Essay Example on Kuwait: World's Largest Oil Exporter and Its Trade Partners

Introduction

Kuwait is one of the world's largest oil exporters. The country relies on the foreign income generated from oil export as the main source of its Gross Domestic Product (GDP). Oil and petroleum gases are the main commodities exported to other nations across the world who then export consumer commodities and food products to Kuwait. China, India, and the United Arab Emirates are the main foreign exchange partners that Kuwait relies on to purchase their oil products. This means Kuwait imports more than it exports since it relies on one commodity. The government's focus on capital projects and increased private consumption demands has made Kuwait have a deficit and imbalance between the imports and its exports. Kuwait's main suppliers are the United States, China, Saudi Arabia, and the United Arab Emirates who sell both finished and semi-finished commodities to the country. Over the years, the percentage of imports has increased when compared to that of the exports, leading to an economic crisis in Kuwait.

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Kuwait's Overdependence on Imports compared to Exports

The overreliance on oil as the main source of foreign exchange income has diverted the government's and local's attention to focus on oil production. Changes in the global market's demand for electricity as opposed to natural gas has made Kuwait divert its attention to the production of electricity so that it can maintain its lead in the market. As a result, Kuwait has been forced to import liquefied natural gas (LNG) which is used in industries and power engines that produce electricity which is later sold to its international market. Additionally, the highest percentage of the labor force in Kuwait are employed in the oil industry, an indication that other sectors like agriculture have little or no workforce available to maximize and trigger their growth. The main dominators and influencers of the economic status in Kuwait are the government sector and the oil industry.

Main Exports

Kuwait's main exports are mineral fuels and oils, plastics, organic chemicals, industrial machinery, motor vehicles, chemicals products, fertilizers, amongst others, while its imports are pharmaceuticals, iron and steel, furniture, industrial and electrical machinery, and precious stones and metals. The Kuwait government maintains business and trade relationships with countries that purchase items from the country as well as those who sell commodities to the nation, with the aim of creating a free and open supply of goods and services for all locals. Equipped with the knowledge that humans are economic beings, the government focuses its attention on the creation of a conducive environment for all economic activities. This social order enables the smooth and successful integration of an economic order in the country where political interference is reduced, allowing the locals to make independent economic decisions. The government has been mandated with the mandate of enhancing the national defense as well as the administration of an impartial and structure system of justice where people feel secure and can enjoy the freedom of engaging in income-generating activities.

Sustaining Kuwait's Economy

Reforms and new structures have been introduced and injected in Kuwait's economy with the aim of expanding and reducing the overreliance on the exportation of oil as the main source of foreign income for the country. For instance, the government through the parliament recommendations formulated a plan that would be followed in a 5-year period between 2015 and 2020. The development plan would introduce and oversee the implementation of strategic projects which would be funded by the government that would create employment for more locals. The realization by the government that there had been a long outstanding imbalance in the two-way trade relationship between Kuwait and its import partners has further motivated the parliament to come up with innovative ideas that can be implemented in the economy to change that status, and trigger growth ultimately. A change in the global oil prices, an increment or a reduction affect Kuwait's economy positively or negatively, justifying the need to come up with diverse ways of stabilizing the economic performance of the country. In order to attain this objective, Kuwait must invest in other industries.

Kuwaiti private investors should invest a large percentage of their wealth into their country as opposed to settling in foreign nations where they can multiply their income. The large populations in Kuwait provide a ready market for goods and services, meaning investors would have their expected return on investments if they channeled their resources in their country. In addition, investing in the local economy would trigger competition from other investors who will inject more money into the market, increasing the flow and circulation of cash in the economy. Consequently, Kuwaitis will divert their attention from the oil industry as they attempt other income-generating activities. Financial lending institutions could offer loan amounts to local investors at low-interest rates to increase the rate of borrowing.

The government, through its mandate and responsibility for the Kuwaitis, should design short-term and long-term financial objectives that it will attain within a specific period. For instance, the government should market to position Kuwait as a country that produces oil and oil products and one that has diversified in other industries. The strategies adopted by the government should allow it to inject a large amount of its national budget to other industries like in production or agriculture supported by irrigation and other scientific methods. Kuwait imports food substances from other countries, yet with a little adjustment to the farming methods, the nation can produce enough yields to support its locals. It is also important for the government to create a conducive environment for foreign direct investors. For instance, the government can reduce the bureaucratic and strict restrictions that are foreign investors must meet before they are allowed to start operating in the country.

Conclusion

In conclusion, the solutions to the current economic situation in Kuwait, where imports are more than the exports, will come from the government's corrective initiatives. The government's decisions to reform and restructure the current economic conditions will prompt both local and international investors to invest in the country. This will diversify the number of industries which earn Kuwait its GDP. The employment rate will increase as industries mushroom which will produce commodities that were previously being imported. The oil industry should not be abandoned.

Bibliography

Allegret, Jean-Pierre, Valerie Mignon, and Audrey Sallenave. "Oil price shocks and global imbalances: Lessons from a model with trade and financial interdependencies." Economic Modelling 49 (2015): 232-247.

Arize, Augustine C. "Imports, and exports in 50 countries: tests of cointegration and structural breaks." International Review of Economics & Finance 11, no. 1 (2002): 101-115.

Hussein, Jamal. "Are exports and Imports cointegrated? Evidence from nine MENA countries." Applied Econometrics and International Development 14, no. 1 (2014): 123-132.

Wang, Yudong, Chongfeng Wu, and Li Yang. "Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries." Journal of Comparative Economics41, no. 4 (2013): 1220-1239.