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$Unique_ID{bob00376}
$Pretitle{}
$Title{Kuwait
Chapter 1C.   Labor Force}
$Subtitle{}
$Author{Darrel R. Eglin;Donald M. Seekins}
$Affiliation{HQ, Department of the Army}
$Subject{percent
government
oil
foreign
kuwait
industrial
workers
kuwait's
products
early}
$Date{1984}
$Log{}
Title:       Kuwait
Book:        Persian Gulf States, An Area Study: Kuwait
Author:      Darrel R. Eglin;Donald M. Seekins
Affiliation: HQ, Department of the Army
Date:        1984

Chapter 1C.   Labor Force

    Kuwait's economic development was achieved in part by importing foreign
workers. By 1980 non-Kuwaitis made up 79 percent of the employed labor force
(see table 8, Appendix A). During the decade of the 1970s, Kuwaitis in the
work force increased by the high average rate of 5.7 percent a year, but the
non-Kuwaiti segment grew even faster-an average 8.1 percent a year. The
critical importance of foreign workers to the economy was difficult to
overstress. Non-Kuwaitis appeared prominently throughout the employment
spectrum, filling professional, technical managerial, and clerical posts-for
which there were not enough qualified Kuwaitis-and industrial and menial jobs
that Kuwaitis would not accept. In 1980 non-Kuwaitis held 84 percent of the
27,400 professional, technical, and managerial jobs in the country and had
about a five-to-one advantage over nationals in terms of having university
degrees. At the other end of the spectrum, construction, which employed large
numbers of unskilled laborers, was made up of nearly 99 percent expatriates.

     A major factor contributing to the reliance on foreign workers was the
low educational level of Kuwaitis, reflecting the gradual development of an
educational system. In 1975 illiterate Kuwaitis in the labor force amounted
to 36 percent, and another 23 percent claimed ability to read and write but
lacked an elementary education, leading one observer to conclude that over
half of working Kuwaitis should be considered illiterate. Expansion of the
educational system after the 1950s started to remedy the situation, but it
was a slow and ongoing process (see Education, this ch.) The low participation
of females in the work force was another important factor contributing to the
reliance on foreign workers. Although Kuwaiti women were clearly more
emancipated than others in the Gulf and many had taken advantage of the
opportunities for education, their entrance into the labor force was slow.
In 1980 Kuwaiti women constituted only 13 percent of all employed Kuwaitis.

     The bulk of Kuwaitis were employed in service industries-88 percent in
1980. The government was the largest employer in the country and employed
most of the Kuwaitis in the labor force (about 47,000 in 1983). The
Constitution essentially guarantees jobs to citizens, and the government
implemented this through its liberal employment policy. Many Kuwaitis
preferred government employment to other positions even when it meant routine
tasks that often under-utilized their skills and time. Observers usually
noted the country's excessive bureaucracy and over-staffing of many positions,
to the extent that several people were often assigned to what should have been
a single job. In 1983 there were 4.5 citizens for every civil servant.
Observers and experts have long advocated reform of the civil service to
reduce the inefficiency and underuse of available manpower.

     In 1980 some 60 percent of the foreign workers in Kuwait were Arabs,
and another 28 percent were Asians, particularly from Iran, Pakistan, and
India. Americans and West Europeans accounted for about 1.5 percent, and a
few hundred Africans constituted the remainder. Palestinians and Egyptians
were especially prominent in professional, technical, and government work.
Pakistanis and Indians tended to be skilled workers in technical jobs.
Iranians and Iraqis often had menial positions in production or service
activities. An influx of East Asian construction workers accompanied the
construction boom of the late 1970s and early 1980s. A 1983 government survey
found a substantial slowing of the increase in Kuwait's expatriate community
since the 1980 census, presumably reflecting a similar reduction in the rate
of growth of foreign workers in the labor force. The reduction was probably
attributable to diminished development expenditures as well as completion of
some of the large construction projects, which resulted in the return home of
the imported construction force.

