THE TIMES KUWAIT REPORT
Supporting the growth and development of industries in the non-oil sector is vital to Kuwait’s economy on multiple fronts. It buttresses the national development plans based on ‘Vision 2035 New Kuwait;, it promotes economic diversification that aims to wean the country away from its overreliance on hydrocarbon revenues; it develops alternate sources of revenue for the treasury; increases involvement of private sector in the economy; and encourages entrepreneurship and motivates national youth to seek gainful employment opportunities in the private sector.
Given the important role that non-hydrocarbon industries play in achieving all of the above developmental criterions, it is only axiomatic to expect the government would assign top priority to envisaging and implementing a robust industrial policy, and providing adequate support and infrastructure for the development of industrial zones in the country.
Unfortunately, so far, the concerned authorities remain reluctant to accord the industrial sector the priority that it deserves. One result of this remission is that Kuwait continues to suffer from its two main structural imbalances that have hindered economic growth and progress over the decades — over reliance on revenues from oil production, and dominance of the public sector.
Figures from the 2021-2022 general budget show that oil constituted over 84 percent of the state’s total revenues, while non-oil revenues amounted to only around 16 percent, and the economy continues to be dominated by the public sector.
Over the years a slew of policies aimed at developing and restructuring the industrial sector have been attempted, but most of these initiatives were haphazard, uncoordinated and reactionary. In Kuwait, calls for diversifying the economy and developing a strong industrial base usually echo only in response to periods when there is a fall in international oil prices, and subsequent lower oil revenues and sluggish economic growth. Once oil prices head to higher levels, diversification and industrialization are shelved and gather dust until the next economic crisis appears.
Some of the challenges to developing a vibrant industrial sector in the country include chaotic and incoherent industrial policies that discourage investments; the inability to establish integrated and environmentallyneutral industrial zones; unwieldy bureaucratic procedures; absence of policies to grant new industrial lands, facilities and incentives to industrialists and investors in the sector.
In January 1997, in a bid to provide a more coherent, cohesive and integrated industrial policy designed to address problems identified as obstacles to developing the non-oil industrial sector, including developing new industrial areas, the government established the Public Authority for Industry (PAI) as an autonomous entity under the Ministry of Commerce and Industry.
The authority was tasked with developing, promoting and supervising industrial activity in Kuwait, by encouraging local industries, protecting and expanding the industrial production base to include strategic goods required for national and nutritional security, as well as to diversify national income sources.
Over the quarter-century since its establishment, the PAI has setup a handful of industrial zones, most of which have been heavily focused on chemical industries that have back linkages to the country’s megalithic oil industry. Unfortunately, these earlier industrial zones set up by PAI were developed without much foresight or thought being given to space needed for new industries or expansion plans of existing industries.
The zones were also not designed with the infrastructure that would withstand increased future demands, and without taking into consideration the environmental damages that could arise from emissions by chemical and other industries in the zone. In particular, PAI
did not foresee the potential for future urban residential expansions into these areas, and residents being impacted by the toxic emissions from industries in the zone.
The result of this muddled development plan is that many existing industrial zones are currently congested, lack space for industries to expand and have crumbling infrastructure and utilities that have not kept up with increased demand. Also, in many places, development of urban resid ential areas in the vicinity of these industrial zones have led to complaints from residents of toxic environmental pollution, and demands to have some of the most polluting industries in these zones to be either shut down or relocated to distant non-residential areas.
In a bid to find an acceptable solution to all stakeholders in the industrial zone, as well as meet environmental concerns, the authorities decided to construct new industrial zones away from civilian residential areas, to house new industries and to relocate most of the existing industries. Work on setting up the first of several such new industrial zones got underway in 2013 with the groundbreaking for the Al-Shadadiya Industrial Zone (SIZ). Nearly a decade since that high-profile groundbreaking ceremony, basic infrastructure work for the zone still remains a work in progress.
Repeated work delays have been the only predictable aspect of this project since its launch. Located around 25km to the south-west of Kuwait City, the 5 square kilometer SIZ was planned to be the largest industrial zone in the country, with separate sectors for chemical, food and mixed-use industries, when completed. It was projected to provide the state with adequate area to meet the increasing demand for industrial zone land, and have sufficient space for future expansions. The project aimed to attract a large number of industries with the promise of cutting-edge infrastructure based on latest technological developments, separate industrial waste and sewage water treatment plants, as well as facilities to recoup and recycle industrial waste.
