The Report: Kuwait 2019

Economy

Various developments point to healthy economic performance in the near term for Kuwait. Chief among them are the upgrade of the country’s stock exchange, which has been approved for addition to the MSCI Emerging Markets Index; the continuing roll-out of a large infrastructure programme; and the transition into higher value-added downstream production within the country’s leading hydrocarbons industry. Meanwhile, prudent macroeconomic policies – including building one of the world’s largest sovereign wealth funds – have helped Kuwait weather the recent protracted downturn in oil and gas prices. Foreign investment has been welcomed as Kuwait capitalises on its strong regional and international connections to mobilise global interest.

This chapter contains an interview with Khaled Mahdi, Secretary-General, Supreme Council for Planning and Development.

Trade & Investment

After accumulating large amounts of wealth through the export of oil, Kuwait is now looking to deploy that wealth to develop and diversify the economy. The nation aims to attract $200bn in foreign direct investment over the next 15 years to 2035 and become a global centre for trade and finance. The government is making concrete steps towards achieving its ambitions with incentives for the private sector and investments of its own. This chapter contains interviews with Sheikh Meshaal Jaber Al Sabah, Director-General, Kuwait Direct Investment Promotion Authority; and Meshal Alothman, Director-General, Public Institution for Social Security.

Banking

Performance has rebounded in the Kuwaiti banking and financial sectors after a number of years repairing the damage caused by the 2007-08 global financial crisis. Banks’ balance sheets show that net profits, assets, loans and deposits are all growing strongly, and financial metrics look robust, while various industry assessments show that it is well capitalised. This chapter contains a roundtable with Adel Abdul Wahab Al Majed, Chairman, Kuwait Banking Association; and Vice-Chairman and CEO, Boubyan Bank; Michel Accad, Group CEO, Al Ahli Bank of Kuwait; and Elham Y Mahfouz, CEO, Commercial Bank of Kuwait; and an interview with Mohammad Y Al Hashel, Governor, Central Bank of Kuwait.

Capital Markets

Kuwait’s equity markets have gone through a remarkable series of reforms in recent years, and the state has been rewarded with upgrades by international index compilers and ballooning inflows of foreign investment. Enabling infrastructure and a robust legal framework are in place to ensure continued development, and demand for assets has been proven. Therefore, what is critical going forward is a greater supply of high-quality investable securities, from sovereign bonds to small company equity listings by businesses with solid track records. This chapter contains interviews with Khaldoun Al Tabtabaie, CEO, Kuwait Clearing Company; and Mohamed Al Osaimi, Acting CEO, Boursa Kuwait.

Islamic Financial Services

Kuwait’s Islamic financial services sector is well established, with a long history in both Islamic banking and takaful, or Islamic insurance. The segment has expanded in recent years, building upon the country’s reputation as an emerging centre for sharia-compliant banking, insurance and investment products. The government has enacted a series of laws and regulations aimed at further developing Islamic finance, and there remains a strong demand for such products. This is reflected in the country’s increasing world share of sharia-compliant assets, with Kuwait accounting for 6.3% of such products in the second quarter of 2018, up from 6% during the same period of 2017. This chapter contains interviews with Mazin Al Nahedh, CEO, Kuwait Finance House; and Raed Jawad Bukhamseen, Vice-Chairman and CEO, Kuwait International Bank.

Insurance

Kuwait’s insurance sector has expanded rapidly in recent years, with numerous new entrants competing and driving down premium prices. This has led to concerns that companies are booking high profits at the risk of not keeping enough in reserve to meet future payouts on policies. To counter these worries, a new law was passed in July 2019 and it is likely to have a profound impact on the sector by putting the industry on a sustainable long-term trajectory. However, with the law pushing for increased reserves and stricter regulation, flatter profit growth and a major restructuring of the market could be seen over the next two to three years.

Transport & Logistics

Kuwait is currently undergoing a major revamp of its transport and logistics networks, which are set to see a transformation. New roads, railways, airports and ports are either already being built or are in the pipeline, as part of the ambitious aim to re-establish Kuwait’s historical role as a regional centre for the sector. Meanwhile, the country is keen to attract foreign investment and participation in this revitalisation, with the government working hard to encourage partnerships and reduce obstacles to investment. Though challenges remain within uncertain global economic conditions, Kuwait is well positioned to take greater advantage of its strategic location within international and regional transport and logistics networks. This chapter contains interviews with Kamil Al Awadhi, CEO, Kuwait Airways; and Saud Al Naki, Vice-Chairman, Public Authority for Roads and Transportation.

Energy & Utilities

With the sixth-largest proven oil reserves in the world, Kuwait is among the world’s principal hydrocarbons powers. The Gulf country is also one of the top energy sector investors, with a range of mega-projects under way. While the sector is a national industry, Kuwait is also a destination for international players, with a range of contract and tendering opportunities available, from the upstream to the downstream segment. Because of its established nature, shifting the balance towards more sustainable sources is an ongoing challenge, as is fully utilising resources to promote economic diversification. Nonetheless, Kuwait has advanced on some key projects to meet these challenges through an ambitious sector development programme. This chapter contains interviews with Hashem Hashem, Deputy Chairman and CEO, Kuwait Petroleum Corporation; and Emad Sultan, CEO, Kuwait Oil Company.

