FT Special - Kuwait 2012

Stateless

KUWAIT

Bidoun protest at denial of citizenship for thousands Page 3

FINANCIAL TIMES SPECIAL REPORT | Tuesday April 17 2012

www.ft.com/kuwait-2012 | twitter.com/ftreports

Bid to address national malaise

Inside this issue Economy As the only Gulf state with an active parliament, the question is how to spend its money effectively, ease dependence on oil and create productive jobs for its young, writes Camilla Hall Page 2

Michael Peel and Camilla Hall report on a country in the grip of heated debate over its direction

Privatisation Little has been done to realise the promise of 2010 legislation designed to revive an economy stunted by an overweening state sector, says Guy Chazan Page 2

A

jostling group of Kuwaiti men outside the public door of parliament last month, spoke of a broader fight for their country’s future.

They had come to witness the first public grilling of a prime minister – and member of the ruling Al-Sabah family – in an event never before seen in Kuwait and almost unimaginable elsewhere in the politically authoritarian Gulf.

The jostling group provided evidence of the thirst for Kuwait’s limited form of democracy at this time of Arab uprisings – and hinted at some of the chaos and troubles behind the veneer of popular enfranchisement.

While Kuwait’s parliamentary system and its longstanding tradition of robust public debate have in some ways made it appear far-sighted at a time when people elsewhere in the Middle East are demanding similar freedoms, its example has also taken on a more threadbare look in the past year.

Parliament has been beset by power struggles and anger over corruption that led to it being stormed in November and helped give government opponents a majority in February’s elections.

The new lawmakers, a diverse group ranging from tribesmen to Islamists, have yet to offer any clear political agenda, leading to fears that they will prove no better than their predecessors at addressing a deep-rooted sense of national malaise.

For all the country’s oil wealth, many in politics and business feel it has fallen behind some of its neighbours in terms of development and international influence – and that it urgently needs to move beyond the favoured regional model of offering its population cash handouts and cushy government jobs.

“The economy is all driven by the government: the country became like a gas station,” says Abdulrahman al-Anjari, a liberal MP and member of parliament’s finance committee.

“They sell oil and have an army of employees. There are no goods and services that we produce.”

Kuwait, one of the world’s richest countries on a per-capita basis, is also among the least internationally noticed – but most distinctive – of the Gulf

Women Failure to win even one seat in February’s election has raised concerns that one of the most politically progressive countries in the region is taking a step backwards Page 3 Oil The appointment of Hani Hussein as oil minister has come as Kuwait needs to exploit a new generation of complex fields Page 4 Gas The host to one of the largest discoveries of recent years, it has been slow to develop resources Page 4 The KIA Henny Sender looks at the constraints on one of the world’s most venerable sovereign wealth funds Page 4 Question time: Sheikh Jaber Mubarak Al-Sabah (centre) takes advice before the first public grilling of a Kuwaiti prime minister

petrostates. It is marked out not just by its moves towards democracy, but also the high degree of integration of Shia Muslims in its Sunni ruled society. It also has a notably unbelligerent approach to regional affairs that stems from being surrounded by powerful neighbours and from having suffering invasion by one of them – Iraq – in 1990.

While Kuwait is still headed by a monarchy and has some restrictions on freedom of speech – criticism of the Emir is off limits, for example – the political culture is relatively open, encompassing regular criticism of the government and sustaining a parliament now on the verge of its sixth decade.

Many of the country’s political problems, brought into even sharper focus by the uprisings, have emerged where this democratising impulse butts up against the superstructure of royal control.

The prime minister is still

chosen by the Emir, and as few as one of the government’s 16 members is drawn from parliament. The prime minister is also traditionally from the ruling family, meaning that when one – Sheikh Nasser Al-Mohammed Al-Sabah – was forced to resign last year, he was merely replaced by another, Sheikh Jaber Mubarak Al-Sabah.

The lack of parties means politics becomes very personalised and focused on individual rivalries and personal agendas rather than broad-based policy platforms, critics say.

One Islamist MP has made waves by calling for the abolition of churches, says Abdullah Al-Shayji, chairman of political science at Kuwait University.

“You have some hardcore fringe elements that are trying to use the majority Islamist composition of parliament to advance their agenda, their views of puritan Islam,” he says.

“They represent the farther extreme of this and ultimately

this will give them a black eye, because this is what will grab and stick more in the headlines and in the minds of people.”

The absence of political parties also makes it hard to mobilise support for some legislation – and to stop efforts to buy the people’s loyalty through big public sector pay rises that few MPs want to be seen opposing.

In economic terms, the result is a dominant public sector, stunted private enterprise and the loss of some of the best educated and most talented people to better opportunities abroad, a haemorrhage this country of 2m foreigners and 1m nationals can ill afford.

Kuwait’s gross domestic product growth, which is heavily dependent on the oil price, is forecast to dip from 5.7 per cent last year to 4.4 per cent this year, prompting further debate on how to kick-start the economy.

“Structural challenges include government bureaucracy, a lack

of private sector development, labour market issues and a lack of competition in key sectors,” says Daniel Kaye, economist at NBK, the bank. “These aren’t new things: they have been Kuwait’s Achilles heel for years if not decades.”

The political turmoil has also held up social reforms and projects Kuwait needs to match the infrastructure improvements and development initiatives seen elsewhere in the Gulf, analysts say.

Parliament has repeatedly intervened, delaying oil projects, observers say, and jeopardising efforts to raise production from about 3.2m barrels a day now to 4m b/d by 2020.

A privatisation law passed almost two years ago after years of argument is gathering dust, undermining a broader fouryear £71bn development plan aimed at diversifying the economy and turning the country into a regional trade and financial centre.

