Interview: Faisal Al Ayyar
What can be done to promote the private sector and restore investor confidence in Kuwait?
FAISAL AL AYYAR: The parliament and the government need to actively reach out to the private sector and encourage participation. The private sector currently carries little weight, which is not good for the country’s development. Since the state has a lot of money, there is less of a perceived need for the private sector. If we look back at Kuwait’s history, the previous build-operate-transfer (BOT) projects were very successful. However, since the BOT Law came into effect in 2008, BOT projects have stopped. The law needs to be changed to make the terms fairer for all parties involved, as the current law is one-sided against the investor. The economic crisis has damaged a lot of companies, so the last thing they want to do is gamble on risky projects. Considering no new BOT agreements have been signed in the last six years, many potential opportunities exist. If people take this into account, they will see that investing in Kuwait can be very rewarding, provided that the timing is right.
How important is the establishment of a productive bond market for Kuwait’s long-term growth?
AL AYYAR: To have a functioning secondary market, you first need a primary market. There are opportunities for a secondary market, but Kuwait should learn to walk before it can run. Companies need to focus on their own business and management to attract investor interest. After this we can develop the stock exchange and then build a secondary market. The debt market is nothing new to Kuwait, but the processes and ratings are not in place to have a fully functional market. In the last two years KIPCO and Burgan Bank successfully conducted the biggest private-sector bond issuances in the country’s history. The environment is already there, but you also need the condition of bonds to be acceptable and, for that, the public must first trust the company issuing the bond.
If you cannot issue a bond in the current environment of low interest rates, low stock market returns and booming markets, then you might never be able to successfully issue a bond. The situation today is ideal for companies to capitalise on bonds because investors want investments that yield good returns. The conditions are right, but our companies are not.
How would you rate the progress made by the Capital Market Authority (CMA) towards revitalising the financial services markets?
AL AYYAR: The CMA has only recently been created and has a mandate that is new for the country and will take time to implement. Having said that, it is doing a good job at increasing transparency and corporate governance. Improving the attractiveness of the market is one thing, but the whole environment needs to be right too. To grow any sector you first need the broader economy to expand. Once all of the pieces come together, investors will be drawn to the stock market naturally.
Which sectors would benefit the most from being privatised? How can the government be encouraged to focus on regulation more than operation?
AL AYYAR: Being from the private sector, I believe that any sector you privatise will be more efficient. In Kuwait the private sector can improve efficiencies in transportation, health care and the energy sector. Another example would be the education sector, which would not only receive a much-needed boost but also pose less of a cost to the government. Ultimately, parliament and the government need to believe in the role of the private sector. If the law was reformed and projects were executed in a timely manner, opportunities for investors would be created, more Kuwaitis would be able to find stimulating jobs, and the private sector would be more productive and more competitive. This is a long-term process that requires education and commitment, but it is necessary for the future success of the country.
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