     In spite of the country's heavy reliance on imported workers since the
1950s, government policy sharply discriminated against them. Most non-Kuwaitis
were paid less than their Kuwaiti counterparts and often less than a Kuwaiti
with few qualifications in a less responsible job. The country's social
security system, including a 1976 revision, and most retirement benefits were
limited to Kuwaitis. Foreigners could not own real property and usually rented
in the poorer neighborhoods or sought shelter in shanties constructed of scrap
materials. Modern suburban housing developments with many amenities were
exclusively for citizens. Foreign workers could not form their own unions,
but they could join Kuwaiti unions, although they were prohibited from running
for union offices or voting. Acquiring Kuwaiti citizenship was difficult and
very limited, even for highly educated expatriates who had worked for 20
years or more in Kuwait and raised families there.

     The large number of expatriates created social tensions between the
foreigners and the native population. Foreign workers-particularly those who
had worked many years in Kuwait-resented the discrimination against them.
Natives often viewed the foreign workers with suspicion, if not hostility.
In order to enhance the foreign workers' stake in the country's development
and to reduce departures of highly trained personnel for jobs elsewhere in
the Middle East (where there was less discrimination), some observers
suggested granting naturalization or permanent residency on a larger scale to
foreign workers who had much needed skills. But the political climate in early
1984 was not conducive to liberalization. Seven car bombings in December 1983,
involving some long-term, legal, Iraqi residents, increased the apprehension
of Kuwaiti authorities over foreign workers and led to more stringent policies
toward applications for work permits. The authorities faced a serious dilemma,
however, in choosing between security considerations and the dependence of
the economy on foreign workers.

Agriculture

     Scant rainfall, little irrigation water, and poor soils have always
limited farming in Kuwait. Before the discovery of oil, nomads moving
livestock to the limited forage in the desert and pearling and fishing
contributed much of agricultural income, but none of these occupations
provided much more than subsistence. Growth of the economy and welfare
measures since World War II drew workers away from traditional pursuits and
lessened the role of agriculture. By 1984 agriculture, including some fishing,
contributed only a small fraction of 1 percent to GDP and employed less than 2
percent of the labor force.

     Kuwait's total area amounted to 1,781,800 hectares. In 1980 official data
indicated 44,041 hectares were uncultivable; the bulk of the land, 1,717,910
hectares, was listed as pasture, which obviously meant primarily the scant
forage available in the desert. Some 16,229 hectares were listed as fallow but
not part of farm holdings; it appeared doubtful that much of the fallow land
could be cultivated. Areas with trees amounted to 2,269 hectares, but this
appeared too large for commercial tree crops such as date palms and presumably
included substantial areas of desert scrub growth. In 1980 the area under
crops amounted to 1,351 hectares, less than 0.1 percent of the country's total
area. Nonetheless, the cropped area had increased by 85 percent between 1975
and 1980.

     In 1980 the 1,351 hectares that were cropped belonged to 501 agricultural
holdings, essentially farms. Three hundred eighteen of the holdings
specialized in raising vegetables, 58 in raising poultry, and 42 in raising
milk cows; the remaining 83 engaged in various farm activities. Vegetable
production totaled 36,782 tons; fruits 745 tons; a form of clover for animal
feed, 36,585 tons. The country's farmers supplied about half of the fresh
vegetables consumed, 40 percent of the milk, over a third of the poultry, and
18 percent of the eggs. Thus, imports supplied the bulk of the population's
food. The major crops were tomatoes, radishes, melons, and cucumbers, plus the
clover grown for fodder. Cultivation of grains was quite limited. All
cultivation depended on irrigation. Deep wells supplied most irrigation water,
which had a salt content that ranged from 0.3 to 1.1 percent. Experiments
were under way to use drip irrigation and hydroponics on a broader scale as
well as to find salt-tolerant plants better suited to the country's brackish
irrigation water.