EPA

In October, the government postponed a plan to privatise Kuwait Airways, the national carrier, saying it wanted first to restructure the company, which has broken even in just one of the past 21 years.

In foreign affairs, Kuwait’s recent detente with Iraq was evidence of a push to extend its policy of building as many alliances as possible to insure against the vulnerability inherent in its small size, great wealth and dangerous geographical position. As tensions rise over Iran’s nuclear programme, and conflicts in the Gulf and neighbouring Syria take on an increasingly sectarian character, Kuwait will have to work even harder to maintain the peaceful status quo.

Alanoud Al-Sharekh, a Middle East politics specialist at the International Institute for Strategic Studies and former senior analyst Kuwait’s National Security Bureau, says: “Kuwait is a master of holding an even keel,

Diplomacy shifts up a gear as tensions rise in the Gulf Foreign relations Crises over Iran and Syria have put the government on the spot, writes Michael Peel When Sheikh Sabah AlAhmed Al-Sabah, Kuwait’s Emir, accepted a kiss of welcome from Nouri al-Maliki, Iraq’s prime minister, at Baghdad airport last month, he was doing more than sealing emotional reconciliation between the two countries.

The visit, the first by a Kuwaiti head of state since the country was invaded by its larger neighbour under Saddam Hussein in 1990, marked an unusually public step in Kuwait’s discreet efforts to ensure its survival as a small rich state surrounded by bigger and stronger ones.

“We are well aware of the dangers of antagonising our more populous and militarily powerful neighbours,” says Alanoud AlSharekh, a Middle East politics specialist at the International Institute for Strategic Studies who formerly worked at the National Security Bureau.

She adds: “Being sandwiched between Iraq, Iran and Saudi Arabia makes you aware that your economic clout can take you only so far: the rest you have to finesse.”

After long pursuing a low-profile policy of building – and sometimes buying – good relations with a wide range of countries regionally and internationally, Kuwait is having to shift up a gear as tensions in the Gulf rise. Analysts say the stand-off over Iran’s nuclear programme, the Syrian revolt and the rise of sectarianism across the region may force Kuwait to do something it would rather not: side with its more militant Gulf Arab neighbours and turn its back on Tehran and its fellow Shia-led regime in Baghdad.

Kristian Coates Ulrichsen, Kuwait research fellow at the London School of Economics, says: “I think the Kuwaiti government is coming under pressure to take a much harder line than it would like. “There is the risk that the Kuwaiti model of relatively harmless coexistence could unravel.”

The Iraq trip by the Emir – who was foreign minister for 40 years – was symbolic not just as a breaking of two decades of political ice built up between the two countries.

The Emir was also the only head of state from the six Sunni Muslim-ruled Gulf Co-operation Council members to turn up in Baghdad, where the emergence of a Shia-led government since the 2003 US invasion has alarmed leaders in the region.

The Baghdad trip followed a carefully choreo-

graphed agreement in the run-up to the annual Arab League summit for Iraq to pay and invest $500m settle a $1.2bn legal claim brought

by Kuwait over aircraft and spare parts allegedly looted from Kuwait Airways, the national airline, during the near seven-month Iraqi occupation.

The deal, which Mr AlMaliki travelled to Kuwait to sign, has increased hope for progress on other bilateral disputes, notably over border demarcation and Kuwait’s decision to build a port to compete with Iraq’s Grand Al-Faw terminal just

‘Being sandwiched between Iraq, Iran and Saudi Arabia makes you aware economic clout can take you only so far’ a few kilometres across the border.

While many Kuwaitis still feel anger over the Iraqi occupation – for which Baghdad is still paying almost $40bn of reparations – there is also a pragmatic strand of thought that recognises the cost of following other Gulf leaders in giving the Al-Maliki government the cold shoulder.

Ghanim Al-Najjar, a political analyst and professor at Kuwait University, points out that “Kuwait is the country that will feel the heat if something happens

[in the region]. So it’s best not to follow the Saudi line: it’s better to have an open relationship with Iraq.”

The Iraq detente highlighted another troublesome foreign policy contrast between Kuwait and its fellow GCC members.

While the large minority Shia population in Kuwait is reasonably well integrated and prominent in society – though more in business than politics – some other GCC countries view the Shia as at best suspect in their loyalties and at worst agents of the hated Shia regime in Tehran.

Those tensions emerged powerfully last year, when an uprising by members of the Shia majority in Bahrain against the Sunni monarchy prompted Saudi Arabia and the United Arab Emirates to dispatch security forces in a show of support for the rulers.

Kuwait was much less vocal, which analysts say cost it political capital among the other GCC countries. Kuwait also differs from some of its neighbours in its lack of ambition to be a regional power.

It does not want to ape Qatar, which sent its military to help overthrow Libya’s Colonel Muammer Gaddafi and is now calling for arms to be sent to the Syrian uprising against President Bashar Al-Assad.

Kuwait’s less partisan approach is born partly of painful past experience of the consequences of an activist foreign policy.

trying to keep all sides happy – and cheque book diplomacy, of course.”

Many of the problems facing Kuwait echo those in other countries, not least in the west.

It is also true that – as many Kuwaitis point out – its difficulties sometimes get more attention than those of other Gulf states, simply because people are allowed to talk about them publicly in a way citizens of other countries are not.

But this year’s elections and their fallout have deepened a sense that Kuwait is facing an overdue reckoning about how it governs itself and about how it turns its oil wealth into longerterm prosperity.

“How do we preserve our democracy while at the same time achieving a sustainable economy, a sustainable country,” asks Yousef Al -Ebraheem, a senior economist with influence on official policy. “I think we need to open a dialogue on this.”

