This year Kuwait’s economy has stabilised, allowing the country to look forward to a period of renewed growth and dynamism.
Following a 4.6% contraction in GDP in 2009, the picture for 2010 and beyond looks significantly brighter. In September the ratings agency Moody’s Investors Services predicted that the economy would grow by 2.1% and 4.5% in 2011. Much of this is attributable to a rebound in demand, and consequently prices, for oil.
Kuwait, which has the world’s fifth-largest oil reserves, suffered as a consequence of weakened conditions for the commodity over much of 2009. However, in 2010 prices remained buoyant, with Kuwait Export Crude averaging $74.60 per barrel for the first 10 months against $57.77 per barrel in 2009, according to OPEC figures.
The hydrocarbons sector was also boosted in 2010 by an agreement between the Kuwait Oil Company (KOC) and Shell to offer technical and advisory services for Kuwait’s Jurassic gas fields. Increasing the production of non-associated gas is a key strategy for KOC’s plans to provide cleaner energy in the future.
Meanwhile, the output of northern oil fields reached 820,000 barrels per day (bpd) in November, an important milestone in the government’s efforts to reach a national output capacity of 3.5m bpd by 2015 and 4m bpd by 2020.
The rejuvenated oil and gas sector has bolstered government coffers, boosting retail confidence. A survey conducted by online employment agency Bayt.com and research firm YouGov Siraj in September showed a 5.5-point rise in Kuwait’s Propensity to Consume Index, which measures the proportion of annual income spent on the consumption of goods and services. The Consumer Confidence Index found that half of all Kuwaitis were optimistic that the economy will improve, while only 4% believed they would be worse off in 2011.
Such figures are likely to be welcomed by the government, which this year succeeded in staving off parliamentary calls for a $23.3bn bailout of consumer loans. The government resisted, arguing that such moves would distort market conditions.
Leaders were more concerned with the performance of the banking sector, and this year saw heated debate over ways to ease the workings of the financial services and bolster liquidity following the difficulties experienced by some investment firms in 2008 and 2009.
Sadoun A Ali, the CEO of KIPCO Asset Management Company (KAMCO), told OBG, “Some of the companies with problems in the past few years simply miscalculated their short-term assets at the time of the credit crunch.”
While this debate has continued, the banking sector has been focused on growth. Lending by local banks rose by 5.8% between January and October 2010, with consumer lending almost doubling to KD62.1m ($219.83m). However, the size of the local banking sector’s loan portfolio in the latter month remains significantly below the levels at the end of 2008 and 2009.
One main issue remains the limited lending options in an economy dominated by the hydrocarbons sector. A focus on real estate and investment firms, which were hit by the financial crisis, affected local banks. The national bourse also saw a decline in 2010, while the market hovered at around 6800 points at the beginning of December; it ended 2009 above 7000.
Moving forward into 2011, the government looks set to push ahead with diversification plans, a central priority in an economy in which the oil and gas sector accounts for over 60% of GDP. The Shell gas deal, which brought a breakthrough in the hydrocarbons sector, could serve as a potential model for other fields as well. As the government works to vigorously pursue its development vision, it can bank on its existing range of competitive advantages. If land and regulations conducive to investment are provided, Kuwait can push on towards a period of private-sector-led growth.