Planning for the Post-Saddam Era

Kuwait's elite prepares to reawaken the economy

On a recent evening in Kuwait City, as the region edges closer to war, one of the country's leading merchant families hosts a diwanniya -- a meeting where Kuwaitis exchange gossip and air their gripes. The distinguished group includes Foreign Minister Sheikh Sabah al Ahmad al Sabah. He is actually running Kuwait now that his cousins, Emir Jaber al Ahmad al Sabah and Crown Prince Saad al Abdullah al Sabah, both in their mid-70s, are in poor health.

The topic of conversation? Eager anticipation of the demise of Iraq's leader, Saddam Hussein. But the mood is mostly playful as the men sitting on benches and sipping coffee tease the senior royal, who is dressed in a gold-trimmed robe. One participant draws loud guffaws by presenting Sheikh Sabah a mockingly cheap gift -- a set of plastic worry beads.

The al Sabah family, and Kuwait itself, do have plenty to worry about these days. The Iraqis, who seized Kuwait in 1990 and seethe with envy at the oil-rich emirate's wealth, have threatened to retaliate against their southern neighbors for backing the U.S. "We are taking a big risk," admits Sheikh Nasser Sabah al Ahmad al Sabah, Sheikh Sabah's son and a special adviser to the Prime Minister. "But we can't afford to live with such neighbors."

No less important, the Kuwaiti business elite and secular politicians are hoping that the ouster of Saddam Hussein and the creation of a more open government and economy next door will shake Kuwait out of its state of political paralysis and economic drift. While the oil-rich emirate boasts a strong parliamentary tradition and a lively press -- in contrast to its larger neighbor, Saudi Arabia -- the top leadership is paralyzed by ill health and a reluctance to make changes. "The Emir has lost interest to a level that he can't continue," says Jassem K. Al-Sadoun, chairman and managing director of Alshall Consulting & Investment Co. in Kuwait City. "Because of the situation in and around Kuwait, major decisions cannot be taken." Adds another prominent advocate of a shakeup at the top: "There is no vision. There is no one to make decisions."

Pressure is building for political change. With the Emir and Crown Prince ill, Sheikh Sabah, who is also in his 70s, is struggling to do the jobs of Emir, Prime Minister, and Foreign Minister all at once. Representatives of the country's top business families have been making the rounds of the royal family, urging them to bring in new leadership. One scenario being discussed: The Emir would abdicate in favor of Sheikh Sabah. The royal family would appoint a new, younger Prime Minister, who would do more of the day-to-day work of running the country.

Elections scheduled for July might tip the balance to more candidates who favor liberalizing Kuwait's system. Kuwaitis also speculate that the U.S. will step in to shake things up. "The Americans will turn around and say something has to be done here," says Ahmad E. Bishara, Secretary General of the Democratic National Movement, a liberal secular group with eight parliament members.

A key part of any reform will be the revival of the private sector. Partly because of the years of wars and broken relations with Iraq -- once Kuwait's major trading partner -- the private-sector share of Kuwait's economy has fallen from 42% in 1982 to 24% now, according to Randa Azar-Khoury, chief economist of the National Bank of Kuwait. "It is a pity," says Ibrahim S. Dabdoub, the bank's CEO.

Sheikh Nasser is pushing a bold economic vision for Kuwait. He recently told BusinessWeek that he favors developing Kuwait and Iraq as one economy. The key would be combining Iraq's vast land area and natural resources with Kuwait's abundance of capital. Sheikh Nasser is working to develop ports and tourist attractions on the Shatt al Arab, the confluence of the Tigris and Euphrates Rivers that forms the border between Iraq and Iran. Of course, whoever rules Iraq will still owe Kuwait $50 billion to $60 billion in claims from the last war. But Kuwait might wind up reinvesting a big chunk of these reparations in Iraq through its aid funds.

What about oil in the post-Saddam era? If a new Iraqi government begins to offer sweet deals to develop its fields, Ku- wait will come under pressure to match whatever Iraq offers. And though it is pumping flat out -- at 2.4 million barrels, above its sustainable capacity -- Kuwait badly needs to upgrade its aging fields. Kuwaiti officials have been negotiating with international oil companies for three years on a multibillion-dollar project to develop Kuwait's northern fields, but talks have bogged down. "Now that Iraq is opening up, who cares about the Kuwaitis and their arrogance?" says a Europe-based executive. Some Kuwaiti oil execs, however, recognize the need to move forward. Nader H. Sultan, CEO of Kuwait Petroleum Corp., says: "If Kuwait is not moving, the companies will move to Iraq." He's scrambling to push the talks ahead.

Meanwhile, the Kuwaiti economy grows increasingly out of balance. The enormous public sector employs almost 95% of the 255,000 Kuwaiti nationals in the workforce. This statist system may be affordable when oil is $35 a barrel. But when prices fall, Kuwait could be in trouble. "We are going to have real social problems," says Fawzi H. Sultan, Secretary General of the Higher Committee for Development & Economic Reform. With a mandate to create jobs and diversify the economy, Sultan wants to privatize the public transit system and Kuwait Petroleum service stations.

Sultan may have a new chance to move ahead after the U.S.-led campaign against Saddam is completed. With the Iraqi dictator gone, there'll be no more excuses for delays. But first there's a war to get through.

By Stanley Reed in Kuwait City

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