At least, these were the plans on paper when the SIZ was first envisaged nearly ten years ago. A timeline of the project for infrastructure development shows that the initial contractual schedule for the project was approved in September 2013, with the project completion date set for July 2016. In April 2014, the main contractor requested an extension, and a new completion date was fixed for March 2017. Ahead of its completion in March 2017, the contractor requested a further extension till September 2018, and then a third delay until June 2019.
Despite the three extensions given for reasons that the contractor claimed were exogenous to its initial agreement, the project still remained uncompleted. The PAI was then compelled to end the contract and reissue a new contract to complete the remaining infrastructure work. PAI recently awarded the project for completing the design, implementation, and maintenance of infrastructure works to a new contractor for a total value of around KD97 million, and with the project completion date now slated for early 2024.
Investigations by relevant authorities into the failure of the main contractor to complete the project on time, even after repeated extensions, revealed a range of poor performances by the contractor, including lack of sufficient manpower and qualified technical personnel to carry out the project. Other shortcomings identified included, inability of the contractor to achieve planned production rates, to coordinate works, or abide by the planned work sequence, as well as shortage of material resources needed to complete the project, and most importantly, the lack of financial liquidity.
The question that arises from these findings is that If so many shortfalls have now been discovered on the part of the main contractor, what were the supervisory entities, including PAI and other project management consultants, doing over the past decade? No matter how you dice the blame, the end result is that the country and people suffered. Among those who sustained significant direct losses due to the delay in completion of the project are the small and medium enterprises that had hoped to take possession and begin development of their businesses nearly four years ago. Many of these young industrial entrepreneurs had taken up the promise by the National Fund for Small and Medium Enterprises to allocate 10 percent of the land in the industrial zones to them, and had accordingly borrowed heavily to fund the purchase or lease the industrialland. Al-Shadadiya Industrial Zone is perhaps emblematic of the flaws that continue to plague industrial development in the country, as well as a pointer to the inordinate delays and slow pace of construction projects that have mired development of industries in Kuwait.
A related research study that analyzed the causes of delays in government construction projects in Kuwait revealed that main delays could be attributed to poor project management, lack of appropriate supervision by the client and project management consultants appointed for the purpose. Another study conducted in 2019 attributed project delays to management conflicts, poor project management, lack of effective communication, and ineffective utilization of resources. Even if we accept that project delays are a global phenomena and that most countries are besieged by cost and time overruns on major constructions, we still would have to admit that when it comes to implementation of projects and tardiness in delivery, Kuwait is in a class of its own.
According to a World Bank report, implementation phases of infrastructure projects in Kuwait are hobbled by cost overruns in 20 percent of cases and time delays in 110 percent of cases. One reason for this project development weakness is that Kuwait continues to follow the traditional project-flow of first assigning a designer for a project and then selecting a contractor based on the lowest bid submitted to the Central Agency for Public Tenders (CAPT).
Numerous studies and empirical evidence suggests that pre-qualification procedures for contractors and sub-contractors, involving a process of lowest price bidding and tendering, is one of the significant factors in causing project delays in Kuwait. The issues related to low-cost tendering have add-on effects that impact the final outcome and in the quality and performance of the project when it is eventually completed. The debacle usually begins with selecting contractors based on the lowest bid, without considering whether the contractor has the necessary experience, ability, or financial capability to undertake the project. To realize a profit from the project, the contractor then resorts to cost-cutting measures, including using lower quality, and reduced quantity, ofconstruction material; employing fewer workers and overworking them; and hiring technical personnel who are not sufficiently qualified or experienced in the needs specific to the project.
Suggestions to overcome these shortcomings include introducing pre-qualification criteria that selects contractors and subcontractors based on their experience and history in completing projects, their financial muscle to undertake a project based on its size, time limit of the project, and quality of work required. Another suggestion to reduce shortcomings in project implementation include periodical evaluation of the contractors carried out by experienced prequalification committees formed by CAPT, or coopted from the construction industry in Kuwait. In addition, relevant government ministries should undertake regular monitoring and assessing of progress at various implementation stages of the project.
Irrespective of whether these suggestions are accepted, or are currently being implemented, there is no denying that the success of a robust
industrial sector is critical to Kuwait’s economy going forward.