. This note reviews and lists briefly the goals and reforms of the long term vision for Kuwait, of which the current 5-year plan should be the first phase.

New initiatives with the greatest impact on the economy near term include the award of a number of big projects, with many others in the pipeline or planned in accordance with the recently approved development plan. Although there are some concerns regarding the capacity of the country to fully implement the plan, we expect the impact of the plan on Kuwait’s economy to be quite positive. An additional source of benefits lies in the planned legislative reforms, with a number of new laws already passed (CMA, privatization…).

The approved plan
In February 2010, Kuwait’s Parliament approved a KD31 bn (USD108 bn) development plan. This 4-year plan is the first of six consecutive development plans that it is hoped will achieve Kuwait’s vision of becoming the region’s financial and trade center by 2035. One of the main elements of this vision is to restore the leading role of the private sector, primarily through the introduction of various reforms and incentives to stimulate private investment. Accordingly, half of the envisioned investment outlays under the four-year plan are anticipated to come from the private sector either as direct investments or in the form of “Build, Operate and Transfer” (BOT) or “Public Private Partnerships” (PPP).

The timing and the size of this plan are considered very crucial. Since late 2008, Kuwait has been suffering from the negative repercussions of the global financial crisis. In order to ride out the crisis and stimulate the domestic economy, as well as to prepare for the long term, the government pledged to adopt an ambitious development program that will help restructure the Kuwaiti economy, boost private sector activity, and reduce dependence on oil.
The plan introduces ideas and laws to fund the development projects and to provide support to various sectors, including contractors, SMEs, and low income entrepreneurs. There are currently discussions on how to finance the whole plan.

Reform Agenda
The Kuwait Vision 2035 proposes reforms covering five areas: economy, people, political system, cultural environment, and Kuwait’s international positioning.

1. Reducing red tape: reduce requirements for starting and operating a business, improve convenience and efficiency (one-stop-shop), increase access to land and capital for start-ups and small businesses, open up international trade.

2. Improving access to land: Auction government land, engage the private sector in the development of public land and infrastructure, and establish a central land authority.

3. Creating fair and equal opportunities in the market: Fight corruption and unequal treatment, develop an anti-trust law and competition commission, level the playing field for large and small enterprises, reduce government intervention in the market, lift restrictions on foreign investors, and promote FDI.

4. Promoting a sound and sustainable fiscal position: Stop rapid increase in public sector employment and salaries, reduce expenditures through privatization, reduce government spending on infrastructure and development projects (through PPP), and diversify government income.

5. Expanding and empowering the energy sector: Insulate industry from politics, become more open to international expertise, transform the electricity sector, optimize exploitation of available resources, explore the petrochemical option, and build a regional energy hub.

6. Regional transport center: Upgrade the capacity of existing infrastructure, introduce alternative management arrangements for existing infrastructure, build a first class multimodal logistic hub that can become a gateway to the north, improve the regulatory environment for trade, and develop the trade and logistic sector.

7. Developing a niche financial center: Build a world-class financial sector, and develop a niche financial center focused on wealth management and capital markets.

8. Changing the dynamics of the labor market: Professionalize and tighten working conditions in the public sector, prepare Kuwaitis for the private sector through training and matching skills to needs, improve working conditions in the private sector.

9. Upgrading the education system: Strengthen the teaching profession, increase the performance of students and schools, improve and adapt vocational and university education, broaden the educational choices...

10. Building a stronger healthcare system: Promote healthy lifestyles and behavior, enhance the health infrastructure, join international prestige networks and increase profile in international health.

11. Protecting the environment and fostering green development: Use natural resources more effectively, enhance regulation and enforcement, and invest in green energy.

12. Building a cultural haven and a leisure, sport and media sanctuary: Develop an art center, build up the creative arts, create facilities that strengthen the national image…
Furthermore, the plan calls for the issue or revision of 21 economic laws and regulations (including: privatization, PPP, competition law, corporations law, corporate governance, income tax, securitization) and establishing 7 specialized authorities (including: stock market, high council for privatization, transport, telecom).

Implementation
A key feature of the five year development plan is the slew of new legislations that are intended to improve efficiency, competitiveness, and governance. So far, three laws have been passed whose thrust is as follows:

1. Privatization Law: allows the government to privatize government owned enterprises except those involved in oil and gas production, oil refining, education, and healthcare. Notwithstanding the general implication of such law, there are some features that could dilute its impact (government right to retain up to 20% of a privatized company with the right to veto any board decision, employees in the privatized company are allowed to keep their jobs for at least five years with salaries and benefits intact…)

2. Labor Law: grants more rights to workers, though it is bound to raise employment costs substantially. In particular, the law stipulates higher end-of- service compensation, in addition to longer annual leave, official holidays, and maternity leave. Furthermore, the government would set a floor for wages every five years, while employers must provide workers with insurance coverage against work injuries or disability.

3. Capital Market Authority: the law calls for the establishment of a new authority which would regulate all financial instruments and activities to ensure competitiveness and transparency. It would also have the authority to license and supervise financial markets, and regulate the process of mergers and acquisitions.
The NBK report concluded: Finally, we note that the recently passed 2010/11 budget is in line with the more dynamic government plans. It calls for a 33% rise in expenditures, including a 66% rise in projects and maintenance. Spending on the latter should go from KD 1.3 billion to 2.1 billion, a record high.