     The gross value of animal products far exceeded that of crops-by about
threefold in the latter half of the 1970s. In terms of value, production of
milk, eggs, and poultry meat were the most important activities. Commercial
chicken raising, using prepared feed for growth, had grown rapidly since the
1960s, and poultry meat substantially exceeded the meat from sheep, goats,
and cattle supplied by local producers by the early 1980s. Many dairy farms
were modern and commercial, although in the early 1980s goats still provided
over 40 percent of the milk produced. Nomads continued to raise sheep on
coarse desert vegetation, but observers reported that such activity was
declining, partly in response to government settlement programs.

     Fishing was a minor but important contribution to the value added by the
agricultural sector. Much of the fishing for the local market was from small
boats, including many native dhows. During the 1970s, overfishing by many
nations in the Gulf considerably reduced catches of fish and shrimp.
Large-scale commercial fishing was mostly confined to the United Fisheries
Company, which operated a fleet of more than 150 vessels (including factory
ships) as far afield as the Indian Ocean, the Red Sea, and the Atlantic Ocean.
United Fisheries was a large, international firm that processed and exported
part of its catch, particularly frozen shrimp. The fish catch was about 4,500
tons in 1982.

Industry

     Industrial development in Kuwait has always faced formidable obstacles.
The lack of resources other than oil restricted the manufacturing that could
be established. No metallic minerals and few suitable nonmetallic minerals had
been found. For example, most of the raw materials for cement had to be
imported, largely from Iraq. The limited supply of fresh water was another
constraint. The small size of the domestic market restricted production for
local consumption to small-scale operations. Moreover, the open economy, which
was maintained before and after the discovery of oil, provided little
protection from foreign competition. Industrialists interested in large-scale
production had to think in terms of foreign markets and established
competitors. The small Kuwaiti labor force, possessing limited skills and a
distaste for industrial work, forced the importation of foreign workers for
industrial development. After the discovery of oil, labor costs escalated, and
in a few years wages in Kuwait were higher than those in almost any other area
of the Middle East. Wages remained high in the early 1980s. The commercial
tradition in the country predisposed most entrepreneurs to invest in trade
rather than manufacturing. As a result of the obstacles, industry (excluding
oil refining but including electricity and water desalination) expanded slowly
and contributed only 4 percent of GDP in the early 1980s, little more than it
had a decade earlier.

     The discovery of oil created a demand for new industries, initially
satisfied by the oil company itself. Oil operations particularly needed water,
electricity, and refined petroleum products, and these were the first modern
industries built in the country. The government soon took over production of
electricity and water, expanding the systems. Installed electric generating
capacity increased from 30 megawatts in 1956 to nearly 3,000 megawatts by
mid-1982. Generators were added so that installed capacity was to be 5,086
megawatts by late 1984. Production of electricity rose from 87 million
kilowatt-hours in 1956 to 10 billion kilowatt-hours in 1981. Industrial use
of electricity was relatively small; air-conditioning was the largest user of
electricity, so that peak summer loads were over five times minimum winter
loads, creating substantial idle capacity for about half the year. By 1983
charges for electricity had not been changed for over 20 years, and subsidy
costs reportedly amounted to nearly US$800 million in FY 1983, probably the
most expensive of the government's subsidies. Users paid about 6 percent of
actual generating and distribution costs. Generators usually used gas as fuel
but could switch to fuel oil or crude oil, which became necessary because of
the shortage of associated gases in the early 1980s (see The Oil Industry,
this ch.). Several of the power plants were associated with the desalination
of seawater.

