Kuwait's economy is mainly based on oil exports. Kuwait's ownership of the world's total oil reserves range from 8 % (minimum)- 10% (maximum). Kuwait has about 96.5 billion barrels of recoverable oil; only Saudi Arabia and Iraq have larger proven reserves. It is estimated that the country's oil resources will last for another 100 years at current rates of extraction.
90% of Kuwait's export income and 75% of government revenue comes from the sale of oil. Such figures make the Kuwait economy one of the most oil dependent in the Gulf Co-operation Council Area. Kuwait's non oil exports and products consist of Petrochemical related products, together with Agriculture, Light manufacturing and Fishing. However the volume and value of products and exports produced by these industries is quite small in comparison to the country's oil income, mainly due to lack of resources (water for agriculture, and land for building larger industrial facilities) and low monetary value of Fishing products.
Nevertheless the Kuwaiti government has taken other steps in order to diversify its economy through the creation of the Kuwait Fund for Future Generations (KFFG) which is a state reserve fund managed by the state-run Kuwait Investment Authority (KIA). According to law, 10% of Kuwait's oil income goes directly to the fund for investment elsewhere. In 2004 KFFG's value was estimated at USD $70 billion Dollars, most of it in overseas investments such as ownership of companies, stocks and bonds in the US, Europe and the Far East.
The fund was established by the Kuwaiti government based on the principle that being overtly dependent on oil could jeapordise Kuwait's economic and even political stability at times of low oil prices. Also the increasing popularity of environmentally friendly sources of energy such as wind, water and solar also had an impact on the Kuwaiti government's decision. The other reason for the creation of the KIA is the Kuwaiti authorities realisation that the country itself does not currently have sufficient natural resources (land, primary resources, water) and the infrastructure (legal and educational infrastructure) at hand for the establishment of other industries at home as means of diversifying the economy.
The current prognosis of the Kuwaiti economy can be described as healthy and strong. For the the 2003/2004 fiscal year that ended March 31, the country posted $4.8 USD billion Dollar surplus. This was due to the Kuwaiti government's revenue estimates being based on oil being sold at $15 USD per barrel, whilst in fact throughout the year the average price of oil was $26 USD per barrel. Such a surplus follows the USD $4.3 billion dollars surplus for the year 2002/2003 (with recorded revenues of USD $20.7 billion dollars and expenditures of USD $16.4 billion dollars).
Another budget surplus is fore casted for the financial year 2004/2005. This based on Kuwaiti government's estimates of 5% increase in expenditure for the year, against falling revenues due to expected fall in oil prices. However the government's estimates were proven incorrect as the price of oil for 2004 was in fact higher than 2003. As a result of the strong oil earnings the Kuwaiti economy earned its estimated $11.5 Billion for the whole of 2004-2005 in the first five months of the financial year.
By: Meir Javedanfar- www.meepas.com