Kuwait’s Dow fiasco may chill foreign investors
Written on December 31, 2008
Kuwait’s cabinet may have defused a new row with parliament by bowing to calls to scrap a $17 billion deal with Dow Chemical but the move is a blow to its plans to attract investment and diversify the economy.
The Gulf Arab state may now reconsider more industrial projects amid plunging oil prices and a protracted political crisis as legislators press for spending at home to help offset the global financial crisis.
The OPEC member canceled the petrochemical joint venture with Dow on Sunday, less than a month after it signed the deal.
“It … gives a negative message that Kuwait is a difficult place for foreign companies to do business,” said Monica Malik, a regional economist at EFG-Hermes in Dubai.
Kuwait said the project was no longer viable in light of the global crisis. But the surprise move came after some legislators called for its cancellation and threatened to question the prime minister, which would be a sensitive issue.
The cabinet had already resigned in November after three deputies moved to question Sheikh Nasser al-Mohammad al-Sabah over a different issue. Kuwait’s ruler, who has the last say in politics, reappointed his nephew as prime minister.
Sheikh Nasser has yet to unveil his new cabinet — Kuwait’s fourth in less than two years following several resignations to avoid questioning or non-confidence votes in parliament.
Parliament, which likes to challenge government, has to approve all bills, major business deals and the huge budget — unusual in a region ruled by families payday cash advance.
Hours after the Dow announcement, the same group of deputies who led the charge against the deal, renewed calls to also halt a $15 billion project to build the country’s fourth refinery.
Kuwait awarded work on the giant 615,000-barrels per day Al-Zour refinery to Japanese, South Korean and U.S. firms in May but no final deals have been signed as MPs launched an investigation into whether the tender contained violations.
“They’re going to postpone the fourth refinery. There are several uncertainties, a transparency issue, and also price issues because of the crisis,” said oil analyst Kamel al-Harami.
Key bills such as a plan to set up a financial regulator to achieve more transparency on the bourse have been stalled in parliament on a back of the standoff. With no new cabinet in place, legislation has been halted since November.
CRISIS BITING
Despite its enormous oil wealth, Kuwait, which sits on a tenth of global crude reserves, is feeling the pain of the global financial crisis.
It has had to step in to save its fourth-biggest lender while another bank issued a rare profit warning. Meanwhile, its sovereign wealth fund just launched a 1.5-billion dinar fund to steady the stock market, the Arab world’s second-largest bourse.
Filed in: business.