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The Report: Kuwait 2014

Kuwait accounts for approximately 6.1% of the world’s proven oil reserves, with hydrocarbons revenues comprising more than 65% of the country’s GDP and 95% of total exports in 2013. Cautious budgetary decisions have resulted in large surpluses, creating a solid base for public expenditure programmes such as the National Development Plan, which is set to diversify the economy and boost employment.

Country Profile

As a major global oil producer, Kuwait has come a long way in recent decades to overcome several key financial and political challenges. By continuing with efforts to diversify the national economy and reduce dependence on oil revenues, the country is also adding increased momentum to several large infrastructure projects. The authorities are also working to further integrate the country into the global economy in order to meet the needs of the growing population. This chapter contains interviews with Emir Sheikh Sabah Al Ahmed Al Jaber Al Sabah; Sheikh Jaber Al Mubarak Al Hamad Al Sabah, Prime Minister of Kuwait; Lim Hng Kiang, Singapore Minister for Trade and Industry; Pham Binh Minh, Deputy Prime Minister & Minister of Foreign Affairs for Vietnam; and a viewpoint from Christine Lagarde, Managing Director, IMF.

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Table of Contents

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Economy

Seven decades of expanding oil production have led to Kuwait having one of the world’s highest GDP-per-capita ratios. The generous welfare system guarantees free education, health care and housing to citizens, while subsidised electricity, water and fuel prices are offered to residents. GDP growth reached 4.5% in 2013 and is expected to rise to 5% in 2014, while fiscal reforms will help ensure stability. This chapter contains interviews with Faisal Al Ayyar, Vice-Chairman, Kuwait Projects Company; Meshaal Jaber Al Ahmad Al Sabah, Director-General, Kuwait Direct Investment Promotion Authority; and Abdulwahab Al Bader, Director-General, Kuwait Fund for Arab Economic Development.

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Banking

The banking sector is considered the backbone of the non-oil economy. The industry has posted steady growth since the global downturn and total assets of local banks were $190.2bn at the end of the first quarter of 2014, up from $181.1bn at the end of 2013 and $158.6bn at the end of 2012. Banking and financial sector legislation that was enacted during 2009 has been helping improve stability in the sector. This chapter contains interviews with Mohammad Al Hashel, Governor, Central Bank of Kuwait; and Fahed Boodai, Executive Chairman, Gatehouse Bank.

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Capital Markets

The Kuwait Stock Exchange is the fourth-largest GCC bourse by market capitalisation, with earnings and market capitalisation rising substantially in 2012. The majority of trading activity is among small-cap stocks, but many local players remain optimistic about future performance. The privatisation of the exchange is expected to take place by the end of 2014, and this is widely anticipated to result in a major improvement in overall transparency and lead to greater foreign investment in coming years. This chapter contains an interview with Faisal Sarkhou, CEO, KIPCO Asset Management Company. Share analysis & data is provided by KIPCO Asset Management Company.

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Islamic Financial Services

One of the foremost and earliest players in the global market for Islamic financial services, Kuwait could soon see the segment play a larger role in the banking sector. Half way through 2013, Kuwait housed more than $70bn in sharia-compliant banking assets, around 6% of the global total and a figure widely expected to grow in the coming years. Key drivers include a sector- wide focus on asset diversification, new opportunities in the sukuk (Islamic bond) market and the potential conversion of the Commercial Bank of Kuwait, a conventional lender, to sharia-compliant status.

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Insurance

While the insurance sector has posted steady growth in recent years, in general it remains relatively small, with the energy sector underpinning a great deal of the activity in the market. Insurance penetration was reported at 0.6% in 2012, which was the lowest penetration rate in the GCC at the time. However, there is optimism among locals as gross written premiums as a whole have continued to grow over the past decade, even as competition has remained tough.

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Transport & Logistics

Sitting at the confluence of three of the most populous and prosperous countries in the Middle East – Iraq, Iran and Saudi Arabia – Kuwait is a logical transport centre for the northern Gulf and the country has committed itself to making investments towards attaining that goal. Expansion of the main airport is under way, while a new port is set to increase Kuwait’s capacity as a shipping hub. The government is also looking to increase use of public transport, with plans afoot to invest in more city buses and a metro system.