Construction

Major infrastructure works – from roads and schools to airports and hospitals – are either under way or in the design phase in Kuwait, highlighting the significant activity seen in the construction sector in recent years as the country works towards the goals outlined in the New Kuwait 2035 development plan. Perhaps the most ambitious of these projects is the 700,000-inhabitant Silk City mega-development in Subiyah on the northern side of Kuwait Bay. Government spending has, by and large, driven these projects, and 2017 and 2018 saw delays and postponements. As such, getting the investment and development balance right will be key to maintaining sustainable development, with a healthy mix of public and private participation now being sought.

Real Estate

After some years of slowing growth, Kuwait’s real estate sector saw signs of a significant revival in 2018, with sales increasing and prices stabilising. At the same time, new projects are under way, with a number of large-scale, mixed-use developments nearing completion. Better economic growth overall, fuelled by rising oil prices and a government infrastructure programme, has also created a more buoyant economy, despite some global and regional headwinds. A limited supply of land is another factor increasing prices, although this has also caused bottlenecks in meeting housing demand, with Kuwaiti citizens particularly affected.

ICT

With Kuwait’s national strategy focused on establishing the country as a global and regional knowledge and communications hub, ICT development has gained significance in the country’s shift away from an economy based on hydrocarbons. The adoption of 5G technology has been key to achieving these goals, as is the earmarking of financial and human resources to create a wider and deeper IT ecosystem. Technology start-ups are being encouraged, and private sector jobs and initiatives are seen by the government as an important part of the drive to diversify the economy while attracting higher levels of international investment. This chapter contains an interview with Salim Al Ozainah, Chairman and CEO, Communication and Information Technology Regulatory Authority.

Industry

The non-hydrocarbons industrial sector has long played second fiddle to oil and gas in Kuwait. As the economy pivots towards easing its dependence on hydrocarbons, manufacturing is one of the key sectors the government is looking to further develop. Sector stakeholders are welcoming the increased availability of industrial land, as construction continues in the Al Shadadiya Industrial Zone and plans take shape for the ambitious multi-sector Silk City in the country’s north. At the intersection of hydrocarbons and industry, the petrochemicals segment has received considerable attention and investment, while technology manufacturers are winning lucrative contracts to serve the government’s goals of adding greater efficiency to its oil and gas production. This chapter contains an interview with Abdulkarim Taqi, Director-General, Public Authority for Industry.

Retail

With a strong fiscal base, a high average per capita income and a robust shopping culture, Kuwait looks set to rebound from a period of stagnant growth caused by declining oil prices. While the local retail sector is small compared to larger GCC markets like the UAE and Saudi Arabia, consumers are quickly catching up with their regional peers in their tastes and demand for international food, brands and shopping experiences. Retail and wholesale trade accounts for a sizeable percentage of Kuwait’s GDP, and there are solid growth forecasts for the coming year. Existing sector players are expecting 2019 to be a year of increased consumer confidence and healthier disposable incomes.

Health

Significant improvements in health outcomes have been achieved in Kuwait over the past 20 years, especially in terms of the extension of life expectancy and the reduction of infant mortality rates. The reform of the Kuwaiti health care sector is central to the Kuwait National Development Plan, which is also known as New Kuwait 2035. With a growing population and an increasing incidence of lifestyle-related diseases, demand for health care is projected to continue to rise over the longer term, in particular for specialist treatments. The state has traditionally played an extensive role in health care provision; however, moving forward, it aims to improve the quality and efficiency of public health services in line with international benchmarks, while also boosting private sector activity.

Education

Amid concerns over the quality of education and training, and in recognition of the country’s growing youth population, the Kuwaiti government has demonstrated its intention to revitalise the education sector through a series of policy reforms and investments in recent years. Some 37% of the population is under the age of 14, while 35% is between the ages of 15 and 34, making the provision of high-quality education and training facilities an essential part of national strategies for economic development and diversification. Many of the recent reforms were announced as part of the Kuwait National Development Plan, known as New Kuwait 2035, a government strategy that prioritises education as one of its seven policy pillars.

Tax & Accountancy

After years of abundant public spending, GCC economies experienced a direct hit on their fiscal balances caused by the 2014 fall in oil prices. As such, Kuwait is following the regional trend of pursuing economic and fiscal reform programmes. Multiple government-led initiatives seek to support economic diversification, strengthen the private sector’s contribution to the economy and help keep the deficit under control. In this vein, the last few years have seen the authorities take positive steps towards sustainable development and economic growth by reducing bureaucracy and speeding up administrative processes, amending existing regulations and ratifying a number of new laws. This chapter contains an interview with Alok Chugh, Partner, Government and Public Sector Leader MENA, EY.

Legal Framework

The modernisation of the country’s capital markets continued in April 2018 through the promulgation and implementation of Boursa Kuwait’s new rulebook. Its purpose is to clarify the regulatory and organisational framework of Boursa Kuwait and all other aspects of Kuwait’s stock exchange. The new rules provide, among other things, for the segmentation of the market into the premier market, main market and auction market. Each segment has been designed to provide the most suitable disclosure and listing requirements for their members. These reforms also included the recognition and regularisation of specific new transactions, such as short selling, security lending and borrowing. This chapter contains a viewpoint with Ahmed Barakat, Managing Partner, ASAR – Al Ruwayeh & Partners.

The Guide

The guide contains listings of some of the leading hotels and resorts in Kuwait, and contacts for important government offices and services. It also contains useful tips and information for first-time or regular and business and leisure visitors alike.

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