Kuwait’s industrial sector has remained resilient despite recent local and global economic headwinds. The country’s manufacturing base was buffeted by the global Covid-19 pandemic and the impact of measures to counter it. Disruptions in supply and production chains were then further exacerbated by geostrategic uncertainty and conflicts.
Despite all this, Kuwait’s industrial sector continues to prosper, providing a reliable base at a time when other areas of the economy have faced volatile pricing and long-term risk. With the Emir, Sheikh Mishal Al Ahmad Al Jaber Al Sabah, assuming leadership in January 2024, following the death of the then-Emir, Sheikh Nawaf Al Ahmad Al Jaber Al Sabah, the new 12-year national industrial strategy aims to make the country a global centre for innovative and sustainable competitive industries. Investment is promised under a new focus, with the prioritisation of six key subsectors. Efforts are also under way to diversify the types of industrial activity in the sector, add value to existing subsectors and develop new ones. Many challenges lie ahead, but Kuwait is conscious of the key role that industry has to play in shaping its future.
Structure & Oversight
The main governmental body responsible for the sector is the Ministry of Commerce and Industry (MoCI), which oversees certain aspects of internal and external commerce, promotes Kuwait’s exports and supervises the trade in goods and services, among other tasks. The MoCI independently investigates allegations of intellectual property right infringement and implemented an online complaints system for violations in 2021.
Within the MoCI is the Public Authority for Industry (PAI), which is responsible for the development, expansion, protection and encouragement of Kuwait’s industrial sector. The PAI also sets rules and regulations, issues licences for industrial activity, ensures compliance with codes and laws regarding the sector, and monitors the application of standards – both national and international – while managing industrial zones, monitoring and enforcing health and safety codes in industry, and performing a range of other supervisory and regulatory functions.
As part of an ongoing effort to toughen up regulation and implement international standards in trade and industry, the PAI implemented the Kuwait Conformity Assurance Scheme (KUCAS) to protect the country from non-compliant or low-quality goods. Safety tests, technical evaluation and technical inspection reports must meet KUCAS standards, which are in line with global best practices.
Investment
Kuwait is a member of the GCC and, as such, a party to this multilateral body’s industrial sector agreements and trading arrangements. The latter include a number of free trade agreements (FTAs) with third parties, with recent years seeing momentum in this area. In December 2023 the GCC signed an FTA with South Korea and Pakistan, while long-delayed trade talks with Japan resumed and negotiations on an agreement with China also advanced earlier that year. Discussions with the UK on a future FTA were also ongoing as of early 2024.
Kuwait has a range of bilateral investment agreements with most European and regional countries, including its neighbours Iraq and Iran, although not all have been implemented. It also has a trade and investment framework agreement with the US. Kuwait is a member of the World Trade Organisation and the Organisation of Islamic Cooperation, among other international trade and industry organisations.
The industrial sector is represented by the Kuwait Chamber of Commerce and Industry, which has over 79,000 registered members. Investors in the industrial sector in Kuwait are represented by the Kuwait Industries Union (KIU), whose membership consists of around 270 industrial firms licensed by the PAI. The KIU runs a number of programmes, including the Entrepreneurs Factory, which brings together aspiring and established entrepreneurs to foster the formation of small and medium-sized enterprises (SMEs), and the Knights of Industry programme, which works to familiarise adolescents with the local industrial sector’s role in Kuwait’s economy.
A further key institution is the Industrial Bank of Kuwait (IBK). Established in 1973, it has the specific purpose of promoting industrial development in the country. The IBK plans and initiates projects, finances industrial initiatives – both inside Kuwait and abroad – and supports local capital markets development by channelling funds into industrial companies.
The Kuwait Direct Investment Promotion Authority supports investors, offering information, investment incentive schemes and one-stop-shop services for government departments and agencies. Meanwhile, the National Fund for SME Development helps support SMEs run by Kuwaiti nationals. The fund targets Kuwaiti companies with fewer than 50 workers and provides up to 80% financing for SMEs looking for funding of under KD500,000 ($1.6m). It also offers training and education opportunities for SMEs, with the objective of boosting the number of Kuwaiti nationals working in the private sector.
In terms of industrial zones, the main focus has long been the Shuwaikh Industrial Area in Kuwait City. This consists of three zones next to Shuwaikh Port. Another industrial zone nearing completion south of Kuwait City is Al Shadadiya Industrial Zone (SIZ), with construction reported as 80% complete in November 2023. The zone will house some 1036 industrial units, mainly manufacturing, on a 5-sq-km site. Three main industries will be grouped at SIZ: chemicals, foodstuffs and light industrial products.
Changing Times
Manufacturing has contributed an annual average of 7% of Kuwait’s GDP since 2000, with a high of 8% in 2004 and a low of 4% in 2008. The most recent Central Statistical Bureau (CSB) figure, for the second quarter of 2023, was 6.6% of GDP at current prices for manufacturing, which included the coke and refined petroleum products subsectors.
