Kuwait and the Global Economy - Term Paper Example

Kuwait and the Global Economy Source: Background s – Kuwait, Exports, the birth of Kuwait-style democracy, and economic policy determination Prior to the exploitation of oil, the Kuwaiti economy was seminomadic, with the people’s subsistence based in part on the caravan trade, agriculture, fish, and pearls. The global economic depression had a strong negative influence in Kuwait towards the latter half of the 1920s. Prior to this, Kuwait was world-renowned for its pearling industry and exported as many as 800 shiploads of pearls each year.

When the depression set in, however, the demand for pearls and other luxury products suddenly fell, causing the Kuwaiti economy to suffer. At the same time, Japan developed a cultured pearl industry that captured the market away from Kuwait, and a trade embargo imposed by Saudi Arabia forced numerous people out of work (Casey, 2007, p.54). Due to subsequent widespread discontent with the economic and taxation policies of Sheikh Ahmad, a politico-economic opposition called the Majlis Movement was formed by the influential merchant families.

This eventually forced the sheikh to make concessions and establish a consultative council, comprised of four members of the Al-Sabah family, nine members from the elite merchant families, and headed by Sheikh Salem. This was the birth of the fledgling democratic processes that would later contribute to the development of Kuwait (Casey, 2007, p.57). Today, the country is a constitutional hereditary emirate. The struggles between the duly elected National Assembly and the royally appointed government have caused certain delays in such programs as economic diversification, but this system at least creates a power equilibrium between the traditional monarchy and the popular will (PRS, 2010, p.U-1). Economic Developments in Kuwait While oil exploration in the region had begun decades earlier, it was not until the establishment of the Kuwait Oil Company (KOC), a firm jointly held with the British government, in the early thirties that oil exploration in Kuwait began in earnest.

By 1938, the KOC had struck upon one of the world’s largest and most productive oil fields, and today comprises about 20 per cent of the world’s known oil reserves. While initially much of oil revenues were repatriated to London, the Al-Sabah family were gradually able to negotiate a higher retention of oil revenues in Kuwait. By 1976, Kuwaiti oil production was nationalized (Casey, 2007, p. 59). Public services & infrastructure Having gained independence from the British in 1961, the country benefitted from a succession of sheikhs who undertook a proactive approach to economic development.

Half of all revenues went to public projects, infrastructure improvements, and the enhancement of government services. The other half went to the Al-Sabah family as owners of the land. During the 12 year reign of Amir Al Sabah until 1977, Kuwait enjoyed unprecedented prosperity, converting into a highly developed state with all the modern means of transportation and communication (State Department, 2007, p.1133). Because of this proactive approach, bold projects were embarked upon, such as the design and development in the 1950s of large desalination plants.

Today Kuwait is the world leader in the production of potable water (Casey, 2007, p.60). Kuwaiti mega-projects also continue to this day. Slated for 2011 and onwards are the creation of Silk City (a business center), a large container port, a 25-kilometer causeway, expanded rail system, housing, schools, and tourism-related establishments (PRS, 2010, p. U-1). Development of the local labor force The eventual overwhelming reliance on oil, however, drew interest away from developing other economic sectors (e.g. agriculture, herding and fishing).

More people felt it more convenient to avail of the high-salaried guaranteed employment in government than engage in private enterprise. Furthermore, because of the benefits afforded by the Kuwaiti welfare system (which provided free health care and education for the people), many citizens found little incentive to work at all. There is therefore a large, highly diverse immigrant work force in the country upon which the country relies for much of its service industries (Casey, 2007, pp. 61-62), accounting for about 85 per cent of all employees (PRS, 2010, p. 8). Reforms are being adopted to address these concerns, however.

Programs in training, education and healthcare have been adopted to enhance the quality of the domestic labor force, as well as the promulgation of a new labor law in 2009 (PRS, 2011, p.U-2). Laws have also been promulgated to regulate the importation of unnecessary foreign labor; presently, some 70,000 are in Kuwait on illegal residency permits (p.9). Foreign aid, investments, and international relations The government amended it tax laws in 2007 to peg foreign capital tax rate at 15% from what formerly ranged from 0% to 55%, in a bid to attract more investments.

On the other hand, the Kuwait Fund for Arab Economic Development (KFAED) has been a source of financial and technical assistance to 16 Arab, 40 African, 35 Asian and European and 11 Latin American countries. It has granted a total of 793 loans valued at $15.4 billion since its start (Background Notes: Kuwait). Kuwait greatly values its regional and global affiliations, being a member of the United Nations, the World Bank, International Monetary Fund, World Trade Organization, General Agreement on Tariffs and Trade, African Development Bank (AFDB), Arab Fund for Economic and Social Development (AFESD), Council of Arab Economic Unity (CAEU), Group of 77 (G-77), Gulf Cooperation Council (GCC), Organization of Petroleum Exporting Countries (OPEC), and a host of many others (State Dept., 2007, p.1137).

The country exerts great efforts in securing allies worldwide, specifically in the UN Security Council, ever since it was liberated from the Iraqi invasion and control. Corruption and bureaucratic impediments Despite a law criminalizing bribery and other inducements that has resulted in several investigations and trials, so far there has been no conviction since the Gulf War in 1991. The proliferation of corruption is largely due to Kuwait’s frequently lengthy procurement process. Transparency International rated Kuwait 65th out of a total of 180 countries in its 2008 Corruption Perceptions Index (CPI); Kuwait’s CPI rating of 4.

3 out of 10 indicated the existence of “a serious corruption problem,” according to Transparency International (PRS, 2010, p. 7-8). Bibliography Background Notes on Countries of the World: Kuwait. (2011) Superintendent of Documents. From Business Source Complete. EBSCO Industries, Inc. 3/7/2011 Business Monitor International, Ltd. (2011) “Kuwait Security Overview.” Kuwait Defence & Security Report Q3 2011. From Business Source Complete. EBSCO Industries, Inc. Casey, M.S. (2007) The History of Kuwait.

Westport, CT: Greenwood Press U.S. Central Intelligence Agency (2011) “Kuwait,” The World Factbook. Accessed 1 October 2011 from https://www.cia.gov/library/publications/the-world-factbook/geos/ku.html U.S. State Department (2007) Kuwait and Its Leaders. From Business Source Complete. EBSCO Industries, Inc. Political Risk Services (PRS) Group, Inc. Kuwait Country Report, 1 Sept 2010.