Friday , September 21 2018

Home-grown, inclusive strategy toward growth

Oussama Kanaan

By Oussama Kanaan Oussama Kanaan is the Director of the IMF’s Middle East Center for Economics and Finance (CEF). The CEF’s website address is www.cef.imf.org

Once again we are back to that cherished time of the year when serious, thoughtful discussions abound in diwaniyas focused on Kuwait’s economic, social and political challenges. This year I noticed much more interest than usual in longer-run questions of the choice of Kuwait’s economic strategy and vision, and less on the quotidian ups and downs of financial markets and businesses.

A recurrent, increasingly pressing question: Are there suitable examples of economically successful countries that Kuwait can learn from? My response continues to surprise some, as I note that a prime inspirational example is the strategy that Kuwait itself has pursued from the 1960s until well into the 1980s.

Not enough has been said or written about the economic strategy launched by Amir Abdullah Al-Salem Al-Sabah following Kuwait’s independence in 1961, and so it needs to be gleaned and deduced from observed actions and results. While the Amir never used the label “inclusive” to describe that strategy, his actions indicate that he was very keen on laying out a foundation for policies that yielded not only high rates of growth of real GDP per capita, but also that minimized poverty and unemployment, and ensured a fair sharing of its fruits regardless of gender, tribe, religion, sect or generation.

An important first step in this regard was his enshrining of the “no bias” principle in the country’s Constitution and legal framework. A parallel, equally important step was his creation in 1962 of the region’s first National Assembly, to ensure true ownership of the country’s policies and resources by the people.

The laws would thus be effectively implemented in a truly inclusive way, given continual feedback from all social groups in a democratic setting. He also emphasized the value of competent, independent courts and robust campaign finance laws to prevent election-related abuses.

Kuwait’s early leadership gave a new dimension to the goal of inclusiveness, which is original even by today’s standards: The economic strategy should include not only those who currently participate in the democratic process, but also the young and unborn who do not yet have a say in economic policy design. This was viewed as especially important given the vulnerability of the country’s wealth to changes in the price of oil and its exhaustible nature.

To reduce that vulnerability, the development of a private sector with a diversified production pattern, one that could eventually sustain the economy independently of oil revenue, thus became a central objective.

An important step toward that end was mobilizing the world’s first sovereign wealth fund, the Kuwait Investment Authority, whose primary purpose was to help manage the country’s assets and make investment decisions that valued the welfare of both current as well as future generations. Fiscal policy shifted steadily toward infrastructural investments that supported private sector activities and strengthened transport connections and communication with the rest of the world.

Kuwait’s policymakers did not favor any specific private activity or sector, given the difficulty of predicting how the country’s comparative advantage would evolve in the face of rapidly changing world conditions and opportunities. At the same time, investment in the country’s human capital was viewed as essential to enable private activities, whatever they may end up being, to take advantage of the latest know-how and technology and remain globally competitive. Kuwait’s open-borders policy facilitated the inflow of skilled labor, refugees, and asylum-seekers fleeing conflict and repression.

That policy, along with freedom of expression, were essential in making Kuwait an intellectual hub producing some of the most sought-after regional scientific, literary and artistic work. The quality of education and vocational training rose to world-class levels, as did many of Kuwait’s institutions, even its national airline and football team (which I am always fond of mentioning). In addition to human capital investment, Kuwait’s leadership viewed good governance as paramount to the healthy development of a competitive private sector.

Robust laws, promulgated in a democratic setting and supported by independent courts, together with a highly educated workforce, certainly provided a strong pillar for good governance. But equally important was the fact that the trade and business licensing system was made more simple and transparent, with a lean system for import quotas and permits and little bureaucratic red tape.

This minimized the scope for cronyism and bribery, which further aided the inclusive nature of the strategy by preventing the implicit exclusion of smaller enterprises and those without special connections to public sector officials.

There was yet another novel dimension for inclusiveness in the economic strategy, which is that Kuwait’s prosperity was to be shared not only fairly within its own borders, but also more broadly in the entire Arab region and beyond. The open-borders policy went a long way toward that goal by facilitating the entry and absorption of refugees fleeing the region’s conflicts and civil strife.

Equally valuable was the creation of the Kuwait Fund for Arab Development, as well as the Arab Fund for Economic and Social Development, both of which aimed at reducing economic disparities across the Arab region and helping other countries build their own human capital and grow in an equally inclusive way.

The two funds made a lasting mark in this respect by financing much of the region’s less fortunate countries’ infrastructural investments and povertyalleviation projects, as well as technical assistance and institution-building, combining concessional loans and grants to suit recipient countries’ income, wealth and repayment capacity.

Today, recommendations for a suitable economic strategy for Kuwait are plentiful in consultants’ and other economic reports that cover case studies and experiences from other countries. And yet Kuwait’s own experience, from what came to be known as its Golden Age, also has a lot to offer, with the added advantage of being molded by the country’s national character, traditions and ideals. Now that much of the Arab world is entering an increasingly somber phase with worsening unemployment, poverty, institutional degradation, conflict and a refugee crisis, it is an opportune time for Kuwait to revive and tap its ample economic and humanitarian potential and once again shine a bright light on the region.

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