Kuwait: Plenty in the pipeline

Taking stock of the latest spending on infrastructure, the Ministry of Public Works gave a boost to Kuwait’s construction sector in December 2010 when it announced that billions of dollars worth of projects were currently under way, with even more set to follow in the new year.

The local construction industry has continued to benefit from the government’s commitment to stimulus spending over the past 12 months. This is amply demonstrated by the latest figures from the Ministry of Public Works, released in late December. These show that government expenditure on construction reached KD2.84bn ($10.02bn) in 2009-10, with 139 separate projects commissioned. This substantial investment is likely to be matched in the 2010-11 budgeting period, with 132 projects currently on the books.

In light of the global financial crisis, the government has taken decisive action to see off the threat of a downturn in the local economy. From a sustained period of under-spending and significant budget surpluses, Kuwait announced a massive five-year development plan in February 2010. The KD30bn ($106bn) strategy marks a break from the last half-decade and is the first such plan in 20 years.

This all bodes well for the construction industry, which is likely to be the biggest beneficiary of the government’s stimulus package. The details of how funds will be allocated had been patchy, but it is becoming clearer that infrastructure spending will be a primary concern. Beyond investment in hydrocarbons and health and education, the government is beginning to stress the importance of upgrading the country’s transport infrastructure.

For example, in December 2010 the Ministry of Public Works announced that KD3bn ($10.6bn) has been allocated for road development projects. The roads department is working on 14 projects under this package, including the construction of new highways linking outlying communities such as Al Khiran City and Sabah Al Ahmad City.

Such announcements should lead to a raft of tenders and contracts over the coming months. According to the ministry, a package of contracts for the second, third and fifth ring roads should be floated in the first quarter of 2011, and this will come as a welcome gift for contractors operating in the Kuwaiti market.

As this suggests, the future course of the construction industry will most likely be charted by these lucrative government-funded projects. Supplementing the road-building agenda, contractors have two further large-scale infrastructure projects to look forward to. Firstly, the expansion of Kuwait International Airport is being mapped out and will be put up for tender over the coming two years, with construction scheduled to start in May 2013. Secondly, the development of Boubyan seaport, also known as Mubarak Al Kabeer, which began in September 2007, is ongoing.

Both projects should offer substantial packages for engineering and construction works. The airport will be expanded from a capacity of 7m passengers annually to 20m. In the first stage, a new arrivals and departure building will be constructed, increasing the airport’s capacity to 13m passengers annually. This new terminal building, which is currently in the design phase, could cost as much as KD500m ($1.76bn) by the time it is complete in 2014. There are also plans to lengthen two runways at the country’s international airport.

Boubyan Seaport will see the construction of 60 berths over four stages, as Kuwait looks to position itself as the entry point for the reconstruction and development of Iraq. This large-scale project will also require dredging, service building construction and transport access. Currently in the first stage, two 30-km highways and a railway line are being designed and constructed, connecting the port to the country’s wider transport network. In July 2010 South Korea’s Hyundai Engineering and Construction Company and the local Kharafi Group won a $1.1bn deal to design and build the port, which is expected to start operating with four berths by 2015.

These central projects in the Ministry of Public Works’ building programme will be crucial for the Kuwaiti construction industry over the coming five years. Although there are signs of improvement in the real estate sector, for contractors it will, in all likelihood, continue to play second fiddle to the ministry’s programme. Government-led infrastructure developments have insulated the sector from the worst effects of the global financial crisis and seem likely to remain at the heart of the industry in the medium term.

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