Foreign investors seek trustworthy markets governed by modern laws: Salloum
KUWAIT: Kuwait Times spoke with Abdullah Al-Salloum, a Kuwaiti economist and author. Recently, he published his book ‘Kingdom of the Vision’, which was a bestseller on both Amazon’s Arabic books and Jamalon, the Middle East’s largest online book retailer.
Kuwait Times: Tell us a little about yourself.
Salloum: I am a 37-year-old Kuwaiti economist, entrepreneur, investor and author in the fields of economics and information technology. I hold a master’s degree in Business Administration and a bachelor’s degree in Computer Science. As part of social responsibility, during the past five years I have been extensively active on social media channels, publishing field-related content. I have been speaking at conferences and seminars, giving educational courses, authoring books and publishing newspaper articles.
In addition, I utilize my solid software engineering background to originate new accounting techniques and tools that help entrepreneurs, investors and households to self-create qualified feasibility studies, self-generate expense rationalization studies and self-evaluate their current or other businesses for the purpose of sale or acquisition. These various techniques and tools are available online -for free – dedicated to the public domain with a CC0 license as part of social responsibility.
‘Kingdom of the Vision’
KT: Tell us about your book ‘Kingdom of the Vision’. What is your vision of Saudi Arabia’s economy?
Salloum: ‘Kingdom of the Vision’ is an economic book that extensively elaborates – in a macroeconomic perspective – Saudi Arabia’s Vision 2030 in six chapters. The first chapter, ‘The Rent’, visualizes the economy’s direction if Saudi Arabia remains a rentier state – a state that depends on oil as the main source of income. The second chapter, ‘The Vision’, discusses the vision that led to extracting primary goals and the strategy used to achieve these goals. The third chapter, ‘Housing’, reasons the current housing difficulties, elaborates on them, and links the vision’s strategy to solving those difficulties, such as introducing a ‘white land tax’.
The fourth chapter, ‘Saudi Aramco’, shows the SWOT analysis of listing the Saudi giant oil company after changing it to an energy company. The fifth chapter, ‘Citizens Pocket’, introduces money concepts and how currency numbers do not matter, but value. The chapter discusses value-added and income taxes, in addition to the real impact of workforce nationalization and increase in expats’ fees. The last chapter, ‘Business and Investment’, elaborates on new changes in direct investment policies, local business environment, giant projects like NEOM and the Red Sea project.
The book was published on the July 20, 2018, exactly a year after publishing ‘The Currency of Mount Serenity’. ‘Kingdom of the Vision’ was ranked as a bestseller on Amazon (Arabic books category), Jamalon (the Middle East’s largest online book retailer) and Jarir Reader (the Middle East’s largest ebook store).
I am very optimistic that the strategy of Vision 2030 will be able to somehow achieve the majority of the set goals, thus creating a more modernized and sustainable economy within the next decade.
KT: Why did you choose to focus on the economy of Saudi Arabia in your book?
Salloum: Many believe I should be focusing on Kuwait’s economy. Kuwait is a rentier state that depends mostly on oil exports. However, sooner or later, Kuwait’s government has to consider sustainability in terms of the economy. This will not happen unless the increase in our GDP becomes very dependent on the increase to export manufactured locally, giving them more added value rather than exporting a natural resource -oil. Once that occurs, by default, Kuwait’s economy will be attached to the closest largest economy; in our case, Saudi Arabia.
Therefore, focusing on Saudi Arabia can be more efficient. However, this does not mean we would disregard pushing Kuwait towards sustainability. On August 8, 2018, I started a new project called ‘Kuwait of the Sustainability’. I will publish it online on November and present it to government if they like to adopt it – a project that introduces a new chapter every week out of 10 chapters that criticize Kuwait’s Vision 2035 (New Kuwait) and give economic solutions and alternatives. The project speaks to the public to raise awareness standards, which is the basis for local politicians’ desired direction. There is a very high likelihood that paperback and ebook editions of the project will be available when the 10 chapters are published.
KT: What is your outlook on investment growth in Kuwait? What do you suggest to attract foreign investors?
Salloum: The growth rate is obviously, comparably, very low. The reason behind this is that the local economy relies primarily on local investments. Foreign investments, once they start hitting the economy, would form a very high portion of total investments.
Attracting foreign investors is not an easy task because they require the presence of modern business legislations and laws, which Kuwait lacks today. Such a task requires very professional cooperation between government officials and MPs, who are currently busy considering other less important matters, unfortunately.
Last year witnessed several fraud cases in the real-estate investment sector involving Ponzi schemes of high monthly returns that ended with stealing and bankruptcy. Why would a foreign investor be attracted to a market that has not yet legislated a clear law for fraud schemes which were first practiced more than 150 years ago?
KT: E-commerce seems like a case where there is a lot of potential for progress. What do you think?
Salloum: It is a bit complicated, and in fact differs from sector to sector. Entrepreneurs who are targeting local cash-flow have proven themselves in terms of e-commerce modeling, operating and financing. They are doing a great job in terms of ideas, research and development and implementation as long as they are within the startup-to-small-business area. However, due to the absence of real business incubators and modern legislations, growing is very hard for them. Facebook, Twitter, and Snapchat were very small projects that could easily attract investments that knew the path of profitable listing. This path cannot be easily found in Kuwait.