     In a country without streams and few underground sources, provision of
water was crucial to both inhabitants and industrial development. Before the
discovery of oil and the consequent high population growth, native sailing
boats had carried water from Iraq. The need for larger and regular supplies
of water-no matter how costly-compelled the Kuwait Oil Company (KOC) to
install the first desalination plant. In 1953 the government installed its
first unit of 3.8 million liters per day. Subsequently, the government claimed
that it had developed the most advanced continuously operating desalination
facility in the world-one that had a capacity of 258 million liters per day in
1981. Additional capacity of 418 million liters per day was to be installed
between 1982 and 1986, reflecting the rapid population increase and
accelerating per capita consumption. In 1981 average per capita consumption
was 197 liters of desalinated water and 76 liters of brackish water from
underground sources that were added to purified water. In the same year total
production was 261 million liters per day of fresh water (almost all
desalinated) and 126 million liters per day of brackish water; most of the
latter was used in agriculture and industry. Seawater was also supplied to
industrial areas for cooling.

     The petrochemical industry offered fewer obstacles to industrial
development than most others for Kuwait. The industry needed relatively few
workers, large capital investments, and substantial oil and gas
sources-requirements that fit the country's circumstances. Despite the
apparent advantages, the government moved slowly, perhaps for good reason. In
1963 the Petrochemicals Industries Company (PIC) was formed, having 80 percent
state ownership. It began with modest facilities but acquired additional
plants over the years through purchase of other companies and construction of
new facilities. In 1976 the government bought out the private investors, and
PIC became wholly government owned. In 1980 PIC became a wholly owned
subsidiary of the Kuwait Petroleum Company (KPC) (see The Oil Industry, this
ch.).

     PIC's chemical complexes were the country's largest manufacturing plants.
In 1983 PIC's three ammonia plants had a total capacity of 660,000 tons a
year, and a fourth unit was to begin operating in 1984, raising capacity to
about 900,000 tons a year. An ammonium sulfate plant had a capacity of 165,000
tons a year; three urea plants, 792,000 tons a year; and a sulfuric acid
plant, 132,000 tons a year. (A salt and chlorine complex produced a variety of
products but on a smaller scale.) A substantial part of PIC's production was
ordinarily exported, and Kuwait had become an important exporter of
fertilizer. In 1982 and 1983 depressed world markets for chemical products and
a domestic shortage of natural gas to provide fuel and feedstock greatly
restricted petrochemical production. In 1983 the ammonium sulfate units
remained closed for a third year, the urea and sulfuric plants operated only
for short periods, and the ammonia units produced at little more than half of
capacity. In 1984 the country was to import liquefied natural gas to reduce
the domestic shortage. For about a decade the government considered the
development of a complex to produce ethylene and other basic petrochemical
products for further processing by smaller privately owned plants into
propylene and other products, but it was postponed or canceled in 1983 because
of the gas shortage and poor sales prospects abroad. PIC plants obtained gas
at concessionary rates from the government's KPC.

     A small group of relatively large-scale businesses merged in the 1960s
and 1970s; the government owned shares in some of them. The Kuwait Cement
Company, for example, with an annual production capacity of 2.1 million tons
in 1983, was only partially privately owned. Its production was primarily for
the domestic market. The National Industries Company, 51 percent government
owned, produced a variety of products, such as asbestos pipes and sheets, lime
bricks, lead acid batteries, and detergents. A metal pipe company produced a
variety of pipes for oil, gas, and water installations and was the largest in
the Middle East, supplying domestic and foreign markets. A privately owned
company produced pre-engineered steel buildings for a variety of purposes for
erection at home and abroad. In the early 1980s several companies were
established to produce insulation materials because the government
substantially raised insulation requirements in new buildings in order to
reduce electrical use for airconditioning. A large number of companies,
usually operating on a small scale, produced paints, furniture, textiles,
metal products, and processed food and beverages for the domestic market.

     Most of the larger industrial facilities were located in the Ash
Shuaybah Industrial Estate, established in 1964 and operated by a government
agency supported largely by budget funds. The agency had partially developed
its 11 square kilometers at Ash Shuaybah and an additional estate area of 13
square kilometers at Mina Abdallah. The government and its agency provided
such necessary facilities as roads, gas, electricity, water, sewerage, port
facilities, and communications, and rented or leased industrial sites at
nominal rates. Some small manufacturing establishments were located throughout
the populated parts of the country.

