The Kuwaiti economy is characterized by two major structural imbalances—heavy dependence on oil production and dominance of the public ownership. Kuwait has struggled over the years to implement a two-pronged development strategy —diversifying the country’s economic base away from the oil sector and promoting private sector development. This paper explores the economic impact of some policy reform options currently being considered. It employs a unique set of input–output tables, derived from supply–use tables, that distinguishes transactions made by private and public enterprises as well as providing a matrix of imports by industry. The public–private sector interdependence analysis revealed interesting results regarding sectoral differences in strengths of forward and backward linkages. For instance, the findings indicated that the strength of the publicly owned oil sectors lie in their forward linkages, supplying other sectors with their outputs, but their backward linkages is weak. On the other hand, the chemicals industry is identified as one of a few sectors with balanced and relatively strong forward and backward linkages in both public and private sector. The policy analyses conducted in this paper are highly relevant to the ongoing policy debate in Kuwait over the design of the economic reform programs. The public–private linkage analysis has revealed insights into policy synergies through which one instrument can affect more than one policy target.
Small national economies, such as Kuwait, share many similarities with large regional economies with the exception of having a separate currency and the ability to control fiscal policy. In Kuwait’s case, the currency closely follows the US dollar, although it is pegged to a basket of undisclosed currencies.
The country’s exports are dominated by oil and oil-related products (Wood and Alsayegh 2014). This paper briefly describes the way a set of supply and use tables are used to construct several alternative input–output tables. These are then used to explore policy options for the country to diversify away from public sector dominance and move to greater dependence upon private-sector production. Given Kuwait’s size and location, the economy has many of the characteristics of a regional economy in the context of Middle Eastern countries that share a strong dependence on the public sector as well as oil-related production activities.
A series of analyses on interconnectedness in the Kuwaiti economy was undertaken. The analysis started by describing the structure of the Kuwaiti economy, applying direct backward and forward linkage analysis. Leontief multipliers were computed and public–private interdependences were examined using sectoral output multipliers, backward and forward linkage analysis.
The remaining part of the paper is divided into five sections. Section 2 is devoted to background discussion covering the policy context, the structure of the Kuwaiti economy and broader development strategies. Section 3 is devoted to methodological discussions, encompassing theoretical analysis and description of the Kuwaiti input–output table. Section 4 presents results and provides summary discussion. The paper ends with concluding remarks in Sect. 5.
The Kuwait development plan for the period 2015–2020 (SCPD 2015) identifies two major structural imbalances in the Kuwaiti economy. The first one lies in the sectoral composition, dominance of the oil sector, while the second one is related to the ownership patterns, the dominance of the public sector. Additionally, there are serious segmentations in the labor market. Table 1 shows changes in the structure and compositions of the Kuwaiti economy along these three dimensions.
The 45° line indicates sectors that have similar feedback effects in both directions, these are sectors clustered nearer the solid line. The sectors below the line generate greater feedbacks from the public sector while the ones above the line derive larger feedbacks from the private sector.
Activities absent in either public or private sectors were excluded to avoid cluttering the scatter plot. If these activities were plotted, they would cluster either on the vertical axis (those with no public sector output, e.g., construction) or the horizontal axis (those with no private sector output, e.g., public administration). Comparing the patterns of activity distributions under columns C and F in Table 6, then this would mean more activities would be clustered above the 45° line and on the vertical axis than below it on the horizontal line. It follows that while the magnitude (in percentage terms) of the public feedback is larger, more sectors are still dominated by feedbacks from the private sector.
Kuwait’s economic policy reform targets strategies to overcome the structural imbalances in the economy—heavy dependence on oil and dominance of the public sector. In order to remove these imbalances, the authorities have often struggled to achieve a two-pronged development strategy—diversifying the country’s economic base away from oil and promoting private sector development. In this regard, the policy debates on diversifications and privatizations have often viewed the two in isolation, as if they are mutually exclusive economic realities. This study reveals that diversification and privatization may not be necessarily isolated cases. In designing Kuwait’s economic reform, it will prove useful to focus on interconnections between the major challenges.
This paper explored linkages between the public and private sectors in Kuwait using a unique set of input–output tables, derived from supply–use tables, that distinguish transactions made by private and public enterprises as well as providing a matrix of imports by sector. The explorations first examined the strength of the interdependencies between public and private sectors and then investigated policy options to implement private sector development.
The public–private sector interdependence analysis revealed interesting results regarding sectoral differences in strengths of forward and backward linkages. For instance, the findings indicated that the strength of the primary and secondary oil sectors lie in their forward linkages, supplying other sectors with their outputs but their backward linkages, rooted in buying inputs from other industries, is not as strong. On the other hand, the chemicals industry is identified as one of the few sectors, which have balanced and relatively strong forward and backward linkages in both public and private sector.
The policy analyses conducted in this paper are highly relevant to the ongoing policy debate in Kuwait over the design of the economic reform programs. The inter-industry linkage analysis has revealed insights into policy synergies through which one instrument can affect more than one policy target.
The data that support the findings of this study are available from the Central Statistical Bureau (CSB 2013) of the State of Kuwait but restrictions apply to the availability of these data. The Supply and Use Table split into public and private sector was made available for this study through interinstitutional request. Hence it is not publicly available. Data are, however, available from the authors upon reasonable request and with permission of CSB.
The authors would like to thank one of the reviewers for suggesting this form of presentation of the results.
This study was financed by the Kuwait Foundation for the Advancement of Sciences (P114-17IA-01). The authors are responsible for the design of the study and collection, analysis, and interpretation of data and in writing the manuscript.
GH was a major contributor to the development of the theoretical and analytical frame for the study. AG performed the numerical analysis and took overall responsibility to design and write the manuscript with inputs from the coauthors. AA contributed the background section. All authors read and approved the final manuscript.
The authors declare that they have no competing interests.
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Gelan, A., Hewings, G.J.D. & Alawadhi, A. Diversifying a resource-dependent economy: private–public relationships in the Kuwaiti economy. Economic Structures 10, 15 (2021). https://doi.org/10.1186/s40008-021-00246-4
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