Those entrepreneurs will face a very difficult challenge once Kuwait moves towards sustainability, which -as a cost of strategy- will reduce the total local money supply. The entrepreneurs’ challenge is to change their business strategy to attract foreign cash-flow. However, this takes several years to adapt due to its dependence on facilitate customs matters, which is yet another political matter. Unlike e-government, e-banking is way ahead of international standards. Apps of Kuwaiti banks have proven themselves in terms of design, professionalism and services. However, if e-banking lacks the international link with global platforms like Amazon, Paypal, etc, then it would be due to issues with the Central Bank rather than the local financial institutions offering the e-banking services.
KT: How do you see the most successful approach towards introducing a tax system? What about selective taxes and value-added tax?
Salloum: In terms of economics, I see an ‘economic shock’ approach, which introduces all the cuts, taxes, etc at once, as the most successful approach. Such an approach has a severe initial impact – creating a shock that hits all businesses and people that have been benefiting from rentier-state outcomes. Surely they will not enjoy it as it interferes with the economic culture they used to live with. Such a shock changes their habits, introducing a new culture that can live with the tax system strategy.
Introducing VAT on all or selected products and services should consider valid statistics on people’s consumption of elastic vs inelastic and mandatory vs secondary products and services. Income tax is to be considered after VAT if statistics show a high rate of capital flight or rate of consumption abroad.
In terms of politics, by default, the public does not like taxes. MPs – even if they believe it is of the public’s interest – will not tend to lose their public favor over such a decision. Therefore, introducing such an approach requires raising the public awareness in this matter.
KT: Are you optimistic or pessimistic about Kuwait’s economic future? What are your economic expectations?
Salloum: Very pessimistic as long as there is no political reform. I believe the economy of Kuwait will approach the ‘no-return’ point if it continues as is for the next 10 years. The current active generation is still able to drag the economy, making it sustainable. Younger generations, who have suffered culturally within the current state, will find is more difficult to fix what we have left unfixed, and so on, recursively, for the generations after that.
KT: How do you view the current situation of the banking sector and the role assigned to it under the economic conditions?
Salloum: Despite Central Bank ties, the banking sector’s client-end is very advanced and professional. It is giving a great client experience. However, the back-end or at the groups of boards level, it is still bureaucratic and under political and big investors’ interests. Recently, the public witnessed unusual -probably prohibited – actions in terms of disclosure and/or conflict of interest and/or insider trading.
KT: Has Kuwait succeeded in reforming the labor market? Do you believe that the economic situation and plans in Vision 2035 will allow reducing the number of foreign workers and increase national labor?
Salloum: I have not witnessed any major reform but random decisions in the labor market. Such decisions cannot give a clear final goal but achieve small goals in favor of many others. In terms of Vision 2035, I do not believe what was announced suffices to be called a vision. A vision is a visualization of a future state. This future state clearly has to be advanced way ahead of its time. In other words, the projected economy of Kuwait in 2035 has to be way better than the economy in 2035 if things remain unchanged. Then, we must set primary goals whose achievement would create that ‘way better economy’. Finally, we must set the main and sub strategies, by which we can achieve these goals.
Unlike Saudi Arabia’s Vision 2030, Kuwait’s Vision 2035 has not followed the minimum standards of a vision concept. Instead, the government created a list of giant and large projects that are either completed, previously planned and being executed, or previously planned and not yet executed. The government then gathered the goals of those projects and made up its vision.
As the projects were planned before the announcement of the Kuwait’s Vision 2035 (New Kuwait), how would this vision give us a better economy in 2035? Whether this vision exists or not, the economy in 2035 will be the same because the goals are not new. Accordingly, the vision clearly has no strategy to follow, and there is no place for ‘based on the vision’s strategy’. The strategy, unfortunately, is to continue the rentier-state economy.
Back to the labor force – not the vision itself, but the projects which were planned before the announcement of the vision, will definitely increase the total workforce, with a higher portion of national workforce. ‘Kuwait of the Sustainability’ project, which we are currently working on, will give the public a very clear visualization on this matter.
KT: What is the biggest challenge that GCC countries face in your opinion? How can investors be persuaded to invest?
Salloum: Politics. The GCC countries are in a very critical stage. The cases of Yemen, the Qatar blockade, Syria and Iran are creating very volatile GCC markets. Foreigners seek trustworthy-through-stability markets that are governed by modern financial laws. GCC countries should work on that to attract big investors first; the small ones will follow once they see real opportunity for them, financially and culturally.
KT: The Gulf economy is in general an oil-based economy – what are the most effective solutions for moving from the oil economy to a diversified economy?
Salloum: This solution differs from one state to another. The decision-making process in Saudi Arabia, Bahrain, Qatar, Oman and UAE is fully centralized. Therefore, following the leads of macroeconomic theories will be more than sufficient to have a diversified economy. On the other hand, having a diversified economy in Kuwait requires political maturity through political reform, which can lead to sufficient decision-making outcomes that do not interfere with the leads of those macroeconomic theories.
By Faten Omar