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Viability of the rentier state: internal political divergence stagnating development in Kuwait


Jacob Stone

By

March 20th, 2015


With petrol prices plummeting to just over a dollar a litre in Australia, the spotlight is once again on the Gulf States, and how policy-makers will react to changing economic conditions.


This article was originally submitted for publication on 18 January 2015.

Inefficiency, corruption, poor governance and excess fiscal expenditure are soon becoming engrained in the economic and political landscape of Kuwait. Progress appears to be hindered by those in power: a divided parliament and an emir-elected Prime Minister. This tension has created instability with eight administration changes in seven years. A Kuwaiti diplomat, who preferred to withhold their name, expressed, ’Kuwait has one of the highest GDPs in the world but the roads have potholes, there are traffic jams and the airport is in an unacceptable state, with the arriving passengers mingling with those departing.’ Unlike other Gulf States, Kuwait has to deal with corruption, embedded in its executive branch, which limits the efficiency of its fiscal spending and proper appropriation of oil revenues.

Particularly relevant given current oil prices, is Kuwait’s economic transformation from an agriculturally dependent and self-sufficient economy towards one dominated by oil and associated revenues. In the West, a similar liberalisation of key markets to foreign investment took nearly two centuries whilst Kuwait took a comparatively miniscule three decades. Between 1961 and 1983, the number of vehicles on the country’s roads increased from 43,000 to 698,000. Concurrently, wealth increased significantly with per capita income rising by a massive 2,000% between 1967 and 1992. Unprecedented wealth in a nation rife with political instability created inherent difficulties and gave rise to a very one-dimensional economy—a rentier economy.

The term ’rentier’, coined in 1970 by Hossein Mahdavy, describes a state reliant on rents from a particular commodity, and is commonly used to describe oil-dependent states. What is most relevant in the case of Kuwait is the relationship between the government and Kuwaiti citizens. It is one characterised by interdependence rather than independence. The government, described by Maurizio Lazzarato as the ’indebted man’, promises payment to its citizens (similar to a debtor) and is met with the promise of future value (similar to a creditor). Government payments go so far as to include the provision of basic social services, retirement funding and even sports and leisure infrastructure. Most important, however, is that the government employs nearly all university graduates (consequently paying their salaries). In 2014, Kuwait spent 60% of its income and 80% of its annual budget on government salaries.

The crux of the issue here is that citizens rely on the government and the government relies on oil revenue to fund its fiscal spending (over 90% of government revenue coming from oil). With an over-reliance on oil revenue for funding budgetary spending, how will Kuwait react in times of oil price volatility? It’s a pertinent question and one that remains unanswered. Since December 2014, Kuwait has sustained high levels of output despite lower prices, but this is tenable only in the short term. If prices remain low, this will force the government to curb its expenditure—a decision that will not be taken favourably by Kuwaiti citizens.

Whilst efforts have been made to diversify the economy and to mitigate the risk of long-term economic downturn, their success has been hindered by a lack of political cohesion in parliament. With crude oil currently accounting for just under 50% of total GDP, a relevant issue in Kuwait is how the economy is going to adapt to oil price volatility and continue to run high budget surpluses (e.g. US$45b in 2014). In 2010, the Kuwait government approved a $107b economic development program which promised an airport, hospitals, a new refinery and greater focus on economic diversification. These payments have gone unfulfilled yet remain critical to improving the socio-economic landscape of Kuwait.

There is no doubting the extent to which Kuwait has, and will continue to benefit from rich oil reserves. Oil is a volatile commodity, and without appropriate budgetary spending, diversification and political cooperation, it may take Kuwait back to where it started in 1946.

 

Bibliography

Central Intelligence Agency. (2014). Kuwait. In The World Factbook. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/ku.html

Khalaf, S. N. (1992). Gulf Societies and the image of unlimited good. Dialectical Anthropology, 53–84.

Lazzarato, M. (2012). ‘The Genealogy of Debt and the Debtor’ in The Making of the Indebted Man: an Essay on the Neoliberal Condition. Los Angeles: semiotext(e).

Westall, S., & Sleiman, M. (2012). MIDEAST MONEY-Rich but backward: politics, oil poison Kuwait economy. Reuters. Retrieved from http://www.reuters.com/article/2012/11/14/kuwait-economy-development-idUSL5E8M91RK20121114

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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