The Gulf blog

Differing modes of development: Kuwait, Qatar & UAE 17, July 2009

This article appeared in the Kuwait Times on 22nd July.

Tracking Trajectories: Differences in development, FDI in the Gulf’

It is curious how Kuwait and, for example, the Emirates, stemming from the same kinds of religious, cultural, linguistic, geographical, social and political backgrounds, have gone about development in such contrasting ways. From Dubai’s glitz and glamour, or – depending on one’s view point – crass and vulgar modernization, to Kuwait’s slow and steady approach, each country has come up with a remarkably different idea of the best way to proceed.

The briefest of glances at Foreign Direct Investment (FDI) statistics highlight these divergences. When, in 2007, Kuwait was receiving $123 million of FDI, Qatar was getting $1.1 billion and the United Arab Emirates were getting over $13 billion, more than one hundred times more than Kuwait.

The explanation for this is not immediately apparent. Both the UAE and Kuwait are oil-rich countries with around 7% and 8% of the world’s proven oil resources, respectively. Qatar too was a relatively rich country, with one of the world’s highest Gross Domestic Product per capita for some time now.

For sure, Kuwait was far more developed than Doha, Abu Dhabi or Dubai until very recently. These cities would have needed far more money to be spent on things that Kuwait City already had such as ample hospitals, schools, a road infrastructure and a large international airport. However, Saddam’s brutal 1990 invasion, laying waste to swathes of Kuwait, meant that Kuwait City was, it could be suggested, in need of as much reconstruction as Doha and Dubai was construction. Yet, historical FDI statistics clearly show that this is just not what happened with Kuwait averaging just $58 million of FDI from 1990-2000. Instead, Kuwait relied overwhelmingly – if not almost entirely – on their own resources to rebuild their country.

Even admitting that Kuwait was a richer country and had more funds itself to invest, lessening or even negating its need to seek international FDI, this is not enough to explain the profound lack of FDI that Kuwait receives. There must be, aside from Kuwait’s cash-rich balance, other reasons as to why their FDI is so abysmally low.

A brief look at a few more statistics may enlighten the situation. Transparency International, the world-renowned Berlin-based anti-corruption civil society organization, measures the ‘corruption perceptions’ of doing business in a country, where the least corrupt country, Denmark, is No.1. In their 2008 survey the UAE is ranked 35^th, Qatar 28^th and Kuwait a lowly 65^th, surrounded by Cuba and El Salvador.

A different survey, conducted by commercial company ‘Doing Business’ under the auspices of the US based World Bank Group, ranked countries according to the ease of doing business.  Overall, in their 2009 rankings, Qatar comes 37^th, the UAE 46^th and Kuwait 52^nd bordered by Namibia and Colombia. This particular survey works by rating a country according to a series of factors such as, for example, how easy it is to set up a business, how obtainable credit is and how easy it is to register property.

By far Kuwait’s lowest score in the factors that make up their final placing – coming 134^th alongside Malawi and Cambodia – is in the ‘ease to set up a business’ category. Such a finding is wholly corroborated by anecdotal evidence, highlighting the bureaucratic hurdles that foreign companies are forced to deal with when seeking to setup in Kuwait.

It seems, therefore, that Kuwait’s institutions not only do not encourage FDI but in fact make it as complex and difficult as possible. Such a system cannot have come about by accident. Moreover, Kuwait, whilst not necessarily consciously raising barriers to foreign companies, nevertheless refuses to lower them. In short, Kuwait just does not want foreign capital and the foreign influence that goes with it.

This is, of course, in total contrast to the UAE and Qatar. Their strategies of development are based on extensive contact and interaction with the rest of the world. By inviting prestigious Universities to the UAE and Qatar, encouraging the recruitment of Western media outlets to base themselves in Dubai Media City, advertising themselves heavily as a tourism hotspot, hosting large sporting events and countless other projects, the Emirates’ and Qatar’s outlook is totally and irreversibly outward.

When Dubai was at the height of its pomp in the early 2000s, some in Kuwait clamored for the modernity or glamour that they saw further down the Gulf. Now that the Dubai bubble has firmly burst and their economic model has come under serious scrutiny and even criticism, many in Kuwait will now be thankful somewhat for their country’s steadier approach. Yet there is surely a common ground between Kuwait’s insular approach and Dubai’s dependence on ever increasing amounts of foreign capital that can simply not be realized.