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WEEKLY NEWSLETTER
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Kuwait
Index
Laboratory technician at the Kuwait Foundation for the
Advancement of Sciences
Courtesy Embassy of Kuwait, Washington
Waterfront project that extends along twenty-one
kilometers of the Kuwaiti coast
Courtesy Embassy of Kuwait, Washington
Industrial development in Kuwait has always faced
formidable
obstacles. Kuwait, so rich in oil, is poor in most other
resources, which limits the manufacturing industries that
can be
established. No metallic minerals and few suitable
nonmetallic
minerals are locally available. Most raw materials for the
early
industries--for example, cement--had to be imported. The
limited
supply of fresh water is another constraint. In a country
without
streams and with few underground sources, water is crucial
to
industrial development. The pre-oil system, where local
sailing
boats carried water from Iraq to Kuwait, could not meet
manufacturing needs. The small size of the domestic market
restricts production for local consumption to small-scale
operations. The open economy, which was maintained before
and
after the discovery of oil, provided little protection
from
foreign competition. The small Kuwaiti labor force,
possessing
limited skills, is another constraint. After the discovery
of
oil, labor costs escalated, and in a few years wages in
Kuwait
were higher than those in almost any other area of the
Middle
East, further hindering industrial development. Also, the
commercial tradition in the country predisposes most
entrepreneurs to invest in trade rather than
manufacturing. As a
result of these obstacles, industry, excluding oil-related
industry, expanded very slowly.
The discovery of oil created a demand for new
industries,
initially satisfied by the oil company itself. Oil
operations
particularly needed water, electricity, and refined
petroleum
products, and these were the first modern industries
created in
the state. The government took over production of water
and
electricity, expanding the systems and subsidizing their
use. Air
conditioning provided the largest demand, with peak summer
loads
more than five times minimum winter loads, creating
substantial
idle capacity for about six months of the year. The need
for
larger and more regular supplies of water, no matter how
costly,
compelled KOC to install the first desalination plant. In
1953
the government installed the first unit, which had a
capacity of
3.8 million liters per day. Subsequently, the government
claimed
that it had developed the most advanced continuously
operating
desalination facilities in the world.
Although oil spurred the first industries in Kuwait,
after
the initial push, oil did not generate much in the way of
new
industries locally. As a result of the many obstacles that
industry faced and in light of the massive oil revenues,
the
government began to play a major role in all industrial
development. The government undertook some efforts at
diversification in the 1950s, but the first major push for
industrialization occurred with the establishment of the
Ash
Shuaybah Industrial Zone in 1964. The zone comprised
electricity
and water distillation plants, expanded port facilities,
metalworks, and plants manufacturing chlorine, asphalt,
cement,
pilings, and prefabricated housing. The government
provided such
necessary facilities as roads, gas, electricity, water,
sewerage,
port facilities, communications, and rented or leased
industrial
sites at nominal rates. Most of the larger industrial
facilities
were located in the zone. Other small manufacturing
establishments were located in the populated parts of the
country.
The government provided a range of incentives to
private
manufacturers who were predominantly local--51 percent
Kuwaiti
ownership was required of all businesses. In addition to
infrastructural support, financial aid included equity
capital
and loans. In 1974 the government created the Investment
Bank of
Kuwait to provide medium- and long-term industrial
financing at
low interest rates. The government also gave local
industry
preference in government purchases, protection from
imports in
some cases, and exemption from customs duties and taxes.
In the
1970s, the government's Industrial Development Committee
and the
Industrial Bank of Kuwait established a number of
incentives for
private-sector participation, such as technical aid and
preferential guaranteed markets in state industry.
Nonetheless,
industry in Kuwait never enjoyed the same level of state
support
that it did in other gulf states. The government, having
made a
conscious decision to invest its revenues overseas and
locally in
such human resources as education and health care, gave
only
minimal support, by the standards of other oil-producing
countries, to non-oil manufacturing.
Data as of January 1993
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