Kuwait government has one main revenue source: “oil”, and the population has one main source of revenue: “government salaries and projects”. Therefore, trying to increase government revenues by imposing taxes and raising rates, is a viscous circle and an exercise in futility. It would be much easier for the government to cut salaries, shrink new projects and reduce government purchases, thereby eliminating the need for the monumentally complicated, error prone and expensive task of designing and administering equitable taxes, government rates and social subsidies. However, such an easy solution may be difficult, politically at least.
The root of the problem is the misconception that increasing government revenues is possible by increasing the financial burdens on the people. As long as the revenue structure of the economy is as described in the paragraph above, it is an impractical solution, and unlikely to deliver the anticipated results. It is a solution based on accounting and bookkeeping concepts, rather than economics that addresses the economy as whole – not merely shuffling the same revenue.
What New Revenue Sources?
The top priority should be to discover new businesses that generate products and services suitable for export, and those that can replace some of the imports. The task of identifying such businesses remains the responsibility of the private sector entrepreneurs. The government can, of course, help in providing land, easier funding and export marketing public relations and diplomatic support. But for the private sector to surrender before even beginning, under the pretext that such businesses are not feasible, and that it is impossible to compete in the world markets, then they had better get out of the kitchen. Success and profits do not come easy… just ask the Germans and the Japanese, whose countries were devastated twice in the twentieth century.
We had repeatedly written in the past two years, that Kuwait lacks skilled labor, raw materials, large local market, useful scientific and industrial innovation and research & development, all of which limit its options. Capital, however, is aplenty in the government and the private sector coffers, and can be used to establish or purchase businesses in countries that already have the needed factors of production. The world is inundated with opportunities, many of which are governed by good laws that protect bona fide sellers and the buyers. Such direct investments, have the extra advantage of eliminating middlemen and investment managers, whose primary objectives are fees and commissions, with no responsibility for losses.
We had written in March 2016:
“… logic, therefore, entails that we use our abundant capital to invest and directly own manufacturing and service enterprises all over the world, thus spreading the risk. The objective would be to generate sustainable streams of income, while avoiding the curse of industrial and environmental pollution, large numbers of expat labor, labor disputes and billions of wasted subsidies – all for an unrealistic dream. Logic also entails that we direct those investments to countries that have the factors of production that we lack… these projects could have the added bonus of being able to generate 10 – 20 executive jobs for qualified Kuwaitis in each of the owned enterprises. Such a modus operandi is not strange for Kuwait, where for generations before oil, most families earned their livelihood outside Kuwait, either via months of pearl diving, seafaring, or manning the family trading posts in such places as India, Pakistan, Singapore, Aden, Basra, Zanzibar, Bahrain, etc.”
A related misconception is the fallacious opinions that continue to call for the immediate privatization of the government services and institutions, despite the many well documented reservations. Careful and diligent study is needed before such decisions are considered, let alone taken. There is no excuse for rushing into the unknown, even if the public-sector decision makers are eager to abandon their difficult-to-manage responsibilities, or the private sector is madly racing to nab guaranteed profitable opportunities by buying government monopolies with a never ending demand for their products and services.
But wait, there is now a way to fulfill everybody’s desire for revenue diversification and privatization, all in one stroke. Many countries are offering to privatize parts of their public sectors, and are welcoming capable investors to buy and manage them.
Brazil is presently offering to privatize the equivalent of 8.5 Billion Kuwaiti Dinars worth of its public sector. This covers 57 government companies and will be finalized during 2017 and 2018.
Among the businesses that Brazil is offering are: 51% of its electricity generation company (estimated at KD 1.9 Billion), 11 electricity transmission lines in various Brazilian states, 15 marine ports, 2 major cross-country toll highways, 14 airports (one of which is the second largest with 21 million passenger per year throughput), the government money printing press (established in 1694), minerals exploration rights in 46,000 square kilometers in an area known to contain various minerals, including large quantities of gold, and many other government companies.
This certainly is a rare investment opportunity to diversify Kuwait’s sources of revenue, and is only available because Brazil is passing through difficult financial times (partially caused by the drop of it oil revenues!). Even India, plans to invest US$ 1 Billion per year in Brazil’s privatization program.
As for our privatization fans, here is the golden opportunity to flex your muscles and show us what you can do… in Brazil, not Kuwait.