Current business conditions in Kuwait: lessons of the first 200 days

Business America,  Oct 21, 1991  by Jeffrey Hawkins

• E-mail
• Print
• Link

The emergency phase of Kuwaiti reconstruction has clearly drawn to a close, and the Kuwaitis must now begin the long-term reconstruction of their country. Temporary repairs have been made. Infrastructure, while still severely damaged in some sectors (particularly the oil sector), has seen significant improvement in the months since liberation. Business activity is slowly picking up, although concerns about the postwar market and financial issues continue to delay a major economic recovery. U.S. firms have done remarkably well in Kuwait thus far, and the lessons learned by American firms in the first months after liberation will well serve the companies that follow.

Kuwait's infrastructure, especially business infrastructure, has improved markedly in recent months. U.S. and other firms have worked with the U.S. Army Corps of Engineers to provide Kuwait with electrical power, improved communications, and other basic services. Under the direction of the Kuwait Oil Company, increased numbers of oil fire fighting teams have capped almost 600 wells, and the Kuwaits estimate that all the wells will be extinguished by the end of this year, or shortly thereafter. Oil production and exports have resumed, with estimates of production of 400,000 barrels per day by December from Kuwait proper (i.e., not including neutral zone production). The reconstruction of Kuwait's processing and refining capacity should begin in earnest shortly.

The Kuwaiti government is currently discussing longer-term reconstruction planning. As reconstruction projects are begun, they are increasingly coordinated through traditional government channels (e.g., the Central Tenders Committee), as opposed to the ad hoc purchases of the emergency phase made by the Kuwait emergency and recovery program or directly by the ministries. Unresolved questions about financing for major projects, and shortfalls in budget allocations, continue to slow the decision-making process. A major indicator of the direction of government rebuilding priorities will be the 1991 budget; the budget is to be adopted this fall.

Private sector reconstruction is well along in some sectors; for example, most of the major hotels have been restored or are being repaired, several of the larger merchant establishments have aggressively reestablished their operations in Kuwait, and certain of the more substantial manufacturing concerns have restarted production. The private sector has been slow in other areas to begin repairing the damage wrought by the invasion. Many industrial and commercial establishments suffered significant damage and financial losses during the war, and a large part of the business community has been hesitant to undertake large-scale rebuilding or make major purchases of inventory until a number of issues have been resolved.

First and foremost among these issues is financing; Kuwaiti businesspeople want very much to know where the money to pay for rebuilding will come from. Some steps have been taken. Pre-war consumer and real estate debt was cancelled by the government in the spring. The government also recently announced an agreement to exchange government bonds for the commercial banks' domestic credits and then to work out extended repayment schedules with individual debtors. When this program is implemented, the major financial impediments to recovery should be removed. In the meantime, however, banks remain reticent about issuing lines of credit or working loans to any but their most solid pre-war customers. The government has also established a government authority to process war damage claims by individual Kuwaitis and Kuwaiti businesses, which should help Kuwaiti businesses and consumers rebuild their former financial positions; the process, however, will take time.

Other issues have also kept the private sector from rebuilding as actively as it might. While almost all Kuwaitis have returned, Kuwait's expatriate population is decidedly smaller than it was before the war. The current population of Kuwait is estimated to be 1.0-1.2 million, including 650,000 Kuwaitis. The long-term market is therefore smaller, trained staff is sometimes difficult to find, and many business-owners have not returned to reopen their stores and factories. Businesspeople also continue to worry about the security of their country, although there has been a noticeable relaxation since Kuwait and the United States signed a defense cooperation agreement on Sept. 19.

Despite sometimes slow movement in the reconstruction process, American firms have done very well in Kuwait in the postwar period. American companies willing to approach the Kuwaiti market systematically have scored some stunning successes. The U.S. Embassy estimates that American companies have signed contracts worth over $1.5 billion thus far. Trade statistics through June show over $360 million in exports of a wide range of products, from vehicles, drilling equipment, pharmaceuticals, prefabricated buildings, to computers. The "Direct From the USA" consumer trade show in June netted participants some $40 million in direct sales. These successes have been distributed across a wide spectrum of American business, from an oil sector contract in the hundreds of millions of dollars for an American multinational to a small minority-owned firm's sale of $2 million worth of telecommunications equipment to the Kuwaiti government.