DIVERSIFYING KUWAIT’S ECONOMY: MYTH OR REALITY?

When deciding how to diversify Kuwait’s economy, I would start by focusing on three core areas. First, Kuwait can aim to reduce oil-related activities. However, the question may then ask whether the country would simply force oil companies to reduce their oil refinery and production volumes? If oil companies were willing enough to do so accordingly, then Kuwait is likely to experience serious, albeit short-term, fiscal challenges given the fact that around 90 per cent of the country’s fiscal revenues currently stem from oil export revenues. In this regard, Kuwait would most likely prefer to redirect oil-related activities into more sustainable ones by institutionalizing the following three modalities.

The first is to provide incentives to oil companies, which could fill the expected revenue gap resulting from the reduction of oil activities, for instance, through tax incentives or regulatory governance that can allow their operations to be expanded into the non-oil sector. This can be considered an initiative towards “diversification” while at the same time balancing the sectoral shift.

The second is to promote carbon tax initiatives and Environmental, Social and Governance (ESG) reporting as well as possibly supporting the adaption of green technologies that can be of immediate benefit to business operations. Such an approach will be the first yet the most fundamental step towards putting the country on the path of “green growth”.

The third is to implement awareness raising initiatives related to the reduction of CO2 emissions and further link these to public health concerns. These initiatives should primarily target the general public, academia, civil society organizations and especially youth. This approach is particularly crucial as community-demand can be one of the most effective nudging tools for behavioral change at both the consumer and corporate level.

Second, Kuwait can simply target an increase in non-oil sector activities. Considering the relatively small domestic market, it is wiser to focus on two development dimensions in this regard, namely the construction sector and private sector engagement.

 

Source: UNIC Beirut

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