Thursday, 21st May 2020

Kuwait struggles to adjust to impact of Covid-19 and low oil

The impact of the Covid-19 pandemic continues to override all other issues in Kuwait. While the initial response to the pandemic was exemplary, the implementation of a full curfew on 10 May is causing some to question whether the country can really deal with the coronavirus effectively. The number of new officially confirmed cases has been averaging 900-1,000 a day recently. The total reached 17,568 by 20 May, with 124 deaths.

Questions are being raised about the utility of the partial curfew started in mid-March, whose obligations increased over time to reach a full lockdown this month. Expectations are high that the lockdown will end on 30 May, but Kuwait has not reached its peak infection rate. Sources in the Ministry of Health (MoH) predict the peak may not come until mid-July. Indeed, GSN understands doctors have been ordered to isolate in hotels away from their families until August. 
The situation in expatriate-dominated areas remains a central issue (GSN 1,101/3). The lockdown of Mahboula, one of the areas hardest hit due to its dense population, was lifted in mid-May and life is getting back to normal there. Jleeb Al-Shouykh remains in quarantine, as cases there have continued to rise. Food, medicine and other supplies are a focus of policy-making, but protests have continued sporadically in quarantined labour camps. Schools are being used to hold workers waiting to go back to their home countries. The lack of salaries and uncertainty about the viability of local companies and government-funded projects play on residents’ minds in some areas, such as Abraj Khaitan, Farwaniya and Jleeb Al-Shouykh.

In recent days, the Council of Ministers has announced plans for deep spending cuts and layoffs for expatriate workers in the public sector. Discussions about a quota system for different nationalities are ongoing. Some Kuwaitis and expatriate managers fear the likely loss of semi- and highly-skilled foreign workers – who account for perhaps as much as 50% of all expatriate residents – will erode foreign investor confidence and stymie efforts for future economic development.

Insiders expect the next few years to be tumultuous for local businesses unless the government provides stimulus packages to staunch the outflow of labour and assuage consumer and investor confidence. While little has been said officially about the state of the economy, the news is unlikely to be good. Soundings taken by GSN among members of the business community – along with the Capital Market Authority, Chamber of Commerce and Industry and Kuwait Investment Authority – reveal expectations that bankruptcies could claim at least 45% of all small- and medium-sized enterprises (SMEs). Some fear the number of SME failures could reach as high as 85% if Kuwait fairs particularly badly in the coming months. There is a widespread feeling among those GSN has spoken to that Kuwait will no longer be a ‘wealthy country’ due to lower global energy demand, and that a deep and painful economic and political transformation is needed to deliver the Kuwait Vision 2035 plan for a post-oil economy.

Perhaps most concern is expressed that Kuwait’s economic stimulus measures seem to have been the most timid in the Gulf Co-operation Council region. The Central Bank of Kuwait has cut interest rates, provided soft loans for SMEs and increased lending rates by KD5bn ($16.2bn), but these decisions have done little to soften the coronavirus demand shock. It is increasingly apparent that a public debt programme will be necessary – which first needs the National Assembly (parliament) to pass a new debt law. Some members of parliament (MPs) believe at least KD17bn is needed to cover its deficit in fiscal year 2020/21.

With Emir Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah in isolation, political battles continue to heat up in many arenas, leading to a potentially explosive environment in coming months. Many MPs have concerns about accountability and reportedly do not trust the government to use public money effectively. MPs have clashed with the government over the award of $2bn-worth of contracts, awarded without tenders being issued, for medical equipment, food and other pandemic-related goods to people close to the government and the ruling Al-Sabah family.

A scandal over money laundering claims levelled at former prime minister Sheikh Jaber Mubarak Al-Sabah and his sons Sheikhs Fahad and Sabah to facilitate contracts for the Madinat Al-Hareer (Silk City) project through fugitive Malaysian businessman Jho Low – infamous for his role in the 1Malaysia Development Berhad (1MDB) scandal (GSN 1,083/7) – is picking up speed and is likely to cause public and political turmoil.

The emir’s son Sheikh Nasser Sabah Al-Sabah has been pushing to reinvigorate the Madinat Al-Hareer project, as a focus for a future when Kuwait will need to develop its human capital and train a highly-skilled labour force. In parallel, more concrete legal and procedural steps are needed to overhaul the economy as low energy prices usher in a difficult new era.

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