     The government provided various incentives to private manufacturers,
although 51-percent Kuwaiti ownership was required. Financial aid included
equity capital and loans. The Investment Bank of Kuwait was created in 1974,
with 49-percent government ownership, to provide medium- and long-term
industrial financing. Long-term loans were at 5 percent interest. Between
1974 and 1983 the bank provided about US$800 million to 288 projects and was
an influential force in the pace and direction of industrial development. The
government also provided local industry preference in government purchases
(amounting to about 10 percent of price), protection from imports in selected
cases, and exemption of customs duties and taxes, although foreign investors
were taxed for their share of profits.

     Kuwaiti businessmen argued that the government lacked an industrial
strategy and that the private industrial development that had occurred
resulted from the ingenuity and perseverence of local entrepreneurs. The
government and private investors agreed that future industrial expansion
should be in capital-intensive, advanced technology industries that limited
requirements of imported labor. But economists questioned how far the country
should and could go in attempting to industrialize. The returns might be
larger on investments made in foreign countries that had an established
industrial base. By 1984 the government and private investors already had
invested substantial sums in manufacturing plants and energy facilities
abroad.

Finance

     Before independence in 1961, foreign monies, largely the Indian rupee in
the 1930-60 period, circulated in Kuwait. At independence the Kuwaiti dinar
was introduced and a currency board established to issue dinar notes and
maintain reserves. In 1959 the Central Bank of Kuwait was created and took
over the functions of the currency board and the regulation of the banking
system.

     The first bank in Kuwait was established in 1941 by British investors.
Subsequent laws prohibited foreign banks from conducting business in the
country. When the British bank's concession ended in 1971, the government
bought 51-percent ownership. In 1952 the National Bank of Kuwait, the largest
commercial bank, was founded. By 1984 there were six regular commercial banks
and the Kuwait Finance House (KFH-formed in 1977), all with at least majority
Kuwaiti ownership. The KFH accepted deposits and invested funds but operated
under sharia (Islamic law); it could neither pay nor receive interest but
shared profits from investments with its depositors. Commercial banks often
had more deposits than local borrowers and conducted an important part of
their business overseas. Local lending was often to reputable persons who
posted little collateral and frequently did not make interest payments until
they settled their loan accounts in full. Lending by name was common in
Kuwait's tight-knit, family-oriented business community.

     The early focus of commercial banks on foreign-trade financing led to
formation of some specialized financial institutions. The government
established the Credit and Savings Bank in 1965 to channel funds into domestic
projects in industry, agriculture, and housing. The Industrial Bank of
Kuwait-49 percent government owned-was created in 1974 to fill the gap in
medium- and long-term industrial financing. Private investors formed the Real
Estate Bank of Kuwait in 1973. Three large investment companies, in two of
which the government held 51 percent or more of the shares, invested public
and private funds at home and abroad.

     In Kuwait's high-income economy a number of persons had funds from which
they wanted to earn more than the usual return, and many became wealthy
through luck. Real estate has been a frequent means of speculation and became
so again in the early 1980s. In the 1970s an informal stock market became
another active means of speculation. A crash came in 1977, and the government
stepped in and provided a rescue operation for bankrupt investors. Meanwhile,
in 1976 an official stock market was formed and by 1984 listed over 40
Kuwaiti firms. Trading was regulated and remained relatively stable.

     By the later 1970s speculation fever again began to mount. Most attention
was focused on the unofficial stock exchange, called Souk al Manakh, which
dealt with companies usually registered in Gulf states other than Kuwait. By
early 1982 trading was frantic and almost a national pastime. Share dealings
using post-dated checks, sometimes a year ahead, created a huge, unregulated
expansion of credit. The postdated checks usually included a premium of 100
percent or more to get immediate ownership of the shares. Trust and
confidence, or perhaps greed, made the system work. Officials were aware of
the activity but possibly not of the magnitude of the speculation.

