We all know about Kuwait’s vast oil reserves, which are over 7% of the world’s oil deposits, and Kuwait as a key player in the global energy market. In recent years, Kuwait has been using some of the income from those oil reserves to revive other sectors, such as the financial services sector, infrastructure and logistics. As a result, some services and sectors have been increasing exponentially in terms of GDP, such as the financial services sector, which is contributing around 13% to GDP at the moment. You also have the Kuwait Development Plan, which was passed in 2010. Can you give us an assessment of Kuwait’s economy and also tell us a little bit about your perspectives on the country’s economic diversification?
Frank Baker: In the short term, the economy is in a very strong position. There is a potential budget surplus this year of $14 billion, following a large budget surplus last year, and that is on top of shrewd and sensible investments through the Kuwait Investment Authority (KIA), the Sovereign Wealth Fund (SWF), whose main office is based in London and who celebrates its 60th anniversary this year.
So overall there is a combination of sensible financial planning and a very large budget surplus, and in the short term that is of course sustainable because they have, as you say, 7% of the world’s oil reserves and with oil prices remaining continually high over the last few years, over $120 per barrel, that does allow these surpluses to pile up.
But I think that all Kuwaitis would agree that the danger - looking forward - is that hitherto the economy has been based almost exclusively around the oil sector. In the 1990s when oil dropped as far as $9 or $10 per barrel, I think there was a wakeup call for Kuwait that it did need to look at a way to diversify away from oil as the sole source of revenue for the economy.
In the last 10 years or so, the concept of the [National] Development Plan has come about. This is in two parts. It’s partly about developing Kuwait infrastructure – it in serious need of development – and it is partly about diversifying away from oil as a single revenue source and away from the domination of the public sector.
I think it’s worth taking a step back at this point to look at some of the fundamental difficulties that Kuwait has faced over the past 20 years. It’s important when understanding modern Kuwait to realise that in the 60s and 70s and for the large part of the 80s Kuwait was very much the regional leader; it was the financial centre for the Gulf. The history of Kuwait is as a nation of traders – it is of fishermen and pearl divers. Our own bilateral relationship was founded on our being two trading nations. Kuwait has the best bay in the Gulf, which was used as a trade route by the UK from as long ago as the 1770s.
So in the 1980s, Kuwait was a regional leader. Then you had the shock of the Iraqi invasion. The events of 2nd of August 1990 changed this country entirely. Kuwait was liberated geographically and politically in February 1991. But it wasn’t freed psychologically until Saddam Hussein fell from power in 2003. It is easy to forget that twice in the 1990s, and again subsequently Saddam Hussein mobilised his forces and moved south to the border threatening Kuwait. The response to that here was very much that people were not confident enough in the future to invest in Kuwait, so a lot of Kuwaiti money flowed overseas and throughout the 1990s there was very little expenditure on infrastructure and the country did not move forward in the way that most of the other countries around the Gulf did.
It wasn’t until after the disappearance of Saddam Hussein from power that Kuwaitis began to focus again on and plan for the future. If you look around Kuwait City today, it’s noteworthy that, with the exception of the Communications Tower and iconic Kuwait Towers, almost every other high-rise building has been erected since 2005.
During the last 20 years, most countries in the region have moved forward and Kuwait now needs to do the same thing; it needs to respond, it needs to rebuild its infrastructure and it does need to now seriously begin to diversify away from dependency on the public sector to build a thriving private sector.
The Development Plan itself has two parts: the main part is all about the infrastructure, building new power stations, the fourth oil refinery, new transport links, new roads, a new airport new port facilities, new hospitals and new schools.
And, in parallel, privatising the state holdings will allow a private sector to emerge.
Where do you see the most attractive investment opportunities?
I think there are two points. There is the concept of foreign direct investment (FDI) into Kuwait, on which the Kuwaitis are working now very hard under the Minister of Industry and Commerce [H.E. Anas Khalid Al Saleh], a huge asset to this country and an outstanding minister, and the head of the Kuwait Foreign Direct Investment Bureau (KFDIB) [Dr Meshaal Jaber Al Ahmed Al Sabah], which will soon became an agency They are working together to drive investment into Kuwait.
It sounds strange to say that you really need foreign investment coming to a country that has a $14 billion budget surplus, but you do need the investment for the future. They are very much aware of the barriers to investment and are working their way through to remove the levels of bureaucracy that are frankly putting off a lot of potential investors.
