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Kuwait’s parliamentary monarchy stands out in the region. Indeed, the country is by far the most open in the region, as evidenced by the ten- to fifteen-point differential with the average of the Gulf Cooperation Council (GCC) countries in the Freedom Index throughout the 1995–2023 period. The distance with respect to other monarchies in the GCC, namely Saudi Arabia or Qatar, is much larger, reaching 23.5 and 18.5 respectively. Kuwait’s political regime presents noticeable specificities that make it difficult to compare to the liberal democracies of the Western world. For example, relatively fair and free elections coexist with a ban on political parties, and the inviolability of the Emir is combined with a strong control of his government by parliament. That said, Kuwait’s democratic experience is positive and serves as an example for other countries in the region.
To understand the specificities of Kuwait’s political system, it is useful to explore the relative differences between the components of the political subindex. Perhaps the large difference that stands out is between the scores on elections and legislative constraints on the executive (both above 80 in the last two decades) on the one hand, and political rights (below 40 since 1995) on the other. High degrees of legislative control and restraints on the executive are typically not associated with unprotected political freedoms of association and expression. This is probably the most salient feature of Kuwait’s exceptionalism. Even though political parties are prohibited, explaining the low score on political rights, independent candidates compete in regularly held elections to the National Assembly. These individuals cover a wide spectrum of politics, such as the merchant class, urban progressives, Islamist movements and other tribal groups. These fifty elected members of the legislative body hold1 significant power to approve and oversee the Emir’s appointed cabinet, and a majority of them must ratify all laws. The high score on legislative constraints on the executive does reflect a real feature of Kuwait’s political arrangement.
Finally, it should be noted that civil liberties are also significantly better upheld in Kuwait than in many of its neighbors, but these freedoms are not yet granted to important shares of the population, especially women. It is expected that the voting rights granted to women in 2005 will favor a gradual movement towards gender equality in all areas of social and political life, but progress appears to be slow.
It should be noted that Kuwait was ahead of its regional neighbors in terms of competitiveness and financial markets until the invasion by Iraq in 1990. Despite being liberated fairly fast, the effects of the invasion were traumatic for Kuwait, and the Iraq war(s) also produced a sense of uncertainty for foreign investors, on top of brain drain out of Kuwait. Indeed, the invasion steered Kuwait toward economic isolation. The country became less competitive and others such as Bahrain, the United Arab Emirates (most notably the emirate of Dubai), Qatar, and more recently Saudi Arabia have become economic powerhouses in the region. That said, the oil sector remains vibrant and an important source of foreign exchange receipts. Gross domestic product (GDP) per capita is still high, but economic reforms in Kuwait have stalled. The new Emir has put a focus on recovering the economic dynamism of the past; whether he succeeds will depend on his ability to formulate a vision for transformation, including to diversify away from oil, with the cohesive support of the population.
Turning to the legal subindex components, the low score on control of corruption may be at least partially capturing perceptions of corruption more than actual corruption. To be sure, issues of nepotism and monopolization of the economy are pervasive, although some efforts to limit dominance and corruption have been undertaken. The anti-corruption policy triggered by past high-profile scandals may have had unintended consequences up to today. In other words, anti-corruption measures have been divisive and politicized. They also introduced important delays and disruptions in the attribution of public works projects, which are important for bolstering the Kuwaiti economy.
Informality is low in Kuwait. It should be noted that the labor market is highly polarized, with higher-skilled workers on one side and lower-skilled workers who are mostly expatriates on the other. Kuwaitization policies have been put in place to favor Kuwaitis, especially for higher paid jobs. Kuwait, like many countries in the GCC, relies heavily on expatriates for both high- and low-skilled jobs, especially for the latter whose elasticity of labor supply is very low. Concerns about the treatment of low-skilled expatriates have been an important issue in the GCC. In Kuwait, the situation for foreign workers is relatively better on account of higher levels of freedom of religion and other civil liberties.
Lack of gender equality is clearly evident in the women’s economic freedom component of the economic subindex, where Kuwait receives the seventh lowest score among the 164 countries covered. As in other countries in the region, traditional norms heavily affect the situation of women, especially in areas related to economic issues for married women. While traditions weigh in on women’s rights, resource abundance—especially oil—has been an important factor influencing the relative position of women in society. In an influential paper, Michael Ross1 provided evidence that the oil sector, being capitalistic, is not intensive in labor and hence demands less female labor than other sectors. In turn, oil-rich countries have substantially lower female labor force participation than oil-poor ones (for example, compare Algeria with Morocco), which in turn reduces women’s political voice and influence. As a result, these countries are left with strong patriarchal norms, laws, and political institutions. This explains the fact that the ten countries at the bottom on women’s economic freedom are Middle East countries with relatively high oil reserves.
The Prosperity Index illustrates the relative economic stagnation of Kuwait in the last two decades. Moreover, focusing on income per capita as a measure of prosperity, the country has been on a decreasing path since the Great Recession. Decreasing oil prices in the last ten years obviously play an important role, but Kuwait’s sluggish economic performance is not circumscribed to the oil sector. Kuwait has had difficulties attracting foreign investment in the same way it used to do during the 1980s, which should be a crucial priority in the coming years.
