How Can Political Factors Affect Finance In Kuwait - Research Paper Example

How Can Political Factors Affect Finance In Kuwait? Introduction Kuwait has a long-term tradition in its parliamentary system. This is because political disputes are not only centered in the government and the royal family but also in the extent of its citizens. The political landscape in Kuwait is, therefore, nonpareil in comparison to other countries in the Middle East. The wave of democracy in this country is based on the decision to control oil companies. This is because over 35 percent of the world’s energy consumption is based oil fuels. It is believed that the pivotal factor affecting democratization in Kuwait is the production of oil. This is because the entire economy of Kuwait revolves around oil and other hydrocarbons investments. In addition, the government provides security and employment of people because of acceptance in the recent political order. However, it is also clear that royal Al-Sabah family has ruled the country with an iron fist without detaching themselves from the society and its people due to their vast wealth. The factors of democratization engage in recreation, an essential responsibility in the society of Kuwait. This means that the stronger these institutional factors are entrenched into Kuwaiti’s society the more democracy is achieved. Due to these democratic elements, Kuwait is the chosen country of research on how political factors affect finance in Kuwait. The investigative factors in Kuwait go beyond state model. This is because oil factor in this country together with other extreme generous welfares gives the basic reasons why the current state of Kuwait is not developed into a democracy nation. In this research paper, I will investigate how the political system in Kuwait has affected its finance and economy. Democratization in Kuwait Over the years, Kuwait has achieved a transition from non-democratic to a democratic system. However, in order to achieve full democratization in this country, some degree of liberation must occur in the economy. In addition, political liberation must be achieved in order to have economic growth and development. This means the expansion of public space through recognizing and protecting civil and political liberties. In Kuwait, the line between democratization and liberalization is always vague to an extent of confusion (Thuroczy 2010). Although Kuwait has stable political system with citizens voting for their preferred candidate in free and fair elections, the country faces some limitations on how oil is managed. This is because the government collects no key taxes from other resources and thus relies on income achieved from oil and other foreign investments. The effect of oil in this country is therefore, considered the main cause of lack of economic and political reforms. Additionally, other aspects are overlooked and play a great role in the development of politics in Kuwait (Thuroczy 2010). According to UN’s development index, Kuwait is a highly developed country compared to other countries along the Persian Gulf. Although there is no doubt that oil in this country has increased education and income levels of people in this country, there are massive troubles in the welfare of the state (Thuroczy 2010). In addition, there is no maximum guarantee in the employment of the youths in this country. This indicates that oil in this country is the biggest hindrance to the progress of democracy and economic growth. Political Analysis It is worth noting that common stock refers to the stake that a person or a registered company owns in a given organization. Such stake gives such a person or organization the power to make important decisions such as voting in the organization. The difference between common stock and preferred stock is that every stakeholder in case of bankruptcy has to be paid first before the common stock holder receives anything. Politics play a critical role in the success of any given organization. This can be attributed to the fact that all actions of an organization have to adhere to the rules that are laid down by the government the organization is investing in. An organization that is investing in Kuwait has to understand the importance of understanding that Kuwait is not like any other country in the European union or America. This implies that all organizations, which are investing in Kuwait, ought to have a very good understanding of the country’s politics. This is because the country’s politics are controlled by the royal family, which means that the latter has the right to do what it wants (Thuroczy 2010). The fact that Kuwait’s government controls the economy of the state means that one has to be always ready for whatever might happen. It is of paramount importance to note that in the united states and other European countries members of the government are entitled to practice certain rules, which they can ever overlook. On the other hand, in Kuwait the royal family everything that happens in the country, which means that businesses are controlled from a central place. The people of Kuwait do not care about their rights as much as Americans even though they have the money to invest. This means that the politics of the country have a tremendous effect on the price of the common stock (Business Monitor International Ltd, 2012, p. 8). It is worth noting that common stock is in most cases owned by ordinary citizens who do not have the powers to challenge a dictatorial government. This can be attributed to the fact that the government can change the ownership of the any organization at any given time. Although in most cases common stock holders hold the right to elect members of the board of directors in some instances, they are not allowed to vote. This implies that common stock holders have higher benefits than those who hold preferred stock. In the United States, house of representatives’ members are allowed to own any common stock from any given organization. This implies that since they are the one who charged with the responsibility of making rules, they ensure that they have access to the best deals at any given time. On the other hand, in Kuwait, the parliament is not as powerful as that of the US and this means that common stock holders are afraid of the losses that they might incur once a company is declared bankrupt. The