So, where are the opportunities? Let’s look first at all at the infrastructure part of the Development Plan. Currently there are huge opportunities, and British companies are already very heavily involved in the Development Plan.
Norman Foster has designed the new airport. In the legal, financial and the technical advisory part of the various projects within the development plan, you’ve got British technical advisors like WS Atkins, Ernst & Young, KPMG, PriceWaterhouse [Cooper]; you’ve got financial advisors like HSBC and you’ve got legal advisors like DLA Piper, Ashurst, all of whom are advising the Kuwait’s Partnership Technical Bureau on moving these projects forward.
There will be great opportunities for British firms to either be the main contractors or the subcontractors on what are going to be some absolutely critical developments. The new airport is going to be one of the biggest in the world when it’s completed. The metro system has to be built from scratch. There have been no new hospitals built here for 50 years. These are going to be significant Kuwaiti government investments and present opportunities for Britain.
Why should British companies be here? There are two reasons. From a British perspective, clearly it is good for Britain to be here because there are big projects where British expertise could show itself off to the rest of the world, as we did on the infrastructure development around the Olympics.
But from a Kuwaiti perspective as well, I think there is a growing recognition that what you get with British companies is the best in the world; and a long-term solution to problems. British companies, unlike others, do not come in, do a project, and then leave. They come in, do the project and they stay, they educate the local people so they are able to run the different projects and then they are still around afterwards. And you get longevity: the road system here was built by Atkins in the 1960s, it was meant to last for 15 years and it’s still going 40 or 50 years later. That is a testimony to the outstanding ability and the longevity of projects when British companies are involved.
On the, privatisation side, clearly Britain is a world leader, and has been since the 1980s. The Kuwaitis know that and are looking for advice on how to carry out the privatisation programs they are going to need to go through.
For privatisation, you want advice from people who have been there and done it. We have made our own mistakes of course, you always make mistakes, but the Kuwaitis don’t need to make those same mistakes, and using the British experience, they will avoid doing so.
For all those reasons I think it is a very exciting time to be here in Kuwait.
What is your analysis of the private sector in Kuwait?
Although it is small, it is hugely dynamic. You have some outstanding people working in the private sector because you have in Kuwait a good private education system and a lot of Kuwaitis are able to go on to universities in the West.
In the UK, we have 3,000 Kuwaiti students a year, so you probably have about 12,000 Kuwaitis studying in the UK on government scholarships at any one time – that’s excluding those who go on private scholarships. A lot of Kuwaitis also go to American, Australian or Canadian universities, so they all have world-class education, and these people are incredibly able and a lot of them do go into the private sector.
You only need to look at the shining example of excellence in Kuwait that is the Alshaya Company, under the guidance of Mohammed Alshaya, which is quickly turning into one of the biggest, if not the biggest, retail franchise in the world. It started in Kuwait, expanded to the Gulf and is now moving up into Turkey, the Central Asian Republics, Eastern Europe, and is looking to expand still further. It has brought into Kuwait a huge number of British retail franchises, everything from Mothercare to Boots, and a huge number of British stores are now in The Avenues [shopping mall], which is now one of the biggest shopping malls in the world.
So you are looking at a very small, but incredibly dynamic private sector and that is why I think there is real hope here because the private sector really works. It needs to be expanded, but you have got the educated population, you have got the ability and you have got the hunger amongst Kuwaitis to go out and to work in the private sector.
I will give you one final example: the National Bank of Kuwait. It is in the process of building a new office which is going to be an absolutely spectacular office tower building and is being designed again by Norman Foster. In less than three years, they have come from nothing, not even a pencil on the design board, through to the beginning of construction, with a completion date of 2016.
What is the timeframe for private-sector development and what are your views on that?
My own views are: the sooner the better. At present you have a situation where 90% of the Kuwaiti population is employed by the public sector. Clearly that is unsustainable – nowhere in the world can you get away with employing 90% of your population in the long term. If the price of oil falls that will lead to a major budget deficit, not budget surplus, and that is an area that has to be addressed.
How long it will take? I don’t know, but I know that the people are working very seriously now, looking at privatisation and trying to expand the private sector, and trying to expand the financial sector as well, through the reform of the capital market authority, for example.
How do you view relations between the two nations?
The bilateral relationship actually goes back well over 230 years now, because it was in the 1770s that the first British ship dropped anchor in Kuwait Bay and the trading started from that moment. It was natural that two trading nations developed this close relationship.
