The recent jail sentence handed down to a prominent opposition leader in Kuwait reflects an authoritarian trend that may solidify business opportunities in the near future but casts a shadow on political stability down the line.
The political atmosphere in Kuwait
On April 15, a Kuwaiti court sentenced former MP Musallam Al-Barrak to five years in prison for comments he had made in October opposing a new electoral law and warning Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah against autocratic tendencies. Al-Barrak, who was arrested following his comments and has now been convicted of “undermining the status of the emir,” is currently in the process of appealing his sentence.
The ruling family’s handling of the Al-Barrak situation is indicative of an attempt to solidify its power by marginalizing the opposition and cracking down on critics of the regime. This approach represents a shift from past years, when Kuwait had earned a reputation as the most open, democratic Gulf state. Recent actions, however, align more closely with policies employed in neighboring countries such as the UAE, Bahrain, and Saudi Arabia.
After legislative elections in February 2012 put opponents of the regime—among them Islamists and tribal leaders—in power, the emir dissolved parliament and instituted a new electoral law that was disadvantageous to the opposition. In response, opponents voiced their unhappiness by boycotting a new round of elections on December 1. That vote resulted in a pro-regime National Assembly. A court will rule next month on the legality of the election law amendment.
A favorable business environment
Opposition leader Al-Barrak’s sentence reflects an authoritarian trend that may solidify business opportunities in the near future but casts a shadow on political stability down the line.
For the time being, the alignment of interests between the regime and the parliament makes for what would seem to be an advantageous business environment. Until now, the Kuwait Development Plan (KDP), launched in 2010, has been slow to get off the ground. This $100 billion plus infrastructure-building initiative, which includes a sleek new urban center called Silk City and a skyscraper intended to surpass Dubai’s Burj Khalifa, aims to make Kuwait a thriving commercial center. At its core, the project is meant to diversify the oil-centric Kuwaiti economy.
Despite the hold-ups that have plagued the project until now, recent developments point to progress on the KDP. Now, the emir and parliament are initiating a battery of legal changes favoring foreign investment. A law facilitating incorporation and streamlining corporate governance passed in November 2012 aims to create a more business-friendly environment. Meanwhile, the minister of commerce and industry has gone on record saying that the government intends to do away with a law requiring foreign investors to maintain a local business partner.
These legal developments have been accompanied by concrete steps to encourage foreign investment. In early May, Kuwait and the United Kingdom held a joint investment conference in London, where ministers from both countries vowed to increase bilateral trade to $4 billion within two years. The event served as an occasion for business leaders to consider opportunities in Kuwait. This renewed interest from London is undergirded by a Kuwaiti push for privatization. Newfound focus on implementing the KDP will funnel funds into the private sector, including industries such as transportation and healthcare. The central bank has forecasted 5 percent growth in the non-oil economy this year. According to Bloomberg, Kuwait aims to spend up to $17.5 billion on infrastructure projects within this fiscal year. As another positive sign, lending to the private sector is also on the rise, growing 4.8 percent this year as of February.
The pro-regime parliament plays a key role in facilitating these developments. In fact, some analysts have suggested that Kuwait’s democratic system has previously prevented it from enjoying the economic success of its authoritarian neighbors. From that point of view, Kuwait’s silencing of the opposition has thus far allowed it to reach a newfound consensus on certain questions of economic policy where conflicting positions had previously made achieving a unified vision impossible.
Reasons to be cautious
One would be forgiven for interpreting recent developments as an unqualified green light for investment in Kuwait. In fact, the sentencing of Al-Barrak and the trend toward political repression casts a shadow on this rosy picture. The outcome of Al-Barrak’s appeal this month and the June ruling on the legality of the altered election law will chart the course for Kuwaiti politics. If the court lets Al-Barrak go free, it will effectively give greater voice to the opposition. Meanwhile, a reversal of the election law would disrupt the current alignment of interests between the National Assembly and the emir, thus potentially stalling business efforts. The return of critics to parliament could lead to further hold-ups, such as corruption investigations and measures against privatization. Al-Barrak and his Popular Action Bloc have been known to favor doing business with Kuwaiti companies.
On the other hand, if the courts uphold Al-Barrak’s jail sentence and maintain the election law, it would entrench the regime’s stance against its detractors. While this might allow business efforts to move forward, it would give birth to a more explosive opposition that would take to the streets and potentially become violent. Investment in this case would come with the trade-off of turning a blind eye to what Amnesty International characterizes as human rights violations: curtailing the freedom of expression and locking up outspoken critics.
What is more, there remains a risk that familiar obstacles may resurface and undermine the avowed commitment to privatization and foreign investment. One should not ignore the track record: the Financial Times reports that less than one third of the KDP is on track to be completed by the target date of 2014. The bureaucracy that has contributed to that slow-going will not disappear overnight. And despite the government’s proclaimed commitment to expanding the private sector, economic incentives might push workers in the opposite direction. To quell increasing demands by the people, the regime has continued to fatten pay for jobs in the public sector, effectively discouraging work in private enterprise. Meanwhile, a healthy degree of skepticism may be in order regarding legal measures meant to reduce red tape for foreign investors, as previous privatization pledges have fallen short. After all, according the IMF, foreign investment between 2005 and 2011 was below 1 percent of GDP (compared to a GCC average of 6 percent). The sureness of return on investment also remains in question as The Investment Dar, a Kuwaiti private equity group, remains tangled up in a debt restructuring plan that resulted from its 2009 default on a $100 million bond issue.
Evidently, Kuwait’s situation is not clear-cut. While the concerns outlined above loom in the background, there is a chance that the commerce-friendly environment will last. The business community should keep its eye on the upcoming court decisions, and whether or not the laws designed to attract foreign investment take shape as promised. The final verdict: it is a flashing yellow light—proceed with caution.
