Overview of Kuwait’s economic performance
Discussion on how Kuwait can attract and retain foreign direct investments; an application of the Diamond of National Advantage
Kuwait is among the best performing nations in the Middle East and North Africa region in terms of economic growth. It has been ranked position 6 out of the 14 nations in the region in terms of economic performance (The Emergence of Modern Kuwait 2017, p.25). Kuwait has been trying its best to establish openness in its economic and improve its economic freedom. The 2018 Index has ranked Kuwait position 81 with a score of 62.2 of economic freedom
The overall economic performance score of Kuwait is above the expected average economic performance in the regional and world levels. Kuwait is ranked position 8 in the world in terms of exports and number 10 in terms of oil production. Kuwait has a small population of 4.2 million and its expansion and various other factors have made it a centre of attraction for foreign direct investments.
Kuwait has been doing well in terms of foreign direct investments but still much needs to be done to foster diversification and economic growth of Kuwait. According to the Diamond of National Advantage, foreign direct investment in a country can be attracted and maintained by taking into consideration four determinants which include the nation’s factor conditions, demand conditions, presence of supporting industries and the firm’s strategy, structure and rivalry (Diamond of National Advantage 2015, p.1). Kuwait has been identified as one of the nations above the expected Middle East averages in terms of the ease of doing business in the nation by the World Bank and has been ranked position 96 worldwide.
According to the Diamond of National Advantage there are several ways in which the government of Kuwait can attract and maintain foreign direct investments as discussed below.
The government of Kuwait should improve its political system. Over the past years the political system of Kuwait has been unstable (Neither autocracy nor democracy but ethnocracy 2015, p.114). A good example is during the year 2006 when protests were all over Kuwait against the monarchical government of the al-Sabah family. The same was witnessed during the year 2012 when the al-Sabah Emir annulled the election results in favor of the al-Sabah family but protests were held and later in 2013 Sunni pro-government candidates took over the leadership.
This political instability has contributed much towards preventing foreign direct investments in the nation as no one can risk investing in an unstable government. Since the year 2013 after the government was taken over by the Sunni pro-government candidates, the political environment has been relatively stable and foreign investments have been increasing (Voluntary associations in Kuwait 2011, p.199). Further improvement in the political system can lead to a very stable political system hence attracting and retaining more foreign investors.
The government of Kuwait should continue to support the laws of foreign direct investments formulated by the Kuwait Direct Investment Promotion Authority (KDIPA) (Direct foreign investment and the law in developing countries 2013, p.382). The KDIPA was formed in 2013 to foster foreign direct investments in the country. The Kuwait government through the KDIPA has implemented a law to reform foreign direct investments in the nation.
The Diamond of National Advantage and foreign direct investment
The law has been allowing foreign investors to own much of the capital holdings with a possibility of owning them up to 100 percent provided their investments target the major planned government development projects such as infrastructure which includes communications, power energy and water among others. Further support of the above signed law will see an inflow of many foreign investors as they can own their capital fully.
Kuwait should continue upholding its competitiveness in terms of crucial resources to businesses. These resources include land, labor, power and water. Kuwait has been offering the above crucial resources relatively cheaper as compared to other nations such as Saudi Arabia (Natural resource endowment 2014, p.651). Labor laws in Kuwait do not extort employers by threatening them or setting unreasonable minimum wages (Labor standards and international competitive advantage 2013, p.15). The government of Kuwait has been subsidizing the power tariffs by a huge percent of 86 percent especially that of the industrial and residential users. This has been a good move as the Kuwait has been preferred for foreign investment more so based on these crucial resources subsidization. The government should continue doing so or even do much better in order to continue attracting and maintaining foreign direct investments.
Although Kuwait has been identified as the easiest country to do business in Middle East, it should minimize its trade barriers to encourage foreign investment in the nation. The government of Kuwait has made it uneasy to start business in Kuwait. The time required to register a new business has been increased and also various lengthy procedures are required in order for a business to be legalized in Kuwait (Governing the market 2014, p.97). Any mistake in the event of registering the new business becomes a trade barrier in the country. This has been discouraging foreign direct investment in the country and the requirements should be made easy and if possible eliminated totally to attract more foreign investors to join the economy of Kuwait.
Kuwait should continue supporting its hospitable culture and if possible improve it. Kuwait has an excellent culture which combines traditionalism with modernity. About 65 percent of the population of Kuwait consists of young people below the age of 30. This population forms a bigger demand more so for the foreign products of high technology. The government should encourage consumption of this population by offering them jobs so as to have income to spend (Clusters and the new economics of competition 2016, p.77). The high demand among the young generation has highly been attracting foreign investment in Kuwait and any improvement can bring much better results.
The government of Kuwait should improve its education sector. There has been mismatch in skills required by companies and those of educated young generation of Kuwait. Despite the government having invested much in the education system and even forming the government’s Integrated Education Reform Programme, the job seekers skills still do not meet the required standards in the job market. This has seen many foreign companies employing foreign workers depriving the youngsters of Kuwait potential jobs. The government should improve the quality of education so as for high skilled labor force to be available to foreign investors locally in order to minimize the investors’ hiring costs. This will attract more foreign investors to join the economy of Kuwait.
Ways in which the government of Kuwait can attract and maintain foreign direct investments
In a nutshell, the economy of Kuwait has various opportunities available for foreign investors. The government should try its best to attract foreign direct investments to utilize the available opportunities in order to foster diversification and growth of the economy of Kuwait.
Four basic policies that government of Kuwait should adopt to enhance the capacity of its industries to innovate and upgrade
The government of Kuwait should fund business programs to undertake research and development (Entrepreneurship and dynamic capabilities 2016, p.917). The government of Kuwait should encourage various businesses in various sectors of the economy to form groups and undertake research on various ways in which they can improve their products or methods of production and also come up with new products according to the prevailing consumer tastes and preferences in the market. The government should provide funds or rather meet part of the costs in support the research activities as most of them are expensive and businesses may fear to incur the huge costs and choose not to undertake the research activities.
The government of Kuwait should stimulate rivalry among the firms in various industries of Kuwait (Location, competition, and economic development 2010, p.15). Rivalry between firms in various industries brings competition among the firms. There various ways in which the government of Kuwait can stimulate competition among firms in various industries. The government can formulate policies which limit cooperation of firms in the markets to avoid the monopolization of markets or remove some barriers to entry into the local industries to encourage foreign investment. The stimulated competition among the firms makes the firms to find ways to come up with cheap high quality products in order to win market share. As a result the firms innovate or upgrade their productivity to remain competitive in the market.
The government should subsidize production activities among different firms in its industries. Some of the production methods of businesses are costly although they produce quality commodities. Some businesses may choose to use poor production methods to lower their costs of production. Government involvement in the production activities in form of subsidies encourages businesses to use production methods which give quality output and even upgrade to better production methods as part of the production costs are catered for by the government.
The government should adopt a good education system. The government of Kuwait should invest towards improving its education system which has been poor for the last years (Government Expenditure on Education 2018, p.802). Students should be properly trained and educated on various opportunities of research. A good education system equips learners with adequate skills in their areas of expertise and this means that job seekers are highly skilled and posses the necessary skills required in the job market. A highly skilled labor force gives a quality output and sorts for various ways in which production can be improved to maximize profits and minimize costs.
References
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