System struggles to find a more coherent shape Politics Semi-democratic rule is in turmoil, says Michael Peel

Sheikh Sabah Al-Ahmed Al-Sabah, the Emir, in Baghdad

In the 1980s, the then Emir narrowly escaped assassination, while the country suffered a series of bombings by Iranian loyalist groups because of its support for Baghdad in the Iran-Iraq war. “We used to do what Qatar did, and we had a lot of headaches,” says Meshal Al-Roumi, a politically active businessman “We are small and we know our capabilities.”

Instead, Kuwait has continued and broadened its longstanding policy of distributing money around the world through an international economic development fund.

Targets have included central Asian states that have large gas reserves and could help meet Kuwait’s pressing energy import

Getty

needs, says the LSE’s Mr Coates Ulrichsen.

Kuwait is also bolstered by being on a list of countries designated by the US as “major non-Nato allies” that enjoy military and financial benefits.

The close relationship with Washington – leader of the effort to drive out Iraqi forces in 1991 – is another sign of Kuwait’s practical acknowledgment that it may one day again have to face a conflict it does not seek.

As Ms Al-Sharekh of the International Institute for Strategic Studies puts it: “Since we can’t relocate, we have seen people accept that this is our geography; we are a small country, we have our neighbours – and we need to move forward.”

In a smart house in Kuwait City, 20 mostly white-robed men filled the seats lining each wall of a cosy room and began a chat that was soon to take an anxious turn.

As waiters whirled in and out with juice, caffeine and mezzeh snacks, Yacoub alSanea, the host of this traditional gathering known as a diwaniya, turned to address the MP sitting next to him.

“We worry about the future of this country,” Mr Sanea said, clutching a string of white prayer beads that he clacked at intervals during the long evening talks. “We have everything to make this country better.

But we notice people trying to pull us back.”

His fears are a reflection of how Kuwait’s always turbulent system of semidemocratic rule has been thrown into turmoil by a series of extraordinary events that have left politics both paralysed and unpredictable.

After the storming of parliament by protesters in November and the ousting of the prime minister the same month, February’s legislative elections – the

fourth since 2006 – saw opponents of the government take about two-thirds of the 50 seats.

The influx of new MPs, including a large Islamist contingent, has triggered fierce debate over the country’s direction and left commentators denouncing the system’s dysfunctionality – while still celebrating a relative pluralism unique among autocratic Gulf monarchies.

Ghanim Najjar, a political-science professor at Kuwait University says: “We have a parliament which is not doing well, a government that’s inefficient and corruption that’s killing everybody. We are in a crisis situation and it’s a continuous crisis. But that’s not strange for democracy: if you have an open society, you have crises.”

Opposition to Sheikh Nasser Al-Mohammed AlSabah, the former prime minister, mounted in the run-up to the election, as a loose grouping embracing Islamists, young people and Bedu tribesmen accused him of diverting state funds to private bank accounts overseas – allegations he has repeatedly denied.

The campaign against him, sharpened by the Arab uprisings, pinpointed tensions at the heart of Kuwait politics, ranging from alleged corruption in govContinued on Page 2

2

FINANCIAL TIMES TUESDAY APRIL 17 2012

★

Kuwait

Quest for a dynamic private sector

System struggles to find shape

Economy Camilla Hall looks at efforts to lift dependence on oil and create productive jobs for the young

Continued from Page 1

W

inding through the dusty, decrepit buildings of central Kuwait City, there are few reminders of how wealthy the country is.

Only a short flight away from the skyscraper skylines of Doha and Dubai, Kuwait City has seen a slower pace of change over the past decades.

Basking in oil wealth, Kuwaitis are blessed when it comes to economic fundamentals. Crude prices are comfortably above $100 a barrel and multibillion-dollar budget surpluses are happily feeding the country’s coffers.

As the only country in the Gulf with an active and boisterous parliament, however, the question is how to spend its money effectively, modernise the economy and lift dependence on oil. Upgrading its decades-old infrastructure and creating productive jobs for young people are among the most pressing needs.

“They’ve got the money and they know they need to spend it, but they can’t get themselves to move fast enough,” says Michel Accad, chief executive of Gulf Bank.

The government recognises it has to accelerate its development projects, but is constantly drawn into parliamentary bickering over the minutiae of its plans, stalling the process.

The cabinet and the parliament blame each other for delays to a £71bn four-year development plan that analysts say is crucial to kick-starting the economy.

There is some hope the newly elected majority-opposition parliament will push forward the plans, including accelerating the privatisation of large swathes of the economy.

Ahmed Sadoun, the parliament’s high-profile speaker and a supporter of privatisation, is

On the move: a bridge under construction. The government recognises it has to accelerate projects and there is hope the new parliament will push plans forward

under pressure to deliver the pledges made during campaigning to boost the economy.

“If you had a good administration, our economy would easily pick up and very soon,” says Mr Sadoun. “We are trying to cooperate with the government – we are ready to co-operate with the government, once they are ready.”

The technocratic nature of the newly-elected cabinet, appointed

by Sheikh Jaber Al-Mubarak AlSabah, the prime minister, may help to prioritise plans.

The government’s recent refusal to cave in to pressure to increase pay during a recent labour strike sent a positive signal to the business community.

Optimism is limited, however, as the strikes came only after

the latest handout of a 25 per cent salary increase for some public sector workers who had not already received rises.

The cabinet will need to balance public pressure for pay increases with the long-term strategic planning that analysts say is more likely to help correct structural imbalances.

“It’s not rocket science. Anyone can see that going through this path is not sustainable,” says Yousef Al-Ebraheem, economic adviser to the Emir, Sheikh Sabah Al-Ahmad AlSabah. He adds: “There is no way we can sustain this level of government expenditure on wages and salaries and other current expenditure.”

Mr Al-Ebraheem says that the wealth is being distributed “to

the current generation, not to the future generation”.

Putting off addressing the problem may create political stress further down the line.