     The crash of the unofficial stock market came in August 1982, when a
dealer presented a postdated check for payment, which he could do by law, but
the issuer of the check lacked funds for payment. A house of cards collapsed.
Official investigations revealed that total outstanding checks amounted to the
equivalent of US$94 billion (more than three times the GDP), involving about
6,000 investors from all levels of the population. There were ramifications
in other areas. In some cases shares from the unofficial market and postdated
checks were used in real estate transactions, and bank loans were involved in
some speculation; commercial banks claimed they were not seriously affected by
the crash. By mid-1984 the complete picture had not been unraveled, the number
of bankruptcies clarified, nor the value of many assets and net worth of
individuals and firms established. For over a year a substantial part of the
population existed in suspended financial animation-conducting business but
not sure if they were financially sound or bankrupt. The crash depressed real
estate prices, credit demand, and overall business activity in Kuwait; it was
a major event that contributed to the country's recession in 1983 and 1984.

     The largest debtor reportedly owed a gross sum of US$10.5 billion; he was
a former passport clerk and not one of the known wealthy. About nine traders
accounted for two-thirds of the debt and faced possible criminal prosecution,
as did 50 more traders who accounted for much of the remaining debt. At the
bottom of the debt pyramid were several thousand small investors, defined as
those with liabilities of up to about US$7 million; these were the dealers for
groups, such as taxi drivers, hotel clerks, and barbers, who pooled their
money to participate. About 300 to 400 persons represented the mid-range of
indebtedness.

     In 1983 government investigators believed that offsetting debts would
reduce the balance to be settled to about US$24 billion. If a formula for
reducing the premiums included in the postdated checks could be found, the
net loss might be around US$7 billion. Meanwhile, the unofficial stock market
was closed in September 1982 and use of postdated checks prohibited. (In early
1984, however, journalists reported renewed activity on the unofficial
market.) The government established a US$1.8 billion rescue fund to pay cash
to holders of checks worth up to US$350,000 and bonds to those holding
checks up to about US$7.5 million. The government injected liquidity into the
banking system so the bonds could be discounted and, to restore confidence,
spent nearly US$2 billion to support shares on the official stock exchange.
In addition, loans were made available, to be secured by real property or
appropriate collateral, to investors to repay debts arising from postdated
checks. By early 1984 the debts from the crash were still not completely
clarified, let alone settled. Observers expected bankruptcies and court cases
to continue for some years.

     Apart from the chaos in the unofficial stock market, financial officials
have regulated the financial system conservatively. Despite the swings in the
country's fortunes, the effects on prices have been moderate. The rate of
inflation averaged under 8 percent a year from 1977 to 1982, although this was
helped by government subsidies on important goods and services. The consumer
price index increased 7.8 percent in 1982, partly because of the increased
price of gasoline; it increased 7.3 percent in 1981.

Foreign Trade and Balance of Payments

     Foreign trade always played a key role in the economy of Kuwait. Before
the discovery of oil, merchants developed a large transshipment and reexport
business, which along with sales of pearls to foreign dealers yielded a
substantial part of the population's income. The discovery of large quantities
of oil provided a new and increasingly important export, for Kuwait needed
only small amounts of petroleum products in its domestic market. Even after
the discovery of oil, Kuwait's merchants continued to develop transshipment
and reexport business with neighboring countries. The Iran-Iraq War, which
broke out in 1980, eroded Kuwait's role as an entrepot. By the early 1980s
Kuwait's transshipment and reexport trade with Iraq, an important market, had
declined substantially, contributing to Kuwait's recession.

