Interview: Faisal Hamad Al Ayyar

What are the main lessons that can be taken away from the global financial crisis and what do they mean for doing business in Kuwait in the future?

FAISAL HAMAD AL AYYAR: In Kuwait the situation was different than in the West. We didn’t have toxic assets like the US, but rather over-leveraging, which is hard to shake off. People thought that the good times would last forever. Moreover, there was a mismatch between projects and financing, as borrowing was much too easy and loosely regulated. All of these factors combined to create catastrophic results. These are the issues we at KIPCO have learned to avoid. Doing business in the region has become more difficult; lending has become tighter and ratings agencies are stricter, leading to downgrades. Business opportunities have been scarcer than what we had expected because of the slowdown in the aftermath of the crisis. We have seen many privatisation laws being passed to open the door for build-operate-transfer projects, but they have not had the intended effect. We are not seeing these projects going forward for the time being as they are not attractive enough and leave most of the risk on the side of the private investor. These laws will have to be revisited.

What results are you seeing with regard to the implementation and monitoring of improved corporate governance and risk oversight systems?

AL AYYAR: There have definitely been some changes in these areas. There have been a lot of discussions and conferences recently on this topic, and we are already seeing increased reporting from companies to their shareholders. This subject is gaining attention and many firms are adopting new measures; regulators are also pushing for it. However, these principles have to become an integral part of the system, not just extra paperwork.

How sophisticated is the Kuwaiti market?

AL AYYAR: There are two different classes of investors in Kuwait: sophisticated investment companies and private investors that have been investing for a long time; and a broad range of unsophisticated investors who regrettably are being encouraged to enter the market by themselves. These people should be channelled through asset management firms who can educate them, show them the risks involved and provide them with an investment strategy. When an individual invests directly, no one is providing them with the right information. This reality can often lead to a herd mentality in the market, which can be dangerous. The new Capital Markets Authority needs to be active and must force transparency onto the market. It should be institutional in the way it is run.

When do you anticipate the recently approved government spending package will begin to bear fruit?

AL AYYAR: At the moment the plan is moving at a slow pace relative to expectations and most people are still waiting. At the same time, we as a nation are not set up for this kind of development, we don’t have the contracting capabilities or the infrastructure for these kinds of large-scale projects to be completed in five years. If the government is committed and everything runs smoothly through the parliament, I think we should start seeing momentum by 2013.

How would you assess Kuwait’s privatisation progress to date and do you believe this process will prove to be attractive to investors?

AL AYYAR: Again, the privatisation laws were not as attractive for private investors as they should be to generate interest and the process is moving very slowly. The whole economy would be better run by the private sector. Power generation is a crucial area that would benefit greatly. The private sector can generate electricity at about half the price that it costs the government, which would lead to large savings and greater investment. Health and education, for example, are sectors where higher quality services at lower costs can be delivered under private management. Governments should aim to be regulators rather than operators.