amount of dividend that is paid to holders of common stock is not specified but, it is of paramount importance to note that it depends on earning contingency, reinvestment in the company and sell stock and market value (Business Monitor International Ltd, 2012, 7). It is of paramount importance to note that the Financial Disclosure Report (FDR) discourages house representatives from engaging in deals that cols have detrimental effects on the economy by the requirement that they must their financial investments. In addition, the spouse of the representative or his/her children have to declare all common stock they have purchased in that year. This is unlike in Kuwait where such disclosures are not mandatory. This gives those in the power a loophole to acquire money illegally from fraudulent deals. This has a devastating effect on the price of common stock because many people are afraid of losing their investments for they do not have strong family connections. This can be attributed to the fact that majority of the country’s population are cared for by the state. This is the main reason why the working force is comprised of foreigners because the economy of the country is very strong. This means that in order to have serious common stock buyers, the government of the country should ensure that it does not offer free money to all the people even those who have the abilities to engage in gainful employment. The fact that the government takes care of the needs of the majority of the people living in the country has made majority of them very lazy for they know that they cannot something to eat at the end of day (Ziobrowski et al 2011, 3). Unemployment in Kuwait Political culture and mass beliefs in Kuwait has affected its economy and finance. This is because governance system in a country is a circuitous mirror image of what citizens believe in at a certain time. Political order in a country enhances democracy leading to higher economic growth. This structure research and analysis shows that there is great concern in Kuwait regarding education, modernization, income gap between employees and low level of Gross National Product (GNP) (Thuroczy 2010). Many youths in this country are not employed despite the country having vast oil companies that can absorb a large number of people. This is because citizens are not mobilized into democratic forces that create opportunities in the labor market. Moreover, people’s priorities in this country are not reflected in their socio-economic development (Thuroczy 2010). This is because the government does not prioritize the most pressing issues such as education to prepare people for job opportunities. On the other hand, although Kuwait has the largest oil deposits in the world, many of its citizens are not employed in this sector. Researches indicate that about 95 percent of people who are employed in public sectors are not citizens. This is because the number of immigrants into this country has outnumbered real citizens. It is believed that the proportion of immigrants living in Kuwait is about 68.7 percent of the total population (Thuroczy 2010). Since immigrants forms a large chunk of population in the country they have a political opinion thus creating political effect through mass mobilization. When Iraq for example, attacked Kuwait in 1990, Palestinians and Egyptians sided with Saddam Hussein. Additionally, migrant workers have no rights of voting for the right person to represent them in the trade union. This means that the trade union only work passively towards the development of working conditions for small part of workforce that can directly influence the union. Studies show that fifty-four trade unions operating in Kuwait represent only 54,000 workers out of the total 2.4 million workers in the entire nation (Thuroczy 2010). This indicates that Kuwait does not have a political culture that facilitates working force of its citizens. Lack of proper utilization of people’s workforce has caused increase in the rate of unemployment leading to poor economic and financial development. Gender Bias in the Political Landscape Representation of women in the political landscape in Kuwait is still low. The best example of this patriarchal structure is that women in this country are not represented in the law and the constitution. This denies them chances to take part in the democratization of the state due to lack of constitutional support. Although women in Kuwait constitute over half of the entire population, they do not participate in political and national development. According to the national survey, 51 percent of the entire population consist of women while 49 percent are men (Thuroczy 2010). In addition, support for women in Kuwait is not universal. This is because according to the political issues of this country, some people are in favor of women representation in the political arena while others are against. This is despite the fact that Kuwait is referred as a city-state of women. Over the years, women had been trying to register for the election until 2005 when they were offered rights to run public offices. However, although women in Kuwait have been given rights to vote and run public offices, there are still other laws treating them differently from men. This hinders them from participating in the economic development efficiently. There is a law dictating that Kuwait women for example, should pay around $550 per year if they marry non-citizens and wish to stay within the country (Thuroczy 2010). Under-representation of women in political and public sectors has greatly affected the economy and finance in Kuwait. Lack of International Influence Kuwait has a poor international influence with democracy promoters such as European Union and United States despite the fact that the world has become a global village. International influence on the global market has not affected Kuwait like other countries in the world. This is because the country has withdrawn its investment from United States and European Union causing catastrophic consequences. Oil and hydrocarbons from Kuwait cannot venture into European and American market thus lowering their profit margin (Thuroczy 2010). On the other hand, EU and America have interfered with Kuwait’s politics because of their need of the hydrocarbons from the country. One example is their link with 11 September