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Energy

As new discoveries are being made in the north of the country, and as the industry develops increasingly sophisticated extraction technologies, Kuwait’s oil revenues should see a new boost. The authorities are also seeking to develop the country’s natural gas resources, as these could provide a valuable alternative for electricity generation. Although the kingdom was ranked as the world’s sixth-largest oil producer in 2013, the government still has its eyes set on energy diversification, with solar energy being the most promising option.

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Construction

Driven by an expanding population and a slate of new infrastructure projects expected to enhance economic development and meet growing energy demands, Kuwait’s construction industry is set to grow impressively in 2014. Infrastructure projects in the pipeline will see an influx of public and private spending on road, airport and energy projects, while rising demand for housing and hotels has led to promising opportunities in the hospitality and residential real estate segments. This chapter contains an interview with Riyadh Al Saleh, Chairman & CEO, Kharafi National

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Real Estate

Although growth in real estate slowed during the global financial crisis, the sector subsequently rallied to become one of the best-performing non-oil industries in Kuwait. Following recovery in 2011 and 2012, real estate growth increased significantly in 2013, driven by rising residential demand and strong performance in the investment and commercial segments, as well as the revision of financing laws as part of efforts to support new buyers.

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Telecoms & IT

As the first GCC nation to break its single-operator monopoly, Kuwait’s telecommunications industry has evolved over the past 15 years into one of the region’s most mature, competitive and technologically advanced. The private sector has invested heavily in the latest mobile technology, including 4G LTE, and LTE-Advanced (LTE-A), with these services moving to replace the state’s dwindling fixed-line market. At the same time, expanding fibre-optic networks are expected to help the sector meet demand for more sophisticated internet services.

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Industry

Efforts to diversify the economy away from hydrocarbons have helped drive industrial development. Non-oil GDP saw 10% growth in 2012, and during the 2006-12 period, manufacturing made up an average of 6.4% of GDP a year. Land, transport and electricity prices are currently the main challenges in growing this sector, but efforts are being made to overcome these issues. In early 2013, the government also announced a new $7bn fund to develop small and medium-sized enterprises and help support further economic diversification.

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Retail

As one of the world’s most affluent societies, Kuwait is home to a growing and diversifying retail sector. With strong economic fundamentals and a steady increase in consumer purchasing power, retail in Kuwait is on a sure foundation. On the back of this, mall space is set to expand, as is the food and beverages segment, driven by the prosperous and young generation that is boosting spending and doing more shopping online.

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Education

Kuwait’s public education system now enrols some 60% of the nation’s nearly 600,000 pupils, although private education continues to be popular. To address the demand currently putting pressure on tertiary institutions, a second public university is set to open in 2015. Meanwhile, public institutions are seeking to address the nation’s deficiencies in research and development, while at the same time ensuring that students are equipped with the skills needed to meet the challenges of the 21st century and address disparities in the labour market. This chapter contains an interview with Fahad Al Othman, Chairman, American University of the Middle East.

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Health

With a growing population and a rise in the incidence of non-communicable diseases placing greater demands on health services, efforts are being made to boost capacity in Kuwait’s health care services. As some $3.2bn in projects are planned, the private sector can look forward to a greater number of partnerships with the government. Efforts to tackle lifestyle diseases will intensify, especially as privatisation frees up new resources to be dedicated to Kuwaiti nationals and as public awareness of the issue rises. This chapter contains an interview with Qais Marafie, CEO, Kuwait Life Sciences Company.

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Legal Framework

This chapter contains an outline of the legal framework in which local and foreign investors operate. It also contains information on the new companies law, regulations regarding the conduct of boards of directors and moves to protect minority shareholders. This chapter also contains an interview with Alex Saleh, Partner, Al Tamimi & Co.

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The Guide

The guide contains listings of some of the leading hotels in Kuwait, as well as contact information for important government offices, embassies and other services. It also contains useful tips and information for first-time and regular visitors alike.

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Table Of Contents

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