While the country is arguably

The government is constantly drawn into parliamentary bickering over the minutiae of its plans, stalling the process the most democratic in the Gulf, the economy remains dominated by the government, prompting commentators to say it operates a socialist-style system. The pri-

vatisation of companies such as Kuwait Airways, its national airline has failed to materialise.

More and more of Kuwait’s youth are dependent on the government for jobs. “The government takes care of you from birth to death, even the rubbing when you die is by the government,” says Faisal Hamad Al-Ayyar, vice-chairman of Kipco, the $25bn Kuwaiti holding company.

“When you give something, you can’t take it back so easily.”

While many are downbeat, economists say the numbers do not tell a negative story, particularly given the global slowdown.

Growth will slow from 5.7 per cent last year to 4.4 per cent this year, according to National Bank of Kuwait.

The government is reviving

Reuters

plans to make Kuwait a financial hub, despite stiff competition from Dubai, Qatar, Abu Dhabi and even Riyadh.

It is also trying to increase foreign direct investment by establishing an independent one-stopshop to help investors, says Sheikh Meshaal Jaber Al-Ahmad Al-Sabah, head of the foreign investment bureau.

Progress is slow, but bankers, politicians and analysts agree that there is now a motivation to push the country’s development plans forward. Mohammed AlOmar, chief executive at Kuwait Finance House, says: “They are going through turbulence but I know that they seriously want to do it and they are going to do it because there is no other choice.”

A former MP says the way politics operates encourages personal feuds and populist lawmaking

Business questions state’s commitment Privatisation Appointment of a new cabinet may enhance prospects, says Guy Chazan After years of political arguments, Kuwait finally passed a much-delayed privatisation law in May 2010 designed to revive an economy stunted by an overweening state sector.

The law was an important plank of a four-year £71bn development plan aimed at turning the country into a regional trade and financial centre, lessening its dependence on oil, and boosting the private sector.

But two years on, little has been done to implement the law. That failure is epitomised by the aborted privatisation of Kuwait Airways, the country’s national carrier. The plan was to sell 35 per cent of it to a strategic investor and 40 per cent to Kuwaiti citizens in an initial public offering. But last October, the government shelved the plan, saying it would first restructure the airline.

Kuwait Airways symbolises the weaknesses of the state-run sector. Notoriously inefficient, overstaffed and with high operating costs, it has incurred a loss in all but one of the past 21 years.

It now faces mounting competition from dynamic rivals in the region such as Dubai’s Emirates and Etihad of Abu Dhabi.

One of the reasons for the failure of the privatisation was the onerous terms set by the state – for example, the acquirer had to keep staff on and pledge not to cut salaries.

“Why would any company want to take it on under those conditions?” asks one western analyst.

Yousef Al-Ebraheem, an economic adviser to the Emir, says he was against the initiative from the start.

“You cannot privatise a sick company – you will get peanuts for it,” he says.

“You need to work on it,

to restructure it, to make it healthier, more attractive.

The private sector is not stupid – they’re not going to buy a dead company.”

Kuwait does have some successful private companies. Regional telecoms company Zain, logistics group Agility and the shari a compliant Kuwait Finance House are proof that free enterprise is alive and well.

But critics say Kuwait’s powers-that-be still appear unconvinced of the virtues of private business.

“In Saudi Arabia, it’s very clear that the private sector is one of the core engines of growth, job creation and investment, fully supported by the government,” says Nader Sultan, senior partner of consultancy F&N and a former chief executive of KPC, the state oil company.

‘There’s a saying here: Kuwait is the past, Dubai the present and Qatar the future’ “We don’t see that kind of commitment here from the government.”

Part of that is due to the oil price. When it was relatively low in the 1990s and early 2000s, Kuwait was more enthusiastic about economic reform.

Ministers came up with plans to reduce the fiscal burden on the state by cutting subsidies, increasing the private sector’s role in the economy and pushing through private finance initiatives. But as soon as oil prices started to rally, that reforming zeal cooled.

Now there is a sense the country is falling behind its neighbours. “There’s a saying here: Kuwait is the past, Dubai the present and Qatar the future,” says Kamil Al-Harami, an independent oil analyst.

It is not all gloom, however.

Observers say the appointment of a cabinet in February should enhance

prospects for privatisation.

And some projects are moving ahead. Kuwait’s Capital Markets Authority (CMA), set up in 2011, is privatising the Kuwaiti Stock Exchange and has hired HSBC to advise on the process.

The law stipulates that 50 per cent of the KSE will be sold in an IPO, with the remaining 50 per cent auctioned to listed companies, each of which can buy only a 5 per cent stake.

“The idea is to build a profit-based company in order to expand the business, make it more competitive and robust on a regional level,” says Aziz Al-Yaqout, managing partner of DLA Piper Middle East, which has been advising the CMA on privatising KSE. He says if this succeeds, the privatisation wave could spread to other sectors, such as fixed-line telecoms, electricity generation and the country’s oil tanker fleet.

Privatisation, however, is not the only tool in the government’s armoury. It has also launched a number of public-private partnerships in sectors such as power, health, transport and telecoms. Among the largest are the Az-Nour independent water power project, a big public hospital, and a “labour city” for 20,000 workers.

Meanwhile, the ministry of health plans to privatise expatriates’ healthcare and associated medical services through a new entity called Kuwait Health Assurance, or KHAC. The project involves plans to build and operate three hospitals and 15 primary healthcare clinics.

But more needs to be done, analysts say. Daniel Kaye, senior manager of economic research at National Bank of Kuwait, says: “The economy needs a more dynamic private sector, which means a more aggressive approach to economic reform. The private sector still only makes up 30 per cent of the economy.”

Additional reporting Camilla Hall

ernment to the Emir’s sole power to appoint the prime minister.