terrorist attack in United States. This indicates that political inability to relate with other countries around the world has affected its economy due to lack of oil sale in the global market. In addition, poor international influence has also caused conflict with European countries (Thuroczy 2010). Over the last twenty years, Even if Kuwait has developed its oil-production capability to 2.5 million barrels per day, it still sticks to the 2 million barrels per day ration set in November 1993 by OPEC. To formulate up for the decline in oil prices and OPEC production ceiling, Kuwait seeks to boost the value it affix to each barrel by escalating its refinement capability and intensifying its presence in downstream companies such as Q8 gas stations in Europe (Thuroczy 2010). Given the likely prospect increases in world demand, Kuwait's oil revenues are likely to stay around their existing levels or increase. However, the government does not suffice to wrap rising public expenditures. In addition, lack of international influence in Kuwait has affected the country’s income from financial reserves. Currently, Kuwait's foreign assets have plunged from their pre-invasion point, anticipated at $113 billion, to a mare $46.7 billion (Thuroczy 2010). Largely this is due to the operating cost related to freedom and rebuilding of the country. In addition, $5 billion has been lost because of corruption, mismanagement, and misappropriation, particularly in government offices. Despite this steep decline, the ongoing budget debit means that these resources are being drawn down extra to economics the public debt. Since 1993, the departure has been estimated to be $7 billion a year. At the current level of bankruptcy, the assets will be gone in about ten years. On the other hand, stemming these departures would mean that foreign reserves bring at 5 to 6.5 percent and a yearly return of around $2 billion (Thuroczy 2010). Solutions Gulf Cooperation Council (GCC) countries, which are six, have the soundest economies among all developing countries. This implies that the countries are well recognized around the world for their policies. The political issues in the country affect the economy of Kuwait in various ways, which means that they should be solved in order to ensure that the country moves ahead and becomes a developed country. Declining real per capita income is an issue that should be addressed by the political leaders because they have to ensure that it goes up. When the real per capita income is going down, measures must be implemented to ensure that it rises because this would lead to better lives for the public (Bandow, 2012, p. 34). Kuwait needs to undergo structural changes, which focuses on the long-term as opposed to what it is doing now. Reduction of subsidies and welfare benefits is an important step that the government should take because it is affecting the lives of the majority. Welfare benefits should be reserved only for the poor because it affects the lives of many people in the societies based on the accumulating public debt. Moreover, private enterprises need to be encouraged to undertake their natural and historical role. The private sector should play the role it used to during the pre-oil era. It is worth noting that a lot of emphasis is placed on oil and the economy relies heavily on it. In 2011, eighty-three percent of the workforces were from foreign expatriates because the government takes care of all its people’s problems. Reducing welfare would ensure that people are engaged in gainful employment, which would result in growth of the country’s economy (Bandow, 2012, p. 34). In order to save the government on the ever-increasing debt, it must develop a privatization policy, which will enable the government to build an efficient economy. This can be attributed to the fact that national private organizations would focus on competing in the international stage as opposed to when the company is owned by the government. Efficiency increases because managements of private companies ensure that such organizations hire the best personnel in the job market. In addition, employees are managed well because productivity is the target of private organizations. It has to be understood that managing a government-owned company is very hard and as a result, productivity goes down. Privatization creates productive job opportunities, which the public would be eager to be engaged in (Bandow, 2012, p. 34). In 1993, the government of Kuwait made a deal with the World Bank to develop a privatization policy. Sixteen companies were sold to the public and this generated $1.23 billion in a period of less than two years. The National Assembly of the country must prepare a legislation controlling the privatization process because the major companies especially electricity and telephone companies are yet to be privatized. According to the constitution of the country, the government owns all natural resources found in the country. Eighty percent of government revenue comes from oil, which implies that the government is highly dependent on oil. This places the country at a risk of suffering from exogenous shock because of the uncertainty associated with world’s oil prices. About ninety percent of the population works in government firms. People are unwilling to invest in private entities because the government provides well paying jobs. When compared to other Gulf states such as Saudi Arabia, United Arab Emirates, and Bahrain, it is found out that Kuwait has the least amount of foreign investment (Business Monitor International Ltd, 2012, p. 9; Bandow, 2012, p. 34). The country’s National Assembly must come up with means of ensuring that Kuwait Petroleum Corporation has funds for the expansion of its oil refinery plants. Kuwait Petroleum Corporation needs to spend US $51 billion between 2007 and 2012 in upgrading its refineries. The money cannot be provided without approval of the National Assembly, which means that the government must ensure that all members of the National Assembly agree in order to move forward (Bandow, 2012, p. 35). Economic reforms in the country are faced with a daunting task because of the different interests of the ruling al-Sabah family and the National Assembly. This implies that the royal family and the National Assembly must agree on the best way forward because economic reforms