Saturday, November 05, 2005

In Kuwait, oil wealth dulls economic change :: Wall Street Journal
Carpe diem


Suddenly, they were looking at a $9 billion surplus. This was very good news for Kuwaitis like Madelene Al-Jaafar, a 63-year-old widow with three grown children.

Ms. Jaafar estimates she's received about $45,000 in additional subsidies and cash handouts from the government since then.

These include a $688 payment she collected along with each of Kuwait's one million citizens, a waiver for a decade of unpaid electric bills, a hefty bonus for government workers -- including retired ones like Ms. Jaafar -- and a payment of more than $15,000 to help her build a home.
Meanwhile, she's benefiting as Kuwait City undergoes an extreme makeover, with plans for new skyscrapers, waterfront shopping malls and a highly subsidized bus system with luxurious shelters and very short waiting times.
. . .
Qatar announced a waiver of electricity and water charges earlier this year, which will cost the government $400 million annually.
. . .
few things induce complacency like higher oil prices, according to those who want to see the economy modernized. "Oil prices begin to climb, and immediately the government sits back and relaxes," says Ali Al-Mousa, chairman and managing director of Kuwait's Securities Group investment bank and a former minister of planning. "Visit any government office and you can see it today."

The Gulf's unique combination of exceedingly young populations and elephantine public sectors presents the risk of a fiscal time-bomb, supporters of change argue. Almost two-thirds of Kuwaitis are under 20 and will soon want jobs.

They'll expect to find them with Kuwait's employer of first and last resort: the government, which promises a salary to any citizen who wants one. Almost all Kuwaitis who work are on the public payroll.
. . .
Electric power, for example, costs Kuwaitis about 10 percent of the market price. That is no small thing in one of the hottest countries in a hot region, where residents typically run their air-conditioning year-round. Fuel prices are heavily subsidized.

Meanwhile, a new constitution gave every Kuwaiti the "right to work," which basically translated into a guaranteed government job. Most jobs amounted to government sinecures, requiring little time or talent. . . .
When Ms. Jaafar got married, the government gave her and her husband $17,150 to help with expenses. The couple also received free land, a car and cash to help build a house. Their expenses were minimal: electric bills, which often go unpaid, were almost nothing. Subsidized food made basic meals close to free. On her 10th anniversary, a congratulatory check for nearly $250,000 arrived from the government. Ms. Jaafar retired after 15 years in her government job of three hours a day. But her pension still brings in 95 percent of her previous salary, which was $4,116 a month.

Kuwaitis wanting to invest in the stock market can get interest-free loans -- something Ms. Jaafar recently did to cash in on the stock-market boom. Interest-free loans are also available for travel abroad.
Some members of the National Assembly are lobbying for the government to forgive these individual debts -- just as the government recently did for unpaid electric bills. They quote Article 20 of Kuwait's constitution, which stipulates the aim of the national economy includes providing "prosperity for citizens."
. . .
The percentage of working Kuwaitis on the government payroll has risen to 96 percent from 80 percent two years ago.
. . .
Kuwait's National Assembly is elected, and it's among the most active and responsive to constituencies in the region. Although the ruling Emir and the government have the final word, they've been reluctant to flout the elected body's collective will.

But the National Assembly is packed with populists devoted to defending the country's welfare state.
Let's forget about tomorrow
Let's forget about tomorrow
Let's forget about tomorrow for tomorrow never comes
-Forget Domani (N. Newell, R. Ortolani)
-from the MGM Motion Picture "The Yellow Rolls Royce"
Words and Music by Riziero Ortolani and Norman Newell , 1965
With The Allesandro Allessandroni Singers under the direction of Ray Charles



Anonymous Bartman said...

So, what's the option? Do you think that the Kuwaiti government should not share the oil wealth with its citizens?

How do you deal with societies where the money basically grows on trees? The small GCC states will never employ widescale industriousness or ingenuity until they have to, and they won't have to for a long, long time.

Economically speaking, working hard when you don't have to is rather silly. Some people get utility from working hard, but most don't, and it goes against our discipline's teaching to try to apply normative notions like "you should work hard" when people in these countries clearly do not have to. If all of your housing, clothing, food, travel and entertainment costs are covered by the stuff coming out of the ground, why should you bust your ass?

One day the oil revenue will dry up, and then the locals will have to learn to actually perform economically beneficial activites, or go back to the way people lived here 60 years ago. I see no reason to believe why a Kuwait or Abu Dhabi without oil would be any different to, say, Yemen or Eritrea.

But that's a long time off, IMO. Until then, maybe we outsiders should stop fretting about it, and let the locals enjoy the fruits of their oilfields.

11:55 AM  
Blogger muscati said...

I was definitely born in the wrong GCC state.

4:43 PM  
Blogger Emirati said...

In an effort to get more people to work the UAE government is cutting back on government given benefits. No way does the average UAE national get what the Kuwaitis get. While theyll live better than us, I think that we are starting to involve ourselves more with the outcome of the country.

10:15 PM  
Blogger sandsOfTime said...

I once read in Arabies Trends that the average Kuwaiti puts in an average of 20 minutes of productive time at work. All I can say is YIKES! I think we had something like this during the 80's. I agree with Emirati that it is a good thing that the UAE government is cutting benefits to its nationals to have them work more. We desperatly need more nationals who contribute to the country's development

11:03 PM  
Blogger John B. Chilton said...

I can't really disagree with Bartman. Except that there is the empirical question of when will the oil run out and/or become less valuable. The article quoted someone as saying it's not long off.

I certainly agree that there's no reason not to share the wealth, but there might be more efficient ways to do it such as giving Kuwaitis ownership of the oil rather giving them defined benefits.

Is the UAE cutting back on transfers? From what I've seen the transfers have increased and still have adverse work incentives - i.e., the more you work the less you get.

There two effects that reduce desire to work. One, when you get wealthier you tend to want to take more leisure other things equal. Two, that the size of the transfer of wealth declines the more income you earn. Why would you want to work even 3 hours a day when you can collect 95% of salary annually in retirement?

4:12 PM  
Blogger Emirati said...

The transfers to people who rely on aid, in the national assistance fund has increased. Salaries for the public sector were also augmented.

The thing is, you can no longer collect 95% in salary post pension, now it reaches only 60 to 50%.. cutbacks on the retirement and the pension fund have increased the number of years the employee has to work, combine that with inflation, and the fact that most UAE Nationals have debts, this encourages people to work or else end up in jail. Now a reward based system is in the works, and hopefully soon corruption will begin to be combatted more often.

5:41 PM  

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