Now the new MPs – 10 of whom are either from the Islamist Muslim Brotherhood and the even more conservative Salafists – are struggling to find a coherent shape without the binding force of opposition to Sheikh Nasser.

The absence of political parties in Kuwait has always given its parliament a Babel-like quality, but some observers say an everincreasing diversity that ought to be a boon to policy making will instead be a threat unless MPs start to organise themselves.

The system is further hampered by poor relations between parliament and the mostly appointed government – itself weakened by the fact that it holds only 16 seats in parliament and can see its proposed laws easily voted down by MPs. Rola Dashti, a former MP who lost her seat at the election, says the way the system was set up encourages unstable short parliaments, personal feuds and populist lawmaking that the country cannot afford – such as a pay rise of 25 per cent for public sector workers agreed last month in response to a series of strikes.

“We are not a democracy that’s deepening its traditions and being strengthened,” Ms Dashti says.

“We are a democracy that’s going into chaos.”

The elections have also prompted debate, familiar across the Arab world, over the rise of Islamism and its consequences.

While Kuwait’s small size means the Muslim Brotherhood and Salafist MPs are familiar and unthreatening faces to some non-Islamists – “at the end of the day

by

they are family”, says one business person – liberals worry they could threaten a tradition of political openness, tolerance and freedom of speech.

On April 8, a parliamentary committee approved a proposed law to impose the death sentence or life imprisonment on anyone found to have blasphemed against God or the Prophet Mohammed, his companions and wives.

A further concern is the increasingly sectarian tone of politics – another development that has ominous echoes of deepening conflict between Sunni and Shia Muslim groups around the region.

Members of the Sunni Awazem tribal group last month stormed Scope, a satellite television channel, in protest at criticism allegedly made of their leader in an interview by Hussein AlQallaf, a Shia MP. “In the past, there was no differentiation between Kuwaitis on the basis of their sects,” says one young Shia professional.

“Nowadays, [politicians] are using these categories to bring supporters.”

On one level, the clamour over the elections and their aftermath is the familiar sound of a political and business establishment shocked by a result it neither expected nor welcomed.

Equally, the virulence with which politicians debate and their difficulty in passing legislation are not exactly unique to Kuwait, as the US election season is showing.

The deeper question is whether the diwaniya doomsayers are right when they say there is something fundamentally rotten about a political system that has been a source of national pride for the near half century of its existence.

“We mustn’t lose hope,” insisted Adnan Abdulsamad, the MP at Mr Sanea’s diwaniya, as he and other guest discussed the new parliament’s prospects.

“When things get very dark, any small light will show.”

FINANCIAL TIMES TUESDAY APRIL 17 2012

3

★

Kuwait

Stateless march for a better life Bidoun Camilla Hall considers the plight of the 105,000 people without citizenship

A

t Kuwait’s Central Apparatus for Illegal Residents, Saleh AlFadala, its head, pulls out a photocopy of a passport and waves it triumphantly as evidence of another imposter busted.

Mr Al-Fadala, who is tasked with vetting citizenship requests from among the country’s estimated 105,000 residents without citizenship, says the applicant is not entitled to Kuwaiti nationality because he is Syrian.

“This man, he said ‘I am bidoun’,” says Mr Al-Fadala, using the Arabic word for “without”, a term used to describe families who have lived in the Gulf without citizenship for decades. “When he brought his father, [it turns out] he is from Syria.”

His comments underscore a dispute embroiling Kuwait and other Gulf states over their treatment of bidoun, whom

human rights groups say are suffering in their tens of thousands at the hands of hostile government bureaucracies.

Kuwait is accused of dragging its feet to avoid doling out more of the expensive benefits from pay to pensions that make Gulf nationals perhaps the most financially pampered citizens in the world.

Though the policy is rarely articulated, the government will usually grant nationality only to those whose families resided in the country at the time of independence in 1961 and can prove it.

That citizenship is certainly worth its weight in gold. The government provides healthcare, housing, loans, education and scholarships for its nationals. Since unrest started spreading across the Middle East, it has boosted public sector salaries and is even providing free food parcels to citizens.

Security concerns are also playing on the minds of government officials who are loath to give passports to those of whom they have no record. With regional rivalries and sectarian issues at stake, the authorities are more suspicious of some countries than others.

While the bureaucratic machine lumbers on, a large

Women anxious after Islamist election victory Gender The four female MPs lost their seats, say Camilla Hall and Michael Peel Massouma Al-Mubarak cut an unusual figure as she called on voters for support during this year’s parliamentary elections. A jijabclad woman in a campaign dominated by men, she tried to rally her listeners around the popular theme of stamping out corruption.

That same anti-graft campaign would prove to be the winning formula for Islamists and tribal leaders alike, but it did not work for Ms Al-Mubarak. Voters abandoned her and the three other women MPs who lost their places in parliament.

The failure of women to win one seat has raised concerns that Kuwait, one of the most politically progressive countries in the region, is taking a step backwards.

With a convincing victory for Islamists, women are anxious that they will suffer without political representation.

Rola Dashti, one of the former lawmakers, says she is worried that Islamist MPs will press for women to retreat from public life. She is not confident of protection from the government.

The cabinet will “trade social liberty and women’s

Contributors Michael Peel Middle East Correspondent Camilla Hall Gulf Correspondent Guy Chazan Energy Correspondent Henny Sender Chief Correspondent, International Finance Stephanie Gray Commissioning Editor Steven Bird Designer Andy Mears Picture Editor For advertising, contact: Mark Carwardine Phone +44 020 7873 4880 Fax +44 020 7873 3204 Email: mark.carwardine@ft.com or your usual representative All FT Reports are available on FT.com.

