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Kuwait
Foreign Aid and Trade
Foreign trade has always dominated Kuwait's economy. Before the
discovery of oil, merchants developed large transshipment and
reexport businesses that, along with the sale of pearls to foreign
dealers, yielded a substantial part of the population's income.
The discovery of large quantities of oil provided a new and increasingly
important export because Kuwait needed only small amounts of oil
products domestically. Nonetheless, even after the discovery of
oil, Kuwait's merchants continued to develop transshipment and
reexport businesses with neighboring countries. During the Iran-Iraq
War, goods for Iraq passed through Kuwaiti ports. Oil, however,
overwhelmingly dominated Kuwait's exports (see table 8, Appendix).
Kuwait's significant foreign-exchange earnings from oil exports
and investment income largely removed any constraints on imports
in the pre-invasion period. Almost any commodity could be imported,
and most import duties were modest. Imports for Kuwait's high-income
economy were mainly finished products because of the small domestic
manufacturing sector (see table 9, Appendix). These imports came
predominantly from Asian countries, followed by those from European
countries. Imports of all kinds came primarily from Japan and
the United States. After the Persian Gulf War, imports from the
United States increased dramatically (see table 10, Appendix).
Huge oil revenues, paid in foreign currencies, freed Kuwait for
the most part from balance of payments worries (see table 11,
Appendix). The government accumulated surplus funds that were
invested abroad. A large part of these reserve investments abroad,
however, were cashed in during the Iraqi occupation and the liberation
period that followed in order to pay the expenses of Kuwait and
the allied coalition.
Historically, Kuwait also invested part of its revenues in foreign
aid, primarily to Arab states. This foreign aid increased substantially
as oil revenues rose in the 1970s. It took many forms, such as
loans, joint financing, equity participation, and direct grants,
particularly in support of Arab causes. In the 1960s, the government
began placing funds in the Kuwait Fund for Arab Economic Development
(KFAED), established in 1961. The best known of Kuwait's investment
organizations and one that was used as a model by other oil exporters,
KFAED functioned as both an investment and an aid agency, providing
loans for specific projects, often on concessionary terms. KFAED's
charter was changed in 1974, when capitalization was increased
to KD1 billion (for value of the Kuwaiti dinar--see Glossary),
and the fund began expanding its provision of funds to developing
countries worldwide. Most KFAED aid went to development projects,
especially in agriculture, to provide basic services such as electricity,
water, and transportation and to develop human resources through
education and health care. A large amount of aid went directly
from the government to other states. In per capita terms, Kuwait's
aid program was one of the most generous in the world. In the
early 1980s, when oil prices were high, nearly 4 percent of Kuwait's
gross national product (GNP--see Glossary) went to the aid program.
But in the late 1980s, the levels of aid declined along with declining
revenues. After the Iran-Iraq War started, in 1980, Kuwait increasingly
directed its aid toward Iraq. During the 1980s, Kuwait lent Iraq
an estimated US$13 billion. Kuwait's foreign aid slowed considerably
after the Iraqi invasion in August 1990 and is expected to remain
limited as Kuwait deals with the costs of reconstruction.
Data as of January 1993
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