Inequality among Kuwaiti citizens may not be so large, due to the very substantial scheme of subsidies and redistributive transfers financed by oil rents, but the real source of inequality lies between national and foreign workers. When foreign workers are considered, any inequality statistic drastically worsens for the country. That situation is likely to persist in the future, even though it would be in Kuwait’s interest to protect workers better in all respects, as the spread of COVID-19 has made the interconnectedness clear.
In terms of education, there has been a significant effort to reform the system in order to ensure universal enrollment and increase the average years of schooling, which is adequately reflected in the data used by the Prosperity Index. Nonetheless, the current deficiencies of Kuwait, as well as other countries in the region, are about quality of education more than just quantity. The old social contract whereby the youth would get a high-paying job, mostly in the public sector, is no longer viable given f iscal restraint. It is thus all the more important that Kuwait furthers its efforts to improve education quality to allow Kuwaitis to perform outside the public sector.
The data on health show a significantly harder negative shock due to COVID-19 in Kuwait than in the rest of the region. This is surprising as, in general, the healthcare system of Kuwait is high quality. Comorbidity may have been an important factor. Also, importantly, foreign workers were not as well protected as nationals during the pandemic, and the death rate may have been significantly higher among this group. The overall assessment of the healthcare system of Kuwait remains positive, even though our data reveal an element of duality in the system which could have systemic effects.
Kuwait has several environmental challenges that may be overlooked by the indicator used in the Prosperity Index; such as sandstorms, which are detrimental to health, especially for pregnant women and people with respiratory diseases like asthma; or access to water. But obviously the main concern is the oil industry. The relatively good score obtained by Kuwait can be related to the fact that oil extraction does not account for a majority of the emissions produced by fossil fuels, but these are “exported” to the rest of the world, where actual oil consumption takes place. That said, large economies importing oil are as much to blame for emissions related to hydrocarbon use as oil exporters like Kuwait.
Finally, the minorities component needs once again to be adequately situated in terms of the point of comparison. With respect to the rest of the Middle East and North Africa region, Kuwait performs relatively well, as it is considerably more tolerant regarding freedom of religion and other civil liberties. Moreover, even if imperfect, the democratic mechanisms described above favor an egalitarian treatment of different social groups. Anyhow, if we compare Kuwait to well-established democracies in Europe or North America, the gap is still substantial, including in the area of gender equality.
The new Emir of Kuwait, Mishal Al-Ahmad Al-Jaber Al-Sabah, came to power after the death of his brother at the end of 2003. After parliamentary elections, which were won by opposition candidates, the Emir decided to dissolve parliament and take over some of its prerogative. The dissolution is the culmination of long-standing tensions between parliament and the Emir. Notwithstanding there have been dissolutions in the past, that move by the Emir raises uncertainty about the future of democracy in Kuwait. There is also uncertainty on the horizon over which new elections will take place. The Emir has justified his actions on account of a gridlock over important issues related to the tackling of corruption and economic diversification of the economy. The Emir and parliament have to resolve their differences, so Kuwait remains an important beacon of democracy in the region and continues to build on its track record on civil liberties as well as making needed improvement on laws regarding women.
Besides these important political tensions needing resolution, Kuwait should embark on economic transformation. Indeed, the end of the oil era is looming and makes transformation imperative. Kuwait is known to be home to the world’s first sovereign wealth fund which aims to safeguard the economy from fluctuations in oil prices and support the welfare of future generations. Despite having been ahead of the pack, Kuwait has struggled to transform its economy. Other countries in the region have taken the lead, which should inspire Kuwait. Dubai, for example, facing the depletion of its oil reserves, transformed itself into a global trade and financial hub and is acting as a magnet for companies’ headquarters in the region and beyond. That said, Kuwait, like most countries in the Middle East and North Africa region, is plagued with the issue of economic concentration and monopolization. That excessive concentration limits innovation and slows down productivity, in addition to frustrating entry into different sectors. Oil export revenues, which constitute almost the entire source of foreign exchange receipts, finance imports and other non-tradable services. Unfortunately, the monopolization of these sectors has stifled the economy and benefits a small business elite.
To transform, Kuwait needs to address a myriad of institutional deficiencies, such as pertaining to corporate governance, legal systems, and competition. For example, large public sector employment financed by oil revenue has stifled the impetus for innovation. Economic policies that are not geared toward changing attitudes are unlikely to deliver the needed transformation agenda for Kuwait. Saudi Arabia aims to augment the longtime source of its riches with non-oil income. As part of its ambitious plan to transform its economy, the country issued a public offering of a minority share of the state-owned oil company, Aramco. That is a step toward emulating publicly owned companies in advanced economies, such as Exxon or British Petroleum—which once concentrated on oil, but broadened their focus to become energy companies, balancing their oil assets with other forms of energy.
The focus on the end goal of diversification has too long kept countries like Kuwait from getting the process right. Transformative policies should move away from top-down approaches that pick which sectors to develop. Instead, they must develop an environment that promotes demonopolization and changes the incentives of managers and tech-savvy young entrepreneurs and helps them, their firms, and ultimately the whole economy reach their potential.
Rabah Arezki is a former vice president at the African Development Bank, a former chief economist of the World Bank’s Middle East and North Africa region and a former chief of commodities at the International Monetary Fund’s Research Department. Arezki is now a director of research at the French National Centre for Scientific Research, a senior fellow at the Foundation for Studies and Research on International Development, and at Harvard Kennedy School.
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