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03KUWAIT3555 2003-08-04 13:09:00 CONFIDENTIAL Embassy Kuwait
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					  C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 003555 



E.O. 12958: DECL: 08/03/2013

Classified By: ADCM John G. Moran for reasons 1.5 (b) and (d)

1. (C) Summary: With Kuwait's population expanding at a rapid
pace, the new GOK says it will finally turn to the private
sector in an effort to bolster its economy. During courtesy
calls last week with many of the new Ministers, the
Ambassador was on more than one occasion treated to the GOK's
latest analysis of its economy, which holds that Kuwait will
face a serious crisis if it does not rapidly expand job
creation in the private sector for the next generation. End


2. (C) During their July 26 meeting, the Ambassador and
Minister of Justice Ahmed Baquer discussed the Kuwaiti
economy. Baquer showed the Ambassador a diagram depicting a
triangle dissected by a horizontal line about 1/3 of the way
down from its tip. He explained that the diagram represented
the current Kuwaiti population, with the portion above the
line representing those Kuwaitis who were already in the
workforce, the portion below the line representing those who
had yet to do so, and the line being the age of majority
(currently 18). Baquer said that the GOK has realized that
it "must create jobs in the private sector" if it wishes to
avoid high unemployment and massive budget deficits in the
near future, as the majority of its population comes of age.
(Comment: 92 - 98% of the current Kuwaiti workforce is
employed by the GOK in some form or another. They enjoy the
benefits of relatively high salaries and very limited work
hours. The constitution guarantees Kuwaiti nationals a job.
Only unexpectedly high oil prices have kept the GOK budget in
the black the past two years. End Comment.) Reinforcing
this, Baquer shared some statistics. He said that where
there had been 1400 high school graduates in all of Kuwait in
1970, there were 14,000 in 2000, a ten-fold increase. He said
there were currently 15,000 Kuwaitis waiting for jobs, while
current government employees were "doing nothing" except
drawing subsidies for housing, using the government's
generous healthcare benefits and drawing retirement pensions.
Finally, he said that the government is predicting it will
have outlays of KD 7 billion for salaries alone in 2017,
whereas the 2002 figure was KD 2 billion. Baquer conceded
the GOK would have a hard time selling any privatization
measures in Kuwait, due to opposition from National Assembly
members. "The MP's are against privatization. They call it
the stealing of Kuwaiti wealth."


3. (C) Although Baquer did not share any specific plans for
reforms by his Ministry, other Ministers did. During their
July 27 meeting, Minister of Public Health, Dr. Mohammed
Ahmad Al-Jarallah shared with the Ambassador his plans to
allow for the development of private hospitals and health
insurance. Jarallah said plans were already in the works to
allow prominent US medical centers (such as the Mayo Clinic)
to develop hospitals and sell private health insurance in
Kuwait. This would serve the large expatriate labor force by
introducing lower health care premiums into the market and
bringing advanced medical technology and care to the country.
The hope is that this would decrease the number of Kuwaitis
who currently seek medical treatment outside Kuwait, most of
them at government expense.


4. (C) Minister of Commerce Abdullah Taweel told the
Ambassador on July 28 that he had given a presentation to the
Council of Ministers on how the GOK could liberalize its
markets and encourage domestic investment. The presentation
was well-received, and the GOK decided it would work to
change decrees and laws currently hampering investment. The
Minister said he would work with his colleagues, including
Minister of Interior Shaykh Nawaf Al-Sabah (Note: The
Ministry of Interior is responsible for controlling the
borders. End Note.), to ensure coordination of their efforts.
"Shaykh Nawaf says the economy is the new focus" now that
the security threat (i.e. Saddam Hussein) has been removed,
he said. Taweel said the government's first steps will be to
renovate and upgrade Kuwait's port facilities, work on
changing food standards in order to allow allow random (vice
comprehensive) testing of products from source countries
known to protect their consumers and generally streamline
bureaucratic procedures. "We're opening the doors to
everything," he added.


5. (C) Minister of Public Works and Minister of State for
Housing Affairs Bader Nasser Hmaidi told the Ambassador on
July 30 that he will attempt to structure incentives for
Kuwaitis seeking housing so as to cut government costs.
"Kuwait is the only country in the world to provide housing
for its citizens." he said, "but our citizens don't make good
housing decisions." Hmaidi said the GOK has hired a
consultant and is looking to offer Kuwaitis choices of
several house sizes and floor plans built by private
companies on a quasi-B.O.T. basis. He said Kuwaitis will
eventually have 5-6 models to choose from, allowing the
government to rein in the current runaway size and cost of
Kuwaiti housing.

6. (C) Hmaidi also said the Ministry of Public Works has
plans to build a bridge over the Gulf of Kuwait, beginning
next year, which will connect Kuwait City to the Sabiyah
area. Current plans are for a bridge 50 meters above the
water at its highest point and 22 kilometers long. In
addition, the Ministry is planning to expand facilities at
Shuwaykh Port and Kuwait City International Airport's and
build industrial parks and a port on Bubiyan Island, as well
as a free-trade zone near the Iraqi border. Many of these
projects will be developed with the private sector, he said.


7. (C) During their July 30 meeting, Minister of Finance
Mahmoud Al-Nouri told the Ambassador that the Foreign
Investment Law, which was passed in 2001 but has not yet been
implemented, is awaiting the resolution of three points by
the Council of Ministers. He said he had been instrumental
in its passage and would work to see it implemented as soon
as possible. Al-Nouri shared the Ambassador's interest in
expanding U.S. business activity in Kuwait and proposed a
fall meeting between the U.S. and Kuwaiti business
communities to identify further areas of cooperation.


8. (U) Under the terms of a new law, a number of private
universities have been established over the past year,
including the American University of Kuwait, headed by the
well-knon liberal academic and former Director of the
Washington-based Kuwait Information Office, Dr. Shafeeq
Al-Ghabra. In a July 29 meeting, new Minister of Education
Dr. Rashed Al-Hamad affirmed to the Ambassador that the GOK
would continue to emphasize such private sector approaches to
higher education. This initiative will be aided by new rules
for foreign suppliers' offset obligations, which give big
incentives for investment in education.


9. (C) The talk of privatization and the opening of Kuwaiti
markets is heartening, but not altogether convincing given
the GOK's poor track record in the past and the vested
interest of many Kuwaitis in maintaining the status quo.
Nonetheless, hopes are higher that Shaykh Sabah's new title
of Prime Minister and the election of a National Assembly
that should be more amenable to working with the government
will lead to long overdue reform of the economy and greater
scope for private sector activity.