'Have money, will spend' culture fuels inflation in Kuwait
Kuwait has a culture of consumerism, says economist Hajjaj Bukhadour. The level of consumerism there is a major factor in inflation in Kuwait, and is being supported by a reliance on imports. The Kuwait Food and Drink Q4 report of 2011, compiled by Business Monitor International, has reported that Kuwait's inflation and food consumption are steadily continuing to rise, hand in hand.
The 2010 food consumption growth was four percent, and is forecast to reach 28.5 percent by 2015 with per capita food consumption growth forecasted to reach 16 percent by 2015. The rise in inflation is nearly three times the rise in consumption, as reported by the World Bank's 2011 Food Price Watch report which found that Kuwait is witnessing the fourth highest food price inflation rates in the Middle East after Iran, Egypt and Syria. Kuwait's inflation on food prices was reported to currently stand at 12 percent.
Raising inflation hasn't quelled consumption rates whatsoever and as a result, imports have shot up and, according to the Central Bank's figures, so have food costs. This is unsurprising given that the Q4 report described Kuwait as being a 'highly import-dependent country', with Arab countries consistently remaining the largest net cereal importers in the world according to the World Bank's report.
Inflation, Bukhadour said, was spurred by the type of foods being imported. "When you import low-quality products, the inflation goes up. Low-quality products are cheap, so they're consumed in high amounts which also can spark inflation. As expenditures rise, so will inflation. It's a cycle." He added "Controls should be put on imports to check for quality. In this way, consumption will decrease.
The reasons for the consumerism culture Kuwait has found itself in are three-fold, according to Bukhadour: "Opportunity, population and values are all central issues. " Opportunity refers to the extent to which Kuwait can produce food for itself. Restrictions on the extent to which Kuwait can produce, however, include binding production constraints in the form of scarce water and land resources, according to the World Bank. Bukhadour added, "Kuwait should rely more on itself with regards to services and agriculture, in order to cut the dependency on foreign imports. Buying land abroad to use for agricultural production for Kuwait is a very good strategic choice which deserves further investment and more serious action." This is especially relevant given that, in their 2008 Aquastat report, UN's Food and Agriculture organization (FAO) noted that agriculture (including fisheries) accounts for almost 0 percent of GDP in Kuwait. Buying land in poorer nations, however, is a practice popular with Gulf states and Kuwait already leased land in Cambodia. However, negative cons equences for locals of countries that have sold or leased land for agricultural purposes have been reported, so it remains a controversial issue.
More money plus population pressures
The increasing population size has, understandably, also fuelled increased consumption and, as a result, reliance on import and increasing inflation. Income growth has further fuelled reliance on imports, according to the World Bank and the combination of excess disposable income and more mouths to feed has expanded spending across Kuwait.
Bukhadour insisted that the solution requires increased responsibility, "Societies, including Kuwait, must try and strike a balance with nature. Imports and consumerism, and the negative consequences excessive consumerism brings, would go down if families were more careful, both in terms of the number of children they have and regarding how they live, for example the size of their homes and the amount they must buy to fill them.
The final remedy is concerned with the values of society and of those in power. Bukhadour noted "Politicians must direct people carefully and not try and increase loyalty through rising salaries and disposable income, salary policy needs to be rethought." He added: "This all comes down to a culture of consumerism, but saving should be promoted over spending. Too many things are based around spending and consumerism, even love and emotion are expressed with products and sharing has been replaced with indulg ence.
He further commented, however, that such behavior can be encouraged by policy. "If the Central Bank introduces the wrong policies, such as decreasing interest, the market will be flooded with liquidity of cash and consumption will also rise. Printing extra cash is also detrimental, as it further fuels the consumption cycle even more. Cash flow should be reduced in the market through appropriate monetary policies. Prices will continue to rise as long as demand goes up. The market needs to be activated by developmental projects instead of projects revolving around consumption," concluded Bukhadour. In the case of food consumption, this is especially relevant as the Kuwait Food and Drink Q4 report found that food was the main contributor fuelling higher inflation.