A hundred years later in 1899, when the Treaty of Friendship was signed to protect Kuwait against the encroachment of the Ottoman Empire, Kuwait essentially came under the protection of the United Kingdom for the next 62 years, right through until 1961 when it became independent. But even then the British military was deployed from West Germany to protect the northern border against threats from Iraq, and then again in 1990, of course, when Margaret Thatcher was very clear in the aftermath of the invasion that Kuwait had to be liberated.
The critical role that the United Kingdom, the late Baroness Margaret Thatcher and Sir John Major played in the liberation of Kuwait in February 1991 is also very well remembered.
But because this is such an old relationship, such a historical relationship, such a close relationship, it transcends sectors. It is not just about political relations, it is not just about economic relations, and trade relations, it is also about personal relations, about cultural relations, sporting relations, health relations, educational relations: it transcends everything.
And you can see that from the number of Kuwaitis who visit the UK every year. We don’t know for certain but we estimate about 200,000 Kuwaitis visited the UK last year.
A lot of Kuwaitis have second properties in the UK; they see London as their second home. They also spend a lot of money during their visits to the UK, helping the British economy.
Politically and personally, I think that the relationship is very strong. In any relationship, you have to keep working at it and I think that there are always areas where you can say “we can do better there”. I think where we do need to work harder than ever before is on the trade relationship. Although we are now talking about over £2 billion a year in trade, we want to double that, to £4 billion by 2015. We are making progress on that and we have made a significant increase in British exports to Kuwait last year
British exports rose around 17% in 2012, is that right?
Yes, that is correct. In fact I think it was even higher than 17%, but it was a big increase in the last year. There is a lot more we can do and we need to make sure that we continue to push to get British companies in here to not only do the big projects, but also to do the small projects and to link up with companies in the private sector, just to tighten up, strengthen and increase those trade relations.
Clearly we have close relations in the security sector where we signed an agreement with Kuwait on the Kuwait Security Project during the visit by His Highness the Amir to London last year. I think it’s important just to say a couple of words about the Kuwait Security Project because there is a little bit of misinformation around it for one reason or another, certainly here in Kuwait.
The Kuwait Security Project is about the protection of Kuwaiti infrastructure, protecting Kuwaiti oil fields against the kind of attacks we’ve seen recently in North and West Africa, and is protecting Kuwait against external intervention. What it is not about is what some people have chosen to try to portray it as: it is not about trying to monitor Twitter accounts, or social media; it is nothing like that, it does not touch that, it is all about protecting Kuwait against the external threats to disrupt the infrastructure of the country.
We had a very big success last year with AMEC, the British company, who signed a £330 million contract on the Al Zour refinery. Those are two headlines figures but there’s lot more going on.
I think the other area that we need to focus on a bit is on the defence relationship. Clearly we have had a very strong historical defence relationship and we need to make sure that that continues. We have a British military mission here involved in training the Kuwaitis and that is good. A lot of Kuwaitis go to the UK to be trained in centres like Cranwell, the RAF training school, and Dartmouth, the naval training school, and Sandhurst. But there is a lot more that needs to be done there; we are really developing our relationship further with other Gulf countries and it is very important that Kuwait is not left behind, so we are very keen to ensure that we maintain those strong defence links with Kuwait.
How do we do this? I think it is pretty much about the hard work by my Embassy
, by the Kuwait Embassy in London, by persuading people that Kuwait is a place to invest in, to come and work in.
I think the UK plc footprint in Kuwait is huge; everybody talks about Britain because they all go to the UK; they see us all the time and they know us and the history. I think the profile of Kuwait in the UK frankly is much lower and that’s an area which needs to be rectified.
We agree completely. The Minister of Commerce and Industry, H.E. Anas Khalid Al Saleh, believes one of the most challenging things is to get British companies interested in coming here. Why is that?
I think there are two reasons. First of all because of the fact that Kuwait has essentially been a sleeping giant for the last 20 years, it’s not top of the list. British companies look to the local markets, they look first to the UK then after they look to North America and to Europe, and if they look further they will look also to China or India or Brazil, and in the Gulf they look to Saudi Arabia or the Emirates, so they haven’t historically in the last few years looked to Kuwait.
I think also it comes back to the fact that there is a job here for the Kuwaitis to do. The Kuwaitis have got to sell Kuwait in the UK – it’s not about me and my people telling British companies to come here, it’s also for the Kuwaitis because they need that British expertise, and they all say they want the British companies to come.
