US embassy cable - 03KUWAIT3555

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 003555 
 
SIPDIS 
 
STATE FOR NEA/ARP 
STATE FOR EB, EB/CBA, AND EB/IFD 
USDOC FOR 3131/USFCS/OIO/ANESA 
USDOC FOR 4520/MAC/AME 
USDOC FOR 6000/TD/AC 
 
E.O. 12958: DECL: 08/03/2013 
TAGS: ECON, PREL, EINV, ELAB, ETRD, KU 
SUBJECT: NEW CABINET MANTRA: PRIVATE SECTOR WILL ADD JOBS 
 
 
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 
Summary. 
 
BURGEONING COSTS 
 
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." 
 
HEALTH CARE PRIVATIZATION 
 
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. 
 
OPENING MARKETS 
 
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. 
 
PRIVATIZING HOUSING 
 
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. 
 
DIRECT INVESTMENT LAW 
 
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. 
 
PRIVATE UNIVERSITIES 
 
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. 
 
COMMENT 
 
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. 
JONES