While the overall proportional total may have remained much the same in recent years, in terms of industrial subsectors figures from the IBK show that there was a structural shift in activity during the period from 2000 to the start of the pandemic. In terms of contribution to manufacturing sector GDP, at the start of the century, food and beverage production was the largest subsector, accounting for 23% of the almost KD300m ($976m) total. By 2019, however, food and beverage accounted for only 10% of the KD1.75bn ($5.69bn) total, while first place was chemical products, which dominated the sector with a 52.7% share of its contribution to GDP. This was up from just 12.3% in 2000. Other sectors that had declined in terms of share were non-metallic minerals, which decreased from 15.1% to 4.5%, and textiles, which fell from 11.9% to 4.5%.
Notably, however, in monetary terms, all of Kuwait’s industrial subsectors saw major increases in the value of their output. Textiles more than doubled, from KD35.6m ($116m) to KD79.1m ($257m), while non-metallic minerals rose from KD45.2m ($147m) to KD78.3m ($255m). The largest increase was in chemical products, which grew from KD36.9m ($120m) to KD921m ($3bn) and fabricated metal products, which jumped from KD60.2m ($196m) to KD326m ($1.1bn).
Price increases and shifts in the global economy account for some of these changes, while manufacturing as a whole increased its contribution to GDP considerably as the sector expanded along with economic growth – according to the IMF, Kuwait’s GDP rose from $37.7bn in 2000 to nearly $160bn in 2023. A further factor has been the shift in private investment to those areas that show the greatest potential for added value.
Meanwhile, IBK figures show manufacturing as the third-largest sector in terms of cumulative credit facilities issued up to November 2021. The sector received 6% of the KD42.1bn ($137bn) in credit extended, or KD2.3bn ($7.6bn), behind real estate, at 22%, and trading, at 7%.
Top Segments
Looking at the leading subsector, chemicals and petrochemicals, the main products are ethylene, polyethylene, urea, ethylene glycol and various chemical catalysts, with shipments to Asia dominating the export basket. In 2021 the country exported some $3.14bn in organic chemicals.
These benefit from Kuwait’s giant oil and gas industry, with the petrochemical infrastructure overseen by the Kuwait Integrated Petroleum Industries Company (KIPIC). Oversight operates through a series of joint ventures with other companies, such as Kuwait Aromatics Company, Kuwait Styrene Company and Equate. Many of these also have large KIPIC shareholdings, while international firms such as US-based Dow are also key shareholders. Other important chemicals companies include Ahlia Chemicals Company, which specialises in construction chemical manufacture, and National Chemical and Petroleum Industries, which produces a range of chemical agents, inhibitors and demulsifiers.
Steel
The United Steel Industrial Company (Kuwait Steel) is the keystone of the country’s steel sector and its downstream metals fabrication industry. Established in 1996, Kuwait Steel operates a 1.2m tonne per annum (mtpa) steel billet facility in Shuaiba and two rolling mills, one with an 800,000 mpta steel bar capacity, and the other with a 600,000 mtpa rebar capacity. The company has made major investment in digital transformation in recent years, in partnership with German software company SAP.
Steel fabricators include Al Askafi, Kuwait Technical Centre, Al Mulla, Al Rakeb, Global International, Century Steel and Soud Fahad Barrak Al Sabih. Local steel product prices are monitored by the MoCI to ensure local supply and prevent unfair practices.
Steel companies are major suppliers for Kuwait’s construction sector, as well as some parts of its transport and oil and gas industries. Domestic production has been averaging below demand, however, with the country importing some $900m of iron and steel in 2021, signalling room for expansion should more large construction projects be confirmed in the years ahead. One limitation has been the availability of natural gas for furnaces, which may become less of a constraint as the joint Kuwaiti-Saudi Durra gas field comes on-line at the end of the decade.
Kuwaiti firms have been active in the steel sector abroad. Foulath Holding, made up of a number of Kuwaiti companies, such as Kuwait Foundry, along with Qatar Steel Company, owns 100% of Bahrain Steel. Meanwhile, in October 2023, Kuwait-listed Heavy Engineering Industries and Shipbuilding Company announced it was moving ahead with a structured steel manufacturing plant in Saudi Arabia at the eastern port of Ras Al Khair.
Plans & Programmes
The New Kuwait 2035 long-term strategic programme and the Kuwait National Development Plan 2020-25 both make diversification of the economy away from oil and gas a top priority. Indeed, in 2022 the oil and gas sector accounted for 52% of GDP. The country’s plans all foresee the private sector as the primary driver for diversification and sustainable growth, with a major expansion of the private sector and the Kuwaitisation of its participants also essential.
Both programmes outline plans for the Northern Economic Zone (NEZ), a major development of the islands to the north of the country. The NEZ – also known as the Silk City mega-project – will be legislatively semi-autonomous and contain advanced infrastructure. The $2.3bn Sheikh Jaber Al Ahmad Al Sabah Causeway, linking Kuwait City directly with the northern city of Subiyah, was built in 2019 as part of this. The new Mubarak Al Kabeer Port was under construction in the zone as of early 2024, with a memorandum of understanding on completion and ownership of the port signed with China in September 2023. When completed, the port and wider Silk City project would represent a notable expansion for Kuwait’s industrial sector, as an entirely new ecosystem would be created in the north of the country.