But we have had some significant successes in the last few years. I will give you an example. When I first arrived in 2010 I introduced the concept of a business breakfast every month with the heads of British companies in Kuwait. When I arrived there were only about three or four British companies; now there are over 25. A lot of that is down to the work this Embassy has done, with our colleagues in London in persuading British companies to come and look at this market. But the Kuwaitis need to do a bit of selling of Kuwait to Britain as well. British companies have a choice, they don’t necessarily have to come to Kuwait; they can go to other parts of the Gulf or further away, so Kuwait has got to sell Kuwait, if they want the best.
We know education is a central pillar of the national Development Plan and we’ve been hearing from our conversations with our contacts, one of them in the Ministry of Education of course, that currently there is a bit of resistance in letting more numbers come to study in the UK. Can you give us any insight to that?
There is no resistance: we are very open to having students coming to the UK.
I think the only area where, from my understanding, there is an issue is over doctors in the health sector, and it is only in England – it is not in Scotland or Wales. As far as we are concerned, as many students as the Kuwaitis want to send on government scholarships we are open. The Minister [for Education] and I talked about this, and they are increasing the numbers of Kuwaiti students going to the UK.
You worked as First Secretary in Ankara, Turkey, and in other parts in the Middle East. Can I just ask how those experiences globally have helped you in coming here to Kuwait and trying to enhance relations between the UK and Kuwait?
Life is a learning experience and the secret is to apply the lessons that you’ve learned elsewhere to the job that you are doing today.
What I found particularly helpful given my long background is that I was lucky working in a diverse number of countries. I have worked across the globe. I started my career in South America, in Buenos Aires. I worked in Ankara, Turkey, but half of the time I was living and working in northern Iraq with the Iraqi Kurds and the Iraqi opposition as it was then. I was lucky enough to work on secondment to the US Government, in the State Department, which gave me a valuable insight into the workings of another government.
I then was head of the Africa Department in London, so I had three years working on Africa, then back to the foreign office in Washington as the senior counsellor in Washington. I then went back to London, and I was the director for Iraq and for the Gulf, so I have got a lot of regional experience – both from my time in Iraq and on the back of my jobs in London and Washington.
I think you look and you learn; and you learn from others, and you look at the way others operate and you decide what is the best way for you to operate and the best way for you to deliver your objectives.
I am a great believer in the concept of setting really tough objectives which you know you are not going to meet entirely. If somebody comes to me at the end of the year and says: “Ok, we have met our objectives in full” my response is “that’s because they were not tough enough”.
You need to be stretching yourself the whole time, always reaching for that one step beyond. I think that is the lesson I apply very much now in pushing the UK here, always reaching for the next objective which appears to be out of reach, and then when we succeed, to look for the next one even further out of reach.
The other thing is that I believe in very much, and in many ways this is old school diplomacy, is in the power of personal relationships. I think it is a really critical skill, especially in this modern era with new technology. These have undoubtedly changed our lives for the better – I am a great fan of them and use all the media technology available including Facebook, Twitter, Instagram. But this is in parallel with, not at the expense of, personal relationships.
The final thing I tell my staff is “you have got to get out”. I would much rather see an empty office and know my team are out meeting people and developing personal relationships, than seeing them typing away at their desktops.
What message would you like to send to the readers, particularly in the UK, about Kuwait?
Kuwait is a historical partner of the UK, it’s a relationship that goes back a very long way. It is a relationship that has been hugely beneficial to both countries over the last 250 years and it continues to be very beneficial to both countries today.
We have so many Kuwaiti friends coming and visiting the UK, putting money into the United Kingdom, spreading their culture, using our education system to educate themselves, and often using our private healthcare system.
But all bilateral relations are two-way streets and it is important for people in Britain to understand the historical background to this relationship, the strong links between our two countries, the genuine sense of warmth that Kuwaitis have toward the United Kingdom.
In return the British people and UK plc benefit too from that warmth, benefit from the opportunities that Kuwait presents to the UK at a time of economic hardship in the UK. We have helped Kuwait many times during the difficult times, during their history and protected them from external aggression and liberated them from the external aggressor, and we are now going ourselves through tough economic times and Kuwait is very open in return to helping us; but if we are going to achieve that we need British companies to come here to work in Kuwait and to take advantage of the opportunities that are here and to come and spend time getting to know our Kuwaiti friends.