In 2013, contracts were finally doled out for the new power plant, also at Al-Zour, and in February 2014, Kuwait National Petroleum Company (NKPC), the state refiner awarded $12bn of deals on the clean fuels scheme. The first phase of the Bubiyan port and a $1.6bn bridge scheme that is part of the City of Silk development are also inching slowly ahead.
“The project scene has definitely picked up over the past year, with two key [public-private projects] finalised and the recent award of the giant clean fuels project,” says Daniel Kaye, senior economist at National Bank of Kuwait. “Some of these have been around for a while so it was just a matter of time before they started. But the authorities seem more determined than ever to push projects through, and the political climate now seems more favourable than before.”
Local and international firms are hopeful that the current glut of megaprojects is part of a new era for the projects market rather than a temporary aberration, says the Kuwait City-based businessman.
“I really hope this is the breaking of the dam, that we are finally going to see the government spending as big as it has said it will in the past,” he says. In 2009 and 2010, Sheikh Nasser’s government prepared a development plan worth a staggering $130bn.
Kuwait’s banks are likely to do well from the sudden explosion in megaprojects. Local and international firms working on the schemes will need loans, new lines of credit and banking guarantees, while an influx of foreign workers and pay-packets for local and international employees will add to deposits.
Not that the country’s banks are doing badly. After a torrid couple of years over the course of 2008 and 2009, they have bounced back. The central bank dropped interest rates, to 2 per cent in 2012. That year, consumer credit grew by 16.6 per cent, a record year, after virtually grinding to a halt in 2010. The new projects should add a much-needed element of private-sector finance.
Kuwait’s economic development will not be led by big projects alone, however. The five-year development plan included a number of schemes aimed at encouraging private-sector participation on the economy. The Al-Zour power plant, for example, will be an independent water and power plant — it will be backed by the state but will be financed, built, and run by a consortium of private-sector firms led by France’s GDF-Suez.
Overseeing the Al-Zour power and water scheme was the Partnerships Technical Bureau, a government body set up in 2010 to oversee government-backed private sector schemes. But so far, the Al-Zour project is the only major success the bureau has had. Plans to privatise state carrier Kuwait Airways and set up a new private health insurer have stalled.
The main impetus for encouraging private sector growth was job creation. Kuwait, like its neighbours, will face huge challenges in absorbing its young population into the workforce in coming years. The state already accounts for around 90 per cent of employment among Kuwaiti nationals, according to the International Monetary Fund. It will have to expand the ranks of state employees by 13-22 per cent a year between 2012 and 2016 if it wants to absorb the 74,000–112,000 nationals that the fund calculates will enter the workforce during that period. The private sector will add about 17,000 jobs during the four years, the fund estimates.
Unfortunately, multibillion-dollar megaprojects are unlikely to put a dent in the number of Kuwaiti jobseekers, says Coates-Ulrichsen. “I think these megaprojects, which have been awarded to international companies, who are subcontracting and working with local companies, aren’t going to do anything new.”
In order to provide more opportunities for Kuwaitis, in 2013, the government announced that it would begin to gradually push out around 1 million foreign workers over the coming decade, following in the footsteps of neighbouring Saudi Arabia, which oversaw an exodus of foreign labour last year. But the Saudi Arabian policy has not led to as many nationals being employed as Riyadh had envisaged, and the same is likely to be true of Kuwait, Coates-Ulrichsen says.
The IMF has also raised concerns over how much longer Kuwait and the other Gulf states can mitigate unemployment and encourage economic growth simply by spending what is in effect a windfall borne of huge hydrocarbon reserves and high oil prices. Public sector spending in Kuwait rose by about 13 per cent in 2013, IMF figures show, with the bulk of additional spending going to increases in wages and subsidies. Public-sector wages that are significantly higher than those available in the private market are also causing distortions in the labour market, the IMF analysts noted in their 2013 review of the Kuwaiti economy.
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