KUWAIT: The discovery of new oil reservoirs in Kuwait is good and so is operating stalled oil fields. The positives come from two angles. First, the production from new reservoirs will support and relieve pressure on aging reservoirs. All previous oil strategies failed to achieve their production capacity targets. Secondly and more importantly, is the return of the oil sector to its genuine activities in the successful investment in local exploration activity and then in developing the infrastructure for the production, manufacturing or exporting of oil.

The Noukhatha field is an example because it is a nucleus that other discoveries may accompany. Its importance does not primarily lie in its oil quantity, even if its quality is better; its quantity does not exceed 3 percent of the declared oil reserves if they are true. But it will probably cover a major shortfall in the country’s gas needs in the future. More discoveries or production will naturally increase the state’s resources and will have a better impact if it is turned into a blessing and not a curse.

The difference in economic sciences is between the prudent employment of its proceeds and the deviation and bad employment. Two examples in our contemporary world explain what the “blessing and curse of resources” means. The blessing was achieved in Norway, which has the lowest oil reserves. The curse influenced Venezuela, which has the conventional huge oil reserves.

Norway’s oil reserves currently stand at about 7.6 billion barrels according to OPEC+; its oil production began in June 1971. Before distributing oil reservoir sites to a number of areas that will be offered for auction to exploit them, the government and the parliament decided to neutralize the negative impact of using oil revenues on competitiveness. Its economy benefited from the failed experience of its neighbor, the Netherlands.

Norway does not invest or employ oil revenues internally, and do not finance public financial revenues except in extreme necessity cases and by no more than 4 percent of its total public expenditures. It thus achieved all the blessings of oil, and its financial reserves- its sovereign fund comprise about US$ 1.6 trillion as of last June.

Revenues from those reserves far exceeded those from oil. The financing of public finance continued to come from the proceeds of taxes on a sustainable and competitive economic activity. Venezuela’s reserves are estimated at 303 billion barrels of conventional oil, the highest in the world. Despite its vast area of 916,400 square kilometers and a population of 29.4 million people, the country committed all sins in dealing with it. It is also rich in water resources and is located directly on a coast extending 2,800 kilometers.

Its economy can flourish without oil, but its economy has lost all its competitiveness. The country used the oil sector for random employment; the competencies in the oil sector were replaced, or the quality was replaced by the quantity of a large number of regime loyalists. Venezuela has no savings to meet any of its obligations, and its currency has become barely worth the paper it is printed on. Half of the work force has become unemployed, about 90 percent of its people are poor, and its people yearn to emigrate. In brief, it adopted the full recipe that achieved all the consequences of the “resource curse.”

Between the “blessing” and the “curse”, other oil-producing countries occupy a position on the ladder, some of them are at the top, closer to Norway, and some are lower and closer to Venezuela. Kuwait’s announcement of its discoveries and the value of its sovereign fund (about a trillion US dollars), the real challenge facing it continues. It is not the abundance of resources, but rather is rising to the top of the ladder by making optimal use of them after it.

It remains within the limits of what is possible. But only prudent management makes the difference, and its prudence indicators are weak. The Central Statistical Bureau issued its report on GDP figures at current and constant prices for Q1 2024. The report, thanks to the administration, was issued three months and 20 days after the end of Q1 2024, but there is still plenty of room to shorten its issuance time.

The report mentions the continued contraction of the Kuwaiti economy at current prices for Q1 2024 versus Q1 2023 by 1.6 percent (2.7 percent) in constant prices. In both cases, the contraction is due to the largest component of output, or the oil sector, in its crude part, which contracted in current prices by 9.1 percent and in constant prices by 9.8 percent.

However, the non-oil sector grew by 4.9 percent in current prices and by 4.7 percent in constant prices. GDP volume for the Q1 2024 at current prices was KD 12.369 billion, down from KD 12.574 for Q1 2023, and at KD 10.082 billion in constant prices, down from KD 10.360 billion. With the decline in the added value of the oil sector, its contribution to the GDP composition fell from 46.7 percent for Q1 2023 to 43.2 percent for Q1 2024, without taking into account the contribution of other post extraction oil activities.

The other engines of the economy are still primitive despite their high relative contribution. This increase was mostly a result of the decrease in the oil sector’s contribution, and most of the other components depend mainly on public spending financed by 90 percent from oil revenues.

The contribution of the public administration, defense, and social security to the GDP structure was about 11.3 percent, financial intermediation and insurance at 9.1 percent, basic industries at 8.9 percent, transportation, storage and communications at 6.6 percent, education at 5.9 percent, wholesale and retail trade, hotels and restaurants at 5.1 percent, and all others at 9.7 percent. It is clear how much these sectors depend on the public spending level. — Al-Shall Report