Rebuilding Kuwait

By John T. Haldane

Two days before the US Air Force began bombing Baghdad, the US Corps of Engineers signed a $45 million contract with the Kuwaiti government-in-exile that calls for the military engineers to make a preliminary damage assessment and help put in place basic services. "We went right to them," said Kuwaiti Planning Minister Suleiman Muttawa. Cost estimates for cleaning up and rebuilding the country's infrastructure and petrochemical sector run as high as $100 billion.

Kuwait, slightly smaller than New Jersey, will need rehabilitation of a range of facilities, including roads, bridges, oil refineries and oil distribution systems, as well as water, electrical and telephone systems.

From San Francisco's Bechtel Group to Illinois-based Motorola Inc., US companies are lining up to get their share of the effort to put Kuwait back together again. Of $800 million in contracts signed so far, about 70 percent have gone to US firms, according to the Department of Commerce.

Because of American leadership in the ousting of Saddam Hussain from Kuwait, "US and British contractors probably will be favored over the others, including the Germans and Japanese," said Paul Jabbor, vice president for the Middle East at Banker's Trust Co. in New York.

The biggest winner so far appears to be Bechtel, which already has assembled a team of 70 engineers to plan the reconstruction of Kuwait's once mighty oil and gas production system. In addition, the company is project manager for the Gulf oil spill cleanup.

The Big Three automakers, General Motors, Ford Motor Company and Chrysler Corporation, have all won $10 million—plus orders for utility vehicles, trucks and cars.

Caterpillar Inc. has already shipped dieselfueled electrical generators for emergency power and is seeking extensive contracts to supply heavy construction equipment. Motorola Inc. will supply emergency communications gear. Raytheon Co. got a $5.7 million contract for runway lights and air-traffic control equipment for Kuwait's airport.

A number of other US companies expect Kuwaiti business in view of the fact that they had originally built what has been destroyed. The M. W. Kellogg engineering unit of Dress Industries, for example, built and staffed the world's largest liquefied petroleum gas plant at Mina Al-Ahmadi on the Persian Gulf.

One of the major problems to be faced will be securing the return of foreigners. More difficult to replace than roads and buildings will be Kuwait's 550,000 foreign workers who, before the Iraqi invasion, far outnumbered the 150,000 working Kuwaitis.

Most foreign workers came from the Middle East and Asia, particularly Jordan, Egypt, Pakistan, India and the Philippines. They were employed at everything from cleaning floors to running banks and government offices. Since, for example, as few as a tenth of the country's mechanics and electricians were Kuwaitis, the need for a large, carefully selected work force is essential to Kuwait's economic revival.

Kuwait's ability to carry out its comprehensive reconstruction program will hinge on a swift return to near-normal oil production. The country has lost an estimated $6.4 billion in oil revenues since the Iraqi invasion and has had to tap an undisclosed amount of its overseas assets, which before the conflict were estimated at $100 billion.

"The first priority has to be to generate oil revenues," said Patrick Moon, an economic adviser on the Middle East at Lloyds Bank in London. "If they want to avoid selling assets, this will depend upon their ability to turn on the oil taps again."

Meanwhile, Kuwait will have to break a precedent and consider going into credit markets. "Funding can be done out of existing assets," said Fouad Jaffar, former head of the Kuwait Investment Authority "but I would expect Kuwait to start borrowing. That would be the sensible thing to do rather than selling everything."

Assad Profits From Coalition Stance

Syrian President Hafez Al-Assad appears to have reaped considerable economic dividends by condemning Saddam Hussain and sending troops to Saudi Arabia. Damascus may have received as much as $2 billion from Saudi Arabia and another $1 billion in cash from the exiled Kuwaiti leaders, overshadowing Syria's estimated $150 million loss in workers' remittances from Kuwait.

Since President Assad appears to be back in the good graces of President George Bush, following their November 1990 face-to-face meeting in Geneva, the Syrian leader can even hope for a small amount of US aid. This would require that Syria be removed from the State Department's list of terrorist sponsors. (Assad has been accused of sponsoring the 1983 terrorist attack on the US Marine barracks in Beirut and of harboring the terrorists who blew up Pan Am flight 103 over Lockerbie, Scotland in 1988.) A few West European nations, such as France, also may offer modest amounts of economic aid.

The oil and gas boom as well as the sudden increase in official transfers have helped produce Syria's first trade and current account surplus in years. Barring a sharp drop in oil prices, Damascus should have the income it needs to bolster its depressed economy and be able to import badly needed industrial equipment and spare parts.

OPEC Had Record Year

Oil industry analysts estimate that surging oil prices caused by the Gulf crisis helped propel Organization of Petroleum Exporting Countries (OPEC) revenues in 1990 to their highest level in nearly a decade. The 13 OPEC nations earned an estimated $165 billion last year, compared to $116.6 billion in 1989. Peter Bogin, associate director for oil markets at Cambridge Energy Research Associates in Paris, stated: "The major reason 1990 income is so high is because of the conflict in the Gulf." He estimated that OPEC members earned an extra $16 billion in the last half of the year because of the Gulf caused spin in crude prices and production.

The oil cartel pumped an average of 23.15 million barrels per day (b/d), a rise of 6.6 percent over the daily total of 21.73 million b/d in 1989. The 10-year high was achieved despite the five-month blockade on exports from Iraq and Kuwait.

Iraq missed out on export sales of about $7.8 billion, while Kuwait lost an estimated $6.4 billion because of the oil embargo.

John T. Haldane is an international economist and Middle East specialist.