Identifying Priority Sectors in Kuwait AUGUST 2017 PREPARED FOR A Subsidiary Disclaimer This document has been prepared by Marmore MENA Intelligence Ltd “Marmore” at the request of and for the use of Kuwait Foundation for Advancement of Sciences (“KFAS») as a general research report that does not purport to provide investment advice or consider KFAS’ individual financial position and risk appetite. This document is not an invitation to subscribe to or invest in any investment fund or investment opportunity. Any research and analysis contained in this document has been prepared / procured by MARMORE for the sole use of KFAS, based on information obtained from public sources believed to be reliable, and NO REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, IS MADE that such information and research and analysis is accurate or complete, and therefore should not be relied upon as such. 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Such address or hyperlink (including addresses or hyperlinks to Marmore’s own website material) is provided solely for your convenience and information, and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or Marmore’ s website shall be at your own risk. For further information, please contact ‘Marmore’ at Email: [email protected]. 2 Identifying Priority Sectors in Kuwait Table of Contents 1. Executive Summary 4 2. Economic Diversification - Kuwait’s Learning Points 14 Addressing Administrative Reforms and Public Sector Governance — 3. 20 The Root of National Competitiveness 4. Kuwait’s Competitive Advantages and What Impedes It 26 5. The Approach Used in Project Modeling 32 6. Evaluating The Contribution of Sectors — Foundational Sectors 38 7. Evaluating The Contribution of Sectors — Critical Sectors 46 8. Evaluating The Contribution of Sectors — Aspirational Sectors 58 9. Insights from International Experiences 66 10. Study Conclusions and Next Steps 74 11. Appendix 80 11.1 A Brief Economic History of Modern Kuwait 81 11.2 A Survey Of 36 Startup Companies In Kuwait 83 Illustrative List Of Companies/Entities Of Note That Can Be Approached For 11.3 85 Cooperation Across Various Chosen Strategic Sectors Marmore 3 1 Executive Summary 4 Identifying Priority Sectors in Kuwait CHAPTER 1 PURPOSE OF THE STUDY The purpose of this study is very simple and straightforward in principle. Kuwait, like many other GCC countries, is facing an urgent need to diversify its economy. Non-oil income has to increase. However, given the historic dependence on oil revenues, much of Kuwait’s non-oil revenue base and the connected private sector enterprises are still underdeveloped. Even most of the current private sector business is either directly or indirectly dependent on government spending. Thus, the importance of developing non-oil economic bases is clear. However, not every sector need to be able to thrive well in a particular nation’s economy. i.e., it may not be feasible to develop American style ‘Silicon Valleys’ at will in any given nation. Thus, this study analyzes and reviews a variety of evidence on which economic sectors could make the greater contribution to Kuwait’s future economic development (sustainability) and employment generation needs and recommends a list of priority sectors that should be focused on. OUTPUT OF THE STUDY The output of this study is important in the sense that it can help understand where Kuwait can have most significant success in capturing high value economic opportunities based on national strengths and capabilities. This can, in turn, help in channelizing the energies of government policies into areas that stand the best chances of producing reliable returns to the country’s economic interests. Thus, the key takeaways from the study are an idea about the sectors that the policy makers should back in terms of their prospects for success within the Kuwaiti enterprise ecosystem. The heart of this study is uncovering the list of strategic sectors that will aid the visioning process towards outlining core focus areas, thereby facilitating strategic partnerships that can advance various goals simultaneously—from immediate and concrete results to longer-term outcomes. Marmore 5 STUDY MODALITY It is important to factor economic history, social milieu and wider enablers of growth and their connection to sector potential into the future. However, a note of caution should be sounded that determining priority sectors does not mean undermining any other sectors. Every sector is important in its own right. Moreover, most sectors are interdependent on each other. However, each nation is a unique mix of capabilities and competitive factors. Thus, some sectors will stand out as more apt candidates to gain success for the investments that go into them. From a structural economics perspective, there is significant untapped potential in the Kuwaiti economy to be more effectively productive, while using fewer precious resources. There have instances of some form of targeting of strategic sectors by various institutional entities in Kuwait too. The Figure 1.1 depicts some of the priority sectors that have been suggested for Kuwait by different entities. Figure 1.1: An Indicative List of Some Priority Sectors Suggested for Kuwait by Previous Studies Electricity Light Transportation Oil & Gas Real Estate & Water Manufacturing Creative Urban Industries Education Health Power Development e.g. Media Source: Marmore Research 6 Identifying Priority Sectors in Kuwait DEBATES SURROUNDING PICKING PRIORITY SECTORS There is also debate raging in wider policy circles as to whether governments should indulge in the practice of picking sectors. Some argue that it is against the principle of a free market optimizing itself. However, this study is of the opinion that the ultimate objective is to select a limited number of targeted interventions that are possible in order to focus better. World history is testament to the fact that public investment in R&D contributed to big leaps in innovation and development across many fields like the Internet, space exploration and public health. Without effective targeting of sectors, will be difficult to fulfill the triad of economic objectives (Figure 1.2). THE PROJECT OBJECTIVE TRIANGLE Figure 1.2 Economic Value-addition The Priority Sectors Imperative Job Creation STI* for Nationals Development *Note: STI stands for Science, Technology and Innovation (STI) Source: Marmore Research Marmore 7 POSITIONING SECTORS USING A CONCEPTUAL FRAMEWORK The study realized early that it is vital to develop thematic contexts for positioning various sectors. A conceptual framework was envisioned in terms of positioning sectors on thematic lines. This helped in better channeling the efforts towards researching upon