September 2023 also saw the government approve a new long-term vision, the Kuwait Master Plan 2040. Concerned with land use, the plan looks at specific allocations for a variety of purposes, including industrial, and divides the country into four strategic regions. The plan forecasts a population of 519,000 in the NEZ, along with 171,800 jobs; 486,000 in the southern industrial region close to the border with Saudi Arabia, with 157,000 employment opportunities; and a population of 126,000 and 180 jobs in the western region by the plan’s end date. Kuwait City’s population is expected to reach 6.1m by 2040, with an estimated 3m employment opportunities.
Activity in the southern industrial area will focus on three economic sectors – advanced manufacturing, agriculture and tourism – according to statements by Kuwaiti municipal authorities in November 2021. Those statements also included the forecast that industrialisation would account for around 35% of all the new jobs across the four regions outlined in the Kuwait Master Plan 2040.
In October 2023 the Kuwaiti authorities also approved the National Industrial Strategy 2035 to guide the sector’s development over the span of 12 years. In its first phase the strategy contains 48 projects, with the PAI declaring that these would follow strict standards and terms. Six subsectors are prioritised by the plan: petrochemicals and chemical products; food industries; medical industries, such as pharmaceuticals, medical supplies and technologies; renewable energy products; fourth generation industries, such as artificial intelligence, 3D printing and nanotechnology; and the building supplies industry. The strategy also aims to increase the capital invested in the industrial sector from the current KD5.2bn ($16.9bn) to KD11bn ($35.8bn) over the plan period, with a consequent increase of around KD2.4bn ($7.8bn) in the manufacturing sector’s added value, up from its current KD1.8bn ($5.9bn).
Other targets of the strategy include increasing the number of specialised jobs for Kuwaiti nationals in the sector from 11,000 to 25,000, while Kuwaiti industrial exports should rise by KD3bn ($9.8bn) from their current KD1.7bn ($5.4bn). A key additional target is to increase spending on research and development from KD14.5m ($47.1m) to KD55m ($179m), as the PAI seeks to encourage industry to boost product innovation, diversity and productivity. These objectives are to be reached within the framework of national efforts to introduce Kuwaiti manufactured products to local, regional and international markets, rationalise energy consumption and achieve environmental sustainability – targets that align with UN Sustainable Development Goals.
Performance
In the lead-up to the pandemic, manufacturing saw a slight decline in output – the total contribution to GDP from the sector was KD1.9bn ($6.1bn) in 2018, compared to KD1.8bn ($5.7bn) in 2019. This decline continued during the pandemic, when the sector was adversely impacted. With many industrial and manufacturing activities dependent on expatriate labour, repatriation of foreigners and travel bans added woes to trade disruptions and lockdowns. Lower oil prices in 2020 and 2021, as a result of the pandemic-induced global downturn, then impacted the sector as economic growth overall slumped, while the conflict in Ukraine further disrupted global supply chains.
With oil prices bouncing back, however, the sector began its recovery. In 2022 World Bank figures show Kuwait’s real GDP grew 7.9% at constant market prices, rebounding from a contraction of 8.9% in 2020 and growth of 1.3% in 2021. Within this, industry expanded 8.3% in 2022, making it the sector with the highest growth, ahead of services, at 7.3%. This industrial growth was a remarkable comeback, with the World Bank calculating industrial shrinkage of 12.2% in 2020, followed by 2.2% growth in 2022.
Oil revenue slumped again in 2023, however, due to production cuts and sluggish growth internationally. Yet, World Bank figures show industry continuing to move forwards, growing an estimated 1.3% in 2023 – once again ahead of both agriculture and services.
Assessment of statistical trends was hampered by the suspension of GDP calculation in the first quarter of 2021, due to the impact of the pandemic. The CSB resumed data collection and publishing in 2023, with this showing a certain fragility to current growth. CSB figures for the second quarter of 2023 showed that in terms of industrial subsectors, chemicals and petrochemicals followed overall oil and gas sector trends. Manufacturing – which the CSB defines as including refined petroleum products and coke – saw its value added shrink 1.6% at constant prices, quarter-on-quarter. Overall, Kuwait’s GDP declined 1.3% in the second quarter of 2023, compared to the first quarter of 2023. In terms of contribution to non-oil GDP, manufacturing recorded 12.8% growth that quarter, down from the 2022 average of 15.3%, but up slightly from 12.7% in the first quarter of 2023.
Outlook
For the industrial sector, a resumption of previous upticks in local economic activity combined with a revived global economy are set to bolster the country’s receipts from hydrocarbons. This, in turn, would provide added capital for major projects, benefitting a whole range of industrial subsectors.
Guided by a number of long-term development plans, the country’s industrial sector is set to continue its expansion, widely supporting both economic diversification and local job creation. Kuwait also owns significant resources overseas, with industry back home looking to benefit more substantially from this in the years ahead. With mega-projects such as Silk City promising a step change in scale for the country’s manufacturers, many investors will be waiting to see how Kuwait progresses in the year ahead with its agenda for expansion and renewal.
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