     Oil dominated Kuwait's exports, accounting in 1980 for 98 percent of the
value of exports and 93 percent when reexports were included. The bulk of oil
exports were traditionally in the form of crude oil. In the 1970s officials
increased refining capacity to gain the value added from exports of refined
products. In the early 1980s, as oil exports declined because of the world
recession, refined products gained relative to crude oil exports. Officials
intended that refined products would be a higher proportion of oil exports
in the rest of the 1980s, although the share would depend mostly on the level
of total oil exports. Asia was the main market for Kuwait's oil exports,
accounting for 55 percent of their value in 1980 (see table 9, Appendix A).
Japan purchased the largest amount of Kuwait's oil, followed by Taiwan and
the Republic of Korea (South Korea). Countries of the European Economic
Community provided the other major market, purchasing 27 percent of Kuwait's
oil exports in 1980. Britain, Italy, and the Netherlands were the important
customers. Kuwait exported very little oil to the United States. Brazil was
the largest importer in the Western Hemisphere.

     Exports of national products amounted to US$19.3 billion in 1980, and
only US$355 million were non-oil commodities. About half of the non-oil
commodities were a variety of manufactured goods, such as steel pipe and
pre-engineered steel buildings exported largely to nearby countries. The
other major non-oil export was chemical products, mainly fertilizer sold to
India, China, and other Asian countries. Reexports in 1980 amounted to nearly
US$1.2 billion and went primarily to neighboring countries. Reexports were
predominantly manufactured goods, of which machinery and transport equipment
were by far the most important. Data to determine the extent of the decline of
reexports after 1980 were unavailable in mid-1984.

     Kuwait's large foreign exchange earnings from oil exports and investment
income largely removed any constraint on imports. Almost any commodity could
be imported, and most import duties were modest. In 1980 imports amounted to
US$6.5 billion, continuing the rising trend of the 1970s. Imports grouped in
different ways revealed the nature of the economy. Imports for Kuwait's
high-income economy were 62 percent finished products in 1980 because of the
small manufacturing sector; raw materials accounted for only 9 percent and
semifinished products for 29 percent. Imports grouped by intended use in
1980 showed 44 percent for consumption, 17 percent as capital goods, and 39
percent as intermediate commodities requiring further processing or assembly
before final use. This latter grouping presented a better insight into the
economy than the more commonly used import classification, which lumped many
consumer durables, such as cars and appliances, under machinery and equipment
(see table 10, Appendix A).

     Kuwait's imports, which were predominantly finished products, came
largely from industrialized countries (see table 11, Appendix A). In 1980
Japan had the largest share of the market (21 percent), followed by the United
States (15 percent), the Federal Republic of Germany (West Germany) (9
percent), and Britain (9 percent), which together accounted for more than half
of Kuwait's imports. Other West European countries, South Korea, and Taiwan
supplied the bulk of the remainder. Kuwait bought mostly live animals, meat,
fruits, and vegetables from its Arab neighbors.

     Modest spending and development policies combined with rising oil
revenues, paid in foreign currencies, have largely freed Kuwait from balance
of payments worries for more than a decade. The government and individuals
accumulated surplus funds in many years, part of whiich was invested abroad.
In the early 1980s, as oil revenues fell, earnings from overseas public and
private investments supplied foreign currencies so that imports were not
restricted other than by slowing government development expenditures. Some
economists calculated that by 1982 foreign investment income (public and
private) exceeded oil revenues, while others using different accounting
procedures calculated that oil revenues still remained higher (see table 12,
Appendix A).

     In any event, investment income had become a very critical supplement to
oil revenues to meet the country's balance of payments needs. Income from
foreign investments fluctuated, however, depending on foreign interest rates
and business activity. Investment income declined in 1982 from the level of
the previous year, for example. Between 1980 and 1982 the government
stabilized foreign aid, and public and private investors reduced the flow of
funds into foreign investments, which also contributed to easing balance of
payments pressures from declining oil revenues. Despite sharply changing
circumstances, the country maintained a surplus on its balance of payments
between 1979 and 1982.