Data 2002
SOURCE: based on data obtained from:
Arab Planning Institute (API) http://www.arab-api.org
National Bank of Kuwait (http://www.nbk.comKuwait Central Statistics Office (2009) Statistical Review – Department of Publications and Dissemination.
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As a result of this clear disparity in the speed of growth of exports on the one hand and imports on the other, the Kuwaiti economy was able to bolster its excellent position vis-à-vis its foreign exchange balances. The trade balance rose from 928 million dinars in 2002 to 11,915 million dinars in 2006 (5,616 million dinars on average), with crude oil representing more than 90% of total Kuwaiti exports. At the same time the contribution of other exports and re-export activities remained very modest, undermining Kuwait‘s desire to transform itself into a regional commercial centre. An analysis of the structure of imports confirms the modest nature of their role in supporting the Kuwaiti economy, since basically they are made up of consumer goods and various service imports. Similarly, their increase in the proportion of GDP directs revenues more towards consumer spending than towards savings and investment and generally weakens the basic productivity structure in the local economy. The first, inclusive strategic goal is to diversify the economy‘s productivity base, establish a competitive economy and create tangible changes in the structure of GDP.
4.12 INNOVATION CAPACITY IN THE GULF AND KUWAIT
Wilson (2010) questions whether it is possible to build sustainable innovation in oil rich countries of the Gulf that are heavily dependent on wealth from a single resource. In this regard he ascertained that each of the six Gulf States is pursuing some economic diversification strategy to move their respective economies away from hydrocarbon dependence.
Wilson (2010) and Palliam (2010) are consistent in their views over diversification and suggest that any move by Gulf countries towards diversification needs responses to the questions:
Firstly, how economically viable is the diversification measured in terms of global competitiveness?
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Secondly, what are the best practices and to what degree the best practices are embodied in these new diversified sectors;
Thirdly, what is the role of innovation in this regard; and
Fourthly, would Gulf economies be able to sustain new diversified sectors particularly when wealth from one leading sector is used to leverage the new diversified sector.
Innovation and whether it is sustainable impacts directly upon the international competitiveness of a country. Palliam (2010) contends that competitiveness is the key to productivity growth and goes on to define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. Competitiveness is simultaneously driven by a combination of macroeconomic policies, a sound institutional framework, modern infrastructure and an efficient financial system to ensure an enabling business and investment climate. From this point of view Gulf countries seem to be more than adequate. However, one impediment to global competitiveness particularly of the new diversified sector is – to what extent is the economy open and accessible. Gulf countries are not homogeneous economies. However, one issue that is common is the lack of international competitiveness that emanate from several inadequacies (Wilson, 2010). In this regard Palliam (2010) critically attributes the lack of international competitiveness to inadequate institutions in the Gulf to address unnecessary bureaucracies; dysfunctional regulatory authorities; high prevalence of corrupt officials; and the low levels of innovation capacity and innovation systems as a result of a reluctance to build capacity.
To achieve best practices in any sector, particularly in a knowledge-based economy, investment in research and development is paramount. Wilson (2010) identifies the role of universities in this regard. Palliam (2003) argues that no economy can exist without a university to support and no university can exist without a good economy to sustain it. University and
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economy collaboration in research and development is a result of a long history of good governance, and coherent science, technology and innovation policies. The role of educational institutions in empowering individuals (human capital) with intellectual capital is also critical. Wilson (2010) goes on to conclude that Gulf States lag dramatically behind OECD countries in terms of research and development. Within this context Wilson (2010:5) contends that ―there is very little scope currently for Gulf States to become more internationally competitive with respect to innovation and knowledge fundamentals‖.
To build a knowledge-based economy and society requires the development of innovation through: knowledge production; knowledge application and knowledge diffusion. Gulf States willingness and earnestness to diversify its narrow economic base are indeed the first signs of innovation and of course there are many initiatives to broaden the education base of Gulf States. Wilson (2010) cites the United Kingdom‘s Department of Trade and Industry which defines a knowledge-driven economy as one in which the generation and exploitation of knowledge play the predominant part in the creation of wealth. This in essence suggests that economic success of any country depends upon knowledge creation and learning. The OECD makes an identical assertion – that the term
"knowledge-based economy" results from a fuller recognition of the role of knowledge and technology in economic growth. Intellectual capital in any form (natural or artificial intelligence) has always been central to economic development. For any successful economy to sustain innovation, it must be able to produce, distribute and use knowledge more than ever before. The ability to improve the economy‘s intellectual capital is indeed a source of competitive advantage.
The next related issue is how a knowledge economy measured – Knowledge Economy Index. For this purpose, Wilson (2010:6) identifies the use of a World Bank Institute Index that comprises of four pillars, namely:
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Pillar One - Economic and Institutional Regime where the country's economic and institutional regime must provide incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship.
Pillar Two - Education and Skills where citizens need education and skills that enable them to create and share, and to use it well.
Pillar Three - ICT Infrastructure where a dynamic information infrastructure is needed to facilitate the effective communication, dissemination, and processing of information.
Pillar Four – An Innovation system where the country's innovation system - firms, research centers, universities, think tanks, consultants, and other organizations - must be capable of tapping the growing stock of global knowledge, assimilating and adapting it to Iocal needs and creating new technology.
Table 4.13 presents the rankings of the Gulf States in terms of 146 countries that constituted the sample for the World Bank Institute Index.
The Knowledge Economy Index for the Gulf States is provided in the accompanying table. The ranking of Kuwait in relation to the six Gulf States is also provided.
TABLE 4.13
THE RANK OF GULF COUNTRIES AMONG 146 COUNTRIES WITH REGARD