Go to: www.ft.com/reports Follow us on twitter at www.twitter.com/ ftreports All editorial content in this supplement is produced by the FT. Our advertisers have no influence over, or prior sight of, the articles or online material.

rights for the sake of ‘cooperation’,” as it seeks to avoid confrontation with the elected parliamentarians, she says.

Some women had hoped that the Sheikh Jaber AlMubarak Al-Hamad AlSabah, the new prime minister, would choose at least one female for his cabinet.

But the government mirrored parliament and appointed only men.

Most analysts agree that the perceived ties of women to the former government is the reason for their downfall. The previous government collapsed after the opposition aired allegations of corruption.

Abdullah Al-Shayji, chairman of political science at Kuwait University, says: “They lost not because women could not perform.

They lost because women took radical positions siding with the government in all issues that were not popular.”

Mr Shayji says the women supported the former government on issues such as rejecting pay increases for teachers.

Regardless of a bill-by-bill breakdown, the women somehow became linked to the former government in the public eye, an image that would later work against them.

Salwa Al-Jasser, another Kuwait University professor, says she and her three fellow defeated women MPs were the victims of their distinctiveness: because they arrived with such a media fanfare, they became linked in other people’s minds to parliament’s broader failings.

“Kuwaiti people saw the 2009 parliament as focusing on women: how much we did, how much we added,” she says. “That is not fair.”

Other analysts say that the women were simply unlucky in an election that saw the male-dominated opposition sweep to victory after rallying against the former government.

“It wasn’t a vote against women, it was a vote against liberals that were seen to be too close to an unpopular government,” says one western diplomat.

“They were collateral damage.”

With the all-male parliament and government in place, opinion is split over whether the Islamists will seek to curb women’s rights.

As one western diplomat says, referring to conservative dress codes for women: “The new parliament is politicised and sensitive enough to realise that Kuwait is not a place where that will fly.”

However, Ms Dashti is not so convinced of their reticence. “There will be no laws helpful to women that will be passed,” she says.

“What will be passed will be laws that get them out of the labour market, which means giving them money to stay at home.”

number of genuine applicants is left without access to public education, healthcare or the ability to travel.

Kuwait’s human rights profile has been tarnished, while instability has been created at home.

Although travel is generally a luxury for stateless people, one of their biggest concerns is not being able to perform pilgrimages to Mecca in Saudi Arabia, an integral part of the Muslim way of life.

“It’s appalling the way it’s

The government provides healthcare, housing, loans, and education for its nationals been neglected and ignored. It’s a gross violation of human rights,” says Saad bin Tefla, a Kuwaiti commentator and former minister of information.

“You get generation after generation of people who have very few opportunities in life.”

The lack of opportunity is reflected in the average salary for the bidoun in Kuwait, many of whom live in makeshift housing outside the centre of the

city.

Refugees International, a USbased human rights group, estimates that the average salary of a Kuwaiti bidoun is $300 a month, one-tenth of the average national.

As comparatively new countries, other Gulf states face the same dilemma.

However, Kuwait’s bidoun issue was aggravated by the 1990 invasion

by Iraq, which resulted in the mass displacement of people and a widespread loss of documentation. Political distrust has remained between the two countries for the past 20 years.

In some cases, the roots of the stateless population can be traced back to countries such as Iraq, Yemen, Iran, India and Pakistan. Many, not to be confused with bidoun, are also desert bedouin, who have lived outside of the cities for decades without needing paperwork.

Unlike in European countries, or the US, Gulf states do not grant citizenship to residents after a set number of years. In most of the region, expatriates are allowed to reside only if they are sponsored by a company to work or are married to someone with that arrangement.

When the work ends, so does the residency, regardless of how long they have spent in the

country.

Despite pushing the issue to the sidelines for many years, the rights of the bidoun have at last been catapulted into the centre of the political stage. Last year, inspired by the social unrest across the Middle East, Kuwaiti bidoun started to hold weekly protests.

In contrast to other scenes from the region, the bidoun showed their allegiance to Kuwait’s Emir, Sheikh Sabah alAhmad al-Sabah by carrying his image as they protested.

Despite that, the authorities used tear gas to break up demonstrations and arrested scores of people, prompting the concern of international human rights groups.

The bidoun now fear that those who were arrested have lost their chance of nationality forever.

After a lull, the protests have resumed, projecting the issue again into the forefront of Kuwait’s lively political debate.

“It’s one of the main problems in Kuwait. It’s one of the issues that has been left untouched,” says Ahmed Sadoun, the influential speaker of parliament and an opponent of the former government. “It’s not an easy issue but it has to be tackled. We cannot leave it unresolved.”

Have nots: protests have put status at the centre of debate

Getty

4

FINANCIAL TIMES TUESDAY APRIL 17 2012

★

Kuwait The KIA Fund’s attention turns to China High oil prices mean that money is flowing into the coffers of the Kuwait Investment Authority, yet there is no sign of rejoicing in the shabby, crowded offices of one of the world’s most respected sovereign wealth funds.

By law, the KIA receives at least 10 per cent of the country’s oil revenues, making the fund, with more than $250bn under management, less dependent on the whim of its rulers than in some oil-rich nations.

But, these days, inflows can be as big a problem for many funds as a lack of money.

It is not easy to be an investor – especially a non-US dollar investor – when interest rates are close to zero and most of the securities in which investors put their money are dollar-denominated.

In a low-yield world, US investors only have to worry about returns. But others also have to worry that respectable dollar returns will evaporate Bader Al-Saad, KIA head, says he will resign if his performance or integrity are found wanting

when translated back into their local currencies.

The Kuwaitis had a good year in 2011, partly helped by the fact that the dinar appreciated less against the dollar than the Singaporean currency.

The weakness of the US dollar is symptomatic of a shift in which the growth prospects for Asia are far more compelling than those of the developed world.

