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Kuwait
Diversification
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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