COVID-19 Victim: Kuwait is Broke

♠ Posted by Emmanuel in ,, at 8/19/2020 05:52:00 PM
Kuwait's energy-dependent economy is not coping well with the pandemic like its neighbors.
How the mighty have fallen together with the collapsing demand for hydrocarbons as tourism and travel have been grounded around the world due to the ongoing coronavirus pandemic. Kuwait is a famously rich--albeit geographically tiny--country whose invasion sparked the first Gulf War. Nevertheless, its geopolitical clout was such that then-US President George HW Bush gathered together American allies to summarily eject Saddam Hussein's invading forces.

Thirty years later, we see it confront perhaps a more invidious threat in the form of the spread of a pandemic. Kuwait's current plight reflects that of its neighbors--albeit in a more extreme way. You see, Kuwait is burning up its liquid reserves at a prodigious rate, so much so that it projects being unable to pay its civil servants after October. While it has a sterling credit rating (like most other Middle Eastern energy exporters, it must be said), its legislature's delays in authorizing further borrowing are causing it to unsustainably deplete its liquid reserves in the meantime:  
Kuwait has 2 billion dinars ($6.6 billion) worth of liquidity in its Treasury and not enough cash to cover state salaries beyond October, Finance Minister Barak Al-Sheetan warned parliament, as political wrangling again delayed efforts to return to international bond markets.

The government is withdrawing from its General Reserve Fund at a rate of 1.7 billion dinars a month, meaning liquidity will soon be depleted if oil prices don’t improve and if Kuwait can’t borrow from local and international markets, he said.

As energy-rich Gulf states see their finances hammered by the collapse in oil prices and the coronavirus pandemic, the remarks point to a dramatic reversal of fortunes for some of the world’s wealthiest nations. Managing the crisis has proven especially challenging for Kuwait, where all laws must be approved by lawmakers who accuse the government of mismanaging public money and are blocking legislation that would allow it to borrow abroad.
The General Reserve Fund is a separate pot of money from that which is invested by its sovereign wealth fund mostly in less liquid foreign assets. Overall, the Kuwait Investment Authority is the fourth-largest of its kind in the world. Yet, [GRF] funds can be used to pay for civil servants' salaries are dwindling. Note there is also a "good governance" complaint thrown in here as well as lawmakers point out that the country's leaders have not been [surprise!] exemplars of fiscal accountability and rectitude with regard to past petrodollar earnings. Imagine the Middle East being run by a jillion Jared Kushners and you wouldn't be far off.

The end result is that Kuwait, of all places, is facing a credit downgrade:
In March, Standard and Poors Global Ratings put Kuwait’s sovereign rating on negative watch, and Moody’s Investors Service followed. The IMF said that month that while Kuwait has large financial buffers and low debt, its “window of opportunity to tackle its challenges from the position of strength is narrowing.”

In June, Sheikh Sabah Al-Ahmed Al-Sabah, Kuwait’s ruler, issued a call to transform the economy to one less reliant on oil and urged rationalizing spending. More than 90% of the country’s revenue is generated from oil.
The reality is that Kuwait is an energy-reliant one-trick pony like its neighbors. Worse still, the bulk of its employment is in the public sector and predicated upon the fortunes of the aforementioned state-led energy exports. Even if it is able to cover its current fiscal shortfall by issuing debt, you have the feeling that the hydrocarbon age is nearing its end. What this future means for the fate of various authoritarian Middle Eastern regimes like Kuwait's is an interesting question.

Who knows? Perhaps Kuwait's fiscal reckoning--and its lawmakers' nascent questioning of the entire Middle Eastern petrostate model--foreshadow the region's political future

Paris St-Germain v RB Leipzig = Qatar v Red Bull

♠ Posted by Emmanuel in , at 8/18/2020 05:48:00 PM

Battle of the bad guys? Many see it that way.

A few hours after I publish this post, two of the world's most reviled football clubs will meet in the first match of the Champions League semifinals in Lisbon, Portugal. (Normally, there would be home/away ties for these clubs in their respective stadiums, but the pandemic has forced them to play a single winner-takes-all match in relatively COVID-free Lisbon as a neutral site. Needless to say, the thousands of fans are also missing.)  This being the International Political Economy Zone, we have international politics in abundance with Paris Saint-Germain [PSG] being bankrolled by the Qatari government, and international economics too with RB Leipzig being bankrolled by drinks company Red Bull. 

To be sure, there is a good chance that it will be a good match to watch. Among other stars, PSG features Brazilian drama queen Neymar and the rather more likeable (to me, at least) French speedster Kylian Mbappe. Meanwhile, RB Leipzig features a bevy of up-and-coming young stars. For all that, though, the way these teams got here--and many say they shouldn't be here at all if fair play were observed--make them arguably the two most hated teams in world football. 