Today, sovereign wealth funds and pension funds in the Middle East have become increasingly disenchanted with the US and are looking more to Asia.

When they do invest in developed markets, the most sophisticated of these funds are shifting to hard assets such as real estate and infrastructure.

“We have become hostage to the irresponsible behaviour of politicians,” said Bader Al-Saad, the head of the KIA, in September 2011 in a speech in New York, referring to the acrimonious US congressional

debate over raising the debt ceiling.

A month after making the speech, Mr al-Saad was in Beijing to preside over the opening of the KIA’s new office and to celebrate its status as a qualified foreign institutional investor (QFII) in China.

Beijing is the KIA’s first overseas office since the Kuwaitis established representation in London decades ago. There is no representative office in the US. The KIA has already been a cornerstone investor in many Chinese listings, including that of Agricultural Bank of China and Citic Securities. While it received approval to invest only $300m as a QFII, it has been promised that as soon as it has spent that, it will receive approval to put more money to work.

It also invests in private equity funds in China, recently shifting from the big international buyout groups to more local ones.

Recently, the KIA has also tried to step up its direct investments rather than working through intermediaries with their expensive management fees. But that is not always possible.

For example, it is not clear whether the KIA will get permission to hire a team with the knowledge and experience to invest in infrastructure.

That is because, like many of its peers, the KIA is starved of resources. Its assets have grown 10-fold in the past 20 years, yet its budget has only doubled during that time and its headcount has gone from 300 to only about 400 people.

The KIA needs parliamentary approval for its budget, its investment decisions and even its personnel decisions.

It has a hard time raising money by divesting of some of its assets, such as its stake in the inefficient Kuwait Airways.

And when the KIA appointed the 41-year-old Osama Al-Ayoub to head the London office, Mr Al-Saad was summoned to parliament and questioned.

Mr Al-Saad, who comes from one of the most respected local families, has told parliament he will resign if his performance or his integrity are found wanting.

So far, he has kept his job and the confidence of the Emir.

Henny Sender

Energy stars ‘are finally aligned’ Oil Guy Chazan reports on the high hopes attached to the appointment of a minister

W

hen Hani Hussein was appointed Kuwait’s oil minister this year, the country’s energy industry breathed a collective sigh of relief.

A former head of Kuwait Petroleum Corporation (KPC), the state-owned oil company, he is widely respected in energy circles. If anyone is going to pull the industry out of its malaise, the thinking goes, it is Mr Hussein.

“The stars are finally aligned in the oil sector,” says Sara Akbar, head of Kuwait Energy, a private oil company. “At last we have the right people in the right place.”

His arrival came at a crucial juncture. Kuwait has ambitious plans to increase oil production from about 3.2m barrels a day to 4m b/d by 2020. To reach that goal, it needs to exploit a new generation of complex and technically challenging oilfields that are far too difficult for the stateowned companies.

Yet partnering with western oil majors is controversial in a country where protectionist sentiment runs high and the local parliament has repeatedly intervened to hold up projects.

Neda Salmanpour, an energy lawyer with Pilsbury, says: “The fact there’s been such under-investment in the oil industry is a lot to do with the political stand-off between parliament and the government.”

With more than 100bn b/d of oil reserves, Kuwait is the fifth largest crude producer in the Opec cartel. Its Burgan field, discovered 74 years ago, is the second largest in the world after Ghawar in Saudi Arabia and accounts for half the country’s output.

In its heyday, production at Burgan was, in the words of one oilman, as easy as sticking a straw in the sand. But the easyto-drill, high-quality light oil is

Oil find: the Burgan field, discovered 74 years ago, is the second largest in the world after Ghawar in Saudi Arabia

running out and Kuwait must replenish its reserves with its huge endowment of heavy oil, which can be as thick as molasses and is hard to pump.

In Wafra, a field in the neutral zone between Kuwait and Saudi Arabia, engineers from Chevron are trying to extract it using a process called “steam-flooding” in which steam is injected into the reservoir to heat the crude and make it less viscous, allowing it to flow into the well. It is just a pilot at present, but if the full project goes ahead, it will mark the first commercial use of steam-flooding in this type of reservoir.

But Wafra is just one field and progress at unlocking the heavy oil deposits in the north of Kuwait has been much slower.

Part of the problem is a lack of rivers or lakes that can be used as a source of water for steam injection, officials say.

Kuwait Oil, KPC’s exploration and production arm, has held talks with ExxonMobil and

Total on a partnership to develop the fields, but nothing has come of them so far. As a result, production targets keep slipping. Initial forecasts of 900,000 b/d by 2020 have been scaled back to 270,000 b/d.

Yet there is a recognition that, without the majors, Kuwait will not achieve its goals. “We need help from international oil companies – now more than ever,” says Hashim Al-Rifaai, head of the Kuwait Gulf Oil, a KPC subsidiary.

Yet, over the years, efforts to entice the majors into Kuwait have been stymied by political wrangling.

In 1997, a $8.5bn plan called Project Kuwait aimed to bring foreign companies in to help boost crude production. But parliament objected and it never got off the ground. It was around this time that western oil executives invented their nickname for the country – “Queue and Wait”.

Then, in late 2008, KPC’s pet-

rochemicals subsidiary PIC abandoned a $17bn joint venture with Dow Chemical after lawmakers expressed opposition to the deal. Dow is suing PIC over the cancellation.

Meanwhile, other large projects have fallen by the wayside. A costly plan to upgrade two refineries was dropped.

Kuwait also had plans to build a new refinery, al-Zour, that, with capacity of 615,000 b/d, would be the largest in the Middle East. Tenders were held and contracts handed out. But in 2009 KPC was forced to withdraw them after lawmakers claimed they had been awarded in circumvention of the law.