are needed in the country (Business Monitor International Ltd, 2012, p. 9). Education plays a critical role in the development of any country’s economy. In order to attain sustainability, the National Assembly must ensure that all children have access to education irrespective of their social statuses. This cannot be achieved without providing finances for the programs because some children especially those with special needs cannot access education without the support of the government. Education’s public expenditure is 3.9 percent of the GDP. This is below the amount of resources spent by other Organization for Economic Co-operation and Development (OECD) countries. The government is charged with the responsibility of ensuring that the quality of education is kept improving at all times. In most Arab countries, women are not given the same social status as their male counterparts but Kuwait has a literacy rate of 93.3 %, which means that the government is making major strides in ensuring that women are educated. The National Assembly must always guarantee that funds are available for sponsoring students who gain admission in universities in the United Kingdom, United States among other foreign institutes. This would go a long way in ascertaining quality workforce for the country’s organizations (Bandow, 2012, p. 34). Foreign policy has a significant role to play in the economy of a country. Western countries and the United States expect Kuwait to keep on purchasing arms for its safety. Kuwait should not focus on militarizing but should aim at building a civil society in which the majority has a role to play on how they should be governed. Political reforms in Gulf States will ensure domestic stability as opposed to building a strong military because the people need democracy. It is the work of the National Assembly to focus on reforms because they would guarantee the nation’s success. GCC was formed with the aim of guaranteeing security on member states. Strengthening GCC would bring peace in the member countries because chances of foreign invasion would be minimized (Bandow, 2012, p. 35). It is worth noting that the real threat that faces Kuwait comes from within its society but not outside. Declining per capita income and the deficiency of political freedom is an impending problem that faces the Kuwait’s economy. The country’s political leaders ought to understand the importance of reducing its military purchases and focus on other goods, which would be of help to the masses. Technology, standards, and specifications from the United States should be introduced to the country because this would increase efficiency and productivity in the Kuwait’s organizations. Increased efficiency in organizations leads to improved economic growth (Bandow, 2012, p. 35). Unstable political environment leads to reduced foreign investment in a country. This can be attributed to the fact foreign multinationals would be unwilling to invest in a country that has an uncertain political future. Although governance in Kuwait is not centered on the royal family or the government, the country does not practice democracy. This implies that most multinationals are unwilling to invest in the country because they fear people’s uprising when demanding their rights. The media and press play a significant role in marketing a country internationally, which implies that government, should allow press freedom. The political leadership is Kuwait should allow the press to do its work without interference because this would ensure that the country is accepted in the world (Bandow, 2012, p. 36). Studies have revealed that Kuwait is among the most open societies in the Gulf region although a lot needs to be done. The last legislative elections resulted in opposition winning majority of the seats by garnering thirty-four out of the available fifty seats. This implies that the opposition, which is controlled by Muslims, has a big role to play in guaranteeing success of the country’s finances. The Emir appoints the sixteen-member cabinet but the members of the National Assembly can block government policies, investigate abuses of power, and question government officials. This means that the National Assembly must approve most of the decisions taken by the government. Although Kuwait Airways is not performing to its potential, the government has delayed its privatization. The opposition should ensure that such moves are done with urgency. The state’s governments ought to come up with a strategy that would attract foreign investors and help in diversifying from oil. This is unachievable given the country’s policies but the government has powers to enact favorable legislations that would increase private investments (Bandow, 2012, p. 34). Conclusion Politics play an important role in a country’s finances. The economy of a country is largely dependent on a country’s political leadership. Although a royal family heads the government of Kuwait, the country’s parliament controls most of the decisions made by the government. The government owns most investments in the country and foreign investment is very low. Many of the Kuwait’s citizens are not involved in any gainful employment because the government provides subsides and welfare to majority of the population. Foreign expatriates make up the majority of the workforce and this has devastating effects on the country’s economy. Majority of the country’s revenue comes from oil and this proves to be very risky. The government must come up with plans of increasing private investment in the other sectors of economy. This would lead to diversification of risk and improve the economy. Since the parliament is a powerful organization in the country, it should ensure that legislations are enacted, which would lead to slashing the declining real per capita income. Compared to other states in the Gulf region, Kuwait receives the least in foreign direct investment. List of references Bandow, D 2012, ‘Kuwait's Crossroads’, American Conservative, Vol. 11 no. 6, pp. 34-38. Business Monitor International Ltd, 2012, 'SWOT Analysis.' Kuwait Defense & Security Report, no. 2, pp. 7-9. Thuroczy, F 2010., Available from . [01 Oct. 2012] Ziobrowski, AJ., Boyd, JW., Cheng, P. & Ziobrowski, BJ 2011, ‘Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives.’ Business and Politics, vol. 13, no. 1: 1-24. Read More