Let's begin with PSG. Although the pandemic has smashed the fortunes of Middle Eastern oil and gas-exporting nations--including PSG's benefactor Qatar--that came after it had already spent EUR1 billion-plus trying to win this biggest prize in the global game--the Champions League. Qatar likes to portray itself as a progressive absolute monarchy, but many would of course point out that is an oxymoron. Two of Qatar's most visible attempts to make its regime more palatable are the TV network Al Jazeera, which likes bashing other Middle Eastern nations for totalitarianism when, er, it is sponsored by one of its practitioners. So in more recent years, they came upon the gambit of purchasing a languishing Ligue 1 franchise, spending big loading it up with high-priced talent, and winning heaven knows how many of the France's league titles amid less competitive opposition:

PSG have spent over a billion Euros since their takeover, and have become virtually unassailable in their domestic league, winning seven of the last eight Ligue 1 titles. The malice directed at them, however, isn’t due to the amount of money they spend. It’s the source of the money, and what it represents. The club is fully backed by a Gulf state that is frequently criticized for denouncing basic human rights. PSG stands accused of being a tool of political “soft power,” whereby Qatar aims to increase its appeal and standing in the western world via its megastar-laden soccer team...

For many, however, PSG’s combination of problematic funding, a lack of history and a healthy dose of hubris form a particularly unedifying combination.  Thus, Tuesday’s Champions League semifinal is the Battle of the Maligned Monoliths. It is not Paris against Leipzig; it is Political Influence against Rampant Commercialism.

Admittedly, I dislike PSG more than RB Leipzig. Making a mockery of UEFA's financial fair play rules, it has bought its way thus far into the semis. They have more connections to Qatar than to their city or country, and seems smugly content beating up other French teams unable to muster the same kind of financial muscle. Elsewhere in the commentary above, while the Premier League's Manchester City (Abu Dhabi) and Chelsea (Russian oligarch Roman Abramovich) have equally problematic ownership, these are clubs with substantial histories that could stand apart from their current owners. The same cannot be said for PSG.

How about RB Leipzig, then? Its story is well-known: Red Bull bought a fifth-tier club, renamed it RB Leipzig (RB stands for RassenBallsport, although it's really a not-so-subtle abbreviation of Red Bull), and has since blossomed into one of the Bundesliga's top clubs. Germans are purists about their football clubs, believing that they should be substantially run by the fans who provide inputs on their operations. RB Leipzig upends all that, inviting much ire in their home country since it makes no pretensions about being anything more than a marketing ploy for Red Bull:

The Independent has meanwhile been told of one early meeting at RB Leipzig, when Red Bull owner Dietrich Mateschitz was asked about the project. “Oh, it is a commercial enterprise,” Mateschitz said. “I won’t sell one extra can through this, but we will create a lot of brand awareness.” A phrase as corporate as “brand awareness” isn’t what most of us got into football for. And while it’s true the purpose is not as consequential as soft power or sportswashing, it is questionable, and provokes a lot of debate about the direction of the game and its role.

That difference over what the game is supposed to be for fosters the central tension around RB Leipzig.

While figures like Mateschitz see it is a vehicle for commerce, German football culture sees it as about community representation, and much more than the match. It is a communal experience, where they have agency. This is a viewpoint that was most aggressively articulated by magazine 11Freunde this week, who announced they are refusing to cover Tuesday’s semi-final. “RB Leipzig isn’t a football club, but an imitation… it never intended on just playing football.”

Unlike PSG, though, RB Leipzig has rather more welcome attributes. For starters, its wage bill is nowhere as large as PSG's, and it has achieved success in one of Europe's more competitive leagues with many journeymen of little pedigree. Leipzig's manager is only 33 years old. It's also in the economically less-prosperous former East Germany, which earns it additional sympathy...albeit from non-Germans like me:

What’s more, they’ve managed it in quite a progressive way. Their entire team will cost less than half of Neymar’s fee, and just over a half of Kylian Mbappe’s. They are as refreshing a new face in the Champions League semi-finals as they are at the top of the Bundesliga.

If RB Leipzig were not controlled and owned by a domineering drinks giant selling quite unhealthy, sugar-laden beverages and were run by the fans instead, it would be considered as a good example of how to nurture a modern club. But it isn't run that way, and for some it makes all the difference. Me, I am not a German purist, so I am more lukewarm about it. PSG, though, is hard to cast as anything but a panto villain people describe it to be. Money usually talks in sport, but sometimes people get offended when some do not take any pains to downplay this fact. 

Anyway, here's hoping it's a good game. From the above, you won't be surprised this neutral is rooting for Red Bull (for the first time ever!)