Nader Sultan, senior partner at F&N Consulting and a former chief executive of KPC, says: “In Kuwait, unfortunately, winning a project tender, both inside and outside the oil sector, is not the same as in Qatar, Saudi Arabia or the UAE, because a year later it might be cancelled.”

He refers to “shaky hand syn-

Bloomberg

drome” – where ministers are cautious about signing anything “in case parliament makes a noise”.

But Mr Hussein seems determined to break the logjam.

Addressing an energy conference last month, he said Kuwait would speed up a clutch of projects that have long been held up, including Al-Zour.

Mr Al-Rifaai of KGOC is certain that Mr Hussein, a technocrat in contrast to his predecessors in the job, who were mainly political appointees, will make a difference.

The new minister was the driving force behind a lot of the stalled megaprojects while he was head of KPC – “so he’s best placed to defend [them] before the Council of Ministers and the parliament. He can cut through the bureaucracy quickly”, Mr Al-Rifaai says.

The hope now is that Mr Hussein can stay long enough in the job to see these big developments through to completion.

Bottlenecks impede the development of supplies Gas The country has its own reserves yet relies on imports, says Guy Chazan It is one of the ironies of the Middle East energy sector that Kuwait, a country with 1 per cent of global natural gas reserves has to import the stuff.

Since 2009, it has been receiving cargoes of liquefied natural gas from as far afield as Russia, Australia and Trinidad at a $150m floating terminal in the waters of the Gulf. And its LNG imports are set to grow in the coming years, officials say.

Yet this is a country that in 2006 made one of the largest gas discoveries of recent years – the vast “Jurassic” fields of Sabriya and Umm Niga.

Kuwait offers the “contradiction of a country apparently unable to commercialise its substantial reserves”, the Oxford Institute of Energy Studies (OIES), said in a recent book. With limited ability to increase production, it said, Kuwait faced “a potentially gaping hole in its gas balance”.

Kuwait is not alone.

Many other Gulf states have been slow to develop their gas reserves. But the imperative to do so is growing. The Middle East’s white-hot industrial boom is pushing up gas demand and domestic supply is struggling to keep up.

Kuwait’s problem is not a lack of subsurface resource but “the policy and decision making bottlenecks above ground”, says Nader Sultan, senior partner at F&N consultancy and a former chief executive of the Kuwait Petroleum Corporation, (KPC) the state oil company. “The question is: how long will you keep getting these delays to projects?”

Like its neighbours, Kuwait used to flare its gas, long seen as a useless byproduct of oil production.

But in the mid-1970s, it started using it domestically

Imports: cargoes of LNG make up the shortfall

and between 1990 and 2008 consumption more than doubled, from 4.5bn cubic metres to 10.7bn cu m.

An important factor in that growth was its increasing use as a feedstock in the petrochemicals industry.

That trend accelerated with the creation in 1995 of Equate, a joint venture between PIC, the state petrochemical company, and Union Carbide, later part of Dow Chemical of the US. Gas was also used to generate electricity, for which demand has surged since 2000 – in no small part because of its artificially low price.

For years, power stations burned it on the basis of subsidised prices of $0.5-$2.5 per million British thermal units, according to the OIES. The ministry of oil has increased domestic gas prices but they remain a fraction of international market levels.

“Domestic prices in Kuwait are below the price at the point of delivery – that is, they cannot cover the costs of investment, production, transmission and distribution,” the OIES says.

Meanwhile, Kuwait’s decision in the wake of the

Fukushima disaster to shelve its nuclear power plans indefinitely will probably mean gas demand will rise even faster than expected.

Luckily for Kuwait, it has a lot of its own reserves.

The northern Jurassic fields, discovered in 2006, are thought to contain 990bn cu m of gas – a mammoth find. But they present enormous difficulties. The

Kuwait offers the ‘contradiction of a country apparently unable to commercialise its huge reserves’ gas is high temperature and high pressure and is laced with lethal hydrogen sulphide.

KPC and its upstream subsidiary KOC lack the expertise to handle such complex reservoirs. In February 2010, KOC signed a five-year deal with Royal Dutch Shell, known as an enhanced technical service agreement (Etsa), to help it develop the fields. The

production targets were ambitious. The fields were to produce 17m cu m a day of gas by the end of 2013, and 30m cu m/d by 2016.

Yet current output is stuck at about 4.2m cu m/d.

Part of the problem is the mess Shell discovered when it got to the fields. To build the gas processing facilities, KOC had chosen a local contractor “not qualified to deal with a project of this complexity”, says Kamil Al-Harami, an independent oil analyst. Shell was so shocked at the state of the substandard equipment used that it recommended pulling the plant down and starting from scratch.

Meanwhile, Shell’s Etsa is the subject of a parliamentary investigation, with MPs looking into whether KOC overstepped its authority in issuing the contract and whether the Anglo-Dutch group has operational control of the project – unacceptable under Kuwaiti law.

A Kuwaiti oil official insists the inquiry has not held up Shell’s work, although he acknowledges that probes such as this “can deter western oil companies”. But Mr Al-Harami is sceptical the project can survive. “Once you get the National Assembly coming snooping in your bedroom, it’s finished,” he says.

Other projects are advancing more smoothly, such as the offshore Dorra field in the neutral zone, the area Kuwait shares with Saudi Arabia.

Hashim Al-Rifaai, head of Kuwait Gulf Oil, a KPC subsidiary says: “All the drillings and subsequent analysis give us comfort the reserves are there – it’s just a question of sustaining our drilling plans and building the necessary pipelines and gas processing facilities.”

Meanwhile, Kuwait continues to make up the shortfall with cargoes of LNG. For years, it has held talks with Iran on importing gas but with tensions rising in the Gulf such an option is seen as increasingly unlikely. “Let’s just call it a work in progress,” says one state oil executive.