Country Profile:
Kuwait
Kuwait
For Kuwait – one of the world’s leading oil producers – 2009 was a year of unique challenges, both domestic and international in origin. The sharp decline in oil prices, combined with the credit crunch and an extremely volatile stock market, caused the economy to dramatically slow its previously galloping pace. Meanwhile, political fireworks in the parliament complicated economic issues further as a stimulus bill and a backlog of other important regulatory legislation was held up. But the long-term picture is far from bleak and the bumps of 2009 are largely the product of the global economic crisis. As the world moves towards recovery, Kuwait can expect a swift bounce-back and perhaps greater incentive to sort out its domestic political affairs.
ISBN: 9781902339184
ISSN (Online): 1757-2738
ISSN (Print): 1757-272X
TABLE OF CONTENTS
COUNTRY PROFILE
This section provides a quick overview of some facts about the country, its population, history, religion, natural resources, geography, culture, education system and climate.
POLITICS
The dynamic national legislature continued to create waves in 2009 as Kuwait once again witnessed the dissolving of parliament and the election of a new government. The cabinet of ministers resigned in March in response to demands to question the prime minister and the Emir, Sheikh Sabah Al Ahmad Al Jaber Al Sabah, dissolved the parliament and called for new elections. The May results yielded a very different outcome from the previous polls, with Islamist groups losing ground while liberals and Shia gained seats. Several ministry positions were reappointed as well. Perhaps the most significant change, though, was the election of four female MPs for the first time in Kuwaiti history, marking a new stage in the country’s political development. Nevertheless, the persistent political impasses of recent years have complicated economic development as important liberalisation bills – and, in the case of 2009, stimulus programmes – remain backed up in the approval and ratification process. In geostrategic terms, Kuwait is at the centre of a potentially volatile neighbourhood including Iran, Saudi Arabia and Iraq, and the country manages its diplomatic affairs carefully. Its tumultuous relationship with Iraq has improved slightly – in 2008 the two states took the historic step of exchanging ambassadors and coordination between the governments has since stepped up – though in 2009 politicians still exchanged strong words over the issue of reparations for Kuwait’s invasion in the early 1990s. With Iran, Kuwait has used tactful diplomacy to retain strong ties with both its near neighbour and the US, with whom it has a strong relationship. The political drama of past years – while causing complications in economic development – can at least be seen as a sign of the country’s liberal spirit and democratic vitality. If the government can adequately tackle the hurdles of the economic crisis and improve regulation, Kuwait stands to become a regional centre amongst powerful trade neighbours.
This chapter offers a viewpoint from Sheikh Sabah Al Ahmed Al Jaber Al Sabah, The Emir of Kuwait; an interview with Rola Dashti, Member of Parliament; and viewpoints from Nguyen Tan Dung, Prime Minister of the Socialist Republic of Vietnam; and Shashi Tharoor, Indian Minister of State for External Affairs.
ECONOMY
Owing to its vast savings of oil receipts, Kuwait was better-placed than most countries around the world to handle the fallout from the global financial crisis. Dropping oil prices were obviously the greatest impact but the credit crunch also exposed cracks in the country’s financial system, prompting the Kuwaiti government to inject millions into local banks. The Central Bank of Kuwait (CBK) and the country’s sovereign wealth fund, the Kuwait Investment Authority (KIA), stepped in to facilitate the recapitalisation of Gulf Bank in October of 2008 after it showed losses of $1.4bn in derivatives trading. Fortunately, this was an isolated instance of toxic exposure and the government was proactive in not only staving off the worst of the financial crisis but also issuing confidence-building measures, including law-guaranteeing customer deposits at local banks and a long-term fund to invest in the Kuwait Stock Exchange. While the banking sector remains generally sound, the Financial Stability Law – issued by Emiri decree in the spring to bolster sector confidence – has been somewhat stagnant due to ongoing political stalemates and disruptions in which the Kuwait parliament seems to be constantly mired. Indeed, political in-fighting has had a profound effect on the Kuwaiti economy over the past few years, delaying the adoption of a fiscal stimulus programme in 2009 and interfering with the government’s goal of economic reform – there is currently a backlog of important legislation, much of it necessary to expand the private sector and increase foreign investment, including privatisation and competition laws. Project Kuwait – a plan to enlist international oil companies (IOCs) to develop northern oil fields – for example, has faced stiff opposition from parliament since it was announced in the 1990s, even though the country needs greater oil field investment. Fortunately, despite the recent decline in commodities prices and the question of IOC involvement, Kuwait has embarked on a significant expansion plan, aiming to increase capacity from 2.7m bpd to 3m bpd by 2010 and 3.2m bpd by 2014. Meanwhile, the Gulf state has also started to utilise its natural gas reserves. While it is hard to overstate the importance of oil to the Kuwaiti economy – accounting for over 90% of total revenue – the state is following a diversification strategy to expand the role of key non-oil sectors, including finance and banking, logistics, industry, trading, transport and telecommunications. While the non-oil sector remains a small part of the overall economy, it is growing swiftly – at a CAGR of 15.1% between 2002 and 2007 – and outpaced the rate of oil GDP growth in 2008, partially due to recent taxation changes. Overall, the Kuwaiti economy remains strong and the rebound of the global economy and the oil markets towards the end of 2009 should lift up the Gulf state in the coming year. Politics, perhaps, remains the biggest threat to the long-term stability of the oil giant.
In this chapter OBG speaks to Faisal Hamad Al Ayyar, Vice-Chairman, Kuwait Projects Company; Bader Mohammad Al Sa’ad, Managing Director, Kuwait Investment Authority; Sheikh Meshaal Jaber Al Ahmed Al Sabah, Chairman, Kuwait Foreign Investment Bureau; and Abdulwahab Al Bader, Director-General, The Kuwait Fund for Arab Economic Development.
BANKING
Not surprisingly, the banking sector of Kuwait faced a rocky road in 2009 as the global financial crisis sapped the balance sheets of a select few banks and credit nearly halted. While liquidity is high and the system is largely sound, speculation and negative sentiment remained. Initially it seemed as though Kuwait had dodged the bullet, but in October of 2008 news broke that Kuwait’s fourth-largest local lender, Gulf Bank, had lost $1.4bn on currency derivatives. The government rushed to save the bank and concluded it was an isolated case. However, this did not prevent the overall banking environment to deteriorate and the credit crunch became the biggest problem. Interbank lending slowed to a crawl in the last quarter of 2008, prompting the Central Bank of Kuwait (CBK) to inject liquidity directly into the system, while government deposits in local banks grew y-o-y by 76% in 2008, over half of which came in Q4. This injection, combined with other liquidity-increasing methods from the CBK – including Kuwaiti dinar-US dollar swaps and repurchase agreements of varying maturities – definitely had a positive impact on local liquidity as evidenced by the fall of the Kuwait interbank offer rate (KIBOR). Despite more than adequate liquidity levels and low interest rates, banks remained reluctant to lend to customers. The government has therefore been trying to boost lending growth without causing a spike in bad loans. It has relaxed many of its lending requirements, which have been in place since early 2008, when banks were lending aggressively to local investment firms. The CBK also cut discount rates five times between October 2008 and May 2009. Luckily, Kuwaiti banks entered the crisis with healthy balance sheets – the rate of non-performing loans was less than 6% and capital adequacy ratios were well above minimum requirements – and the government approached the melee with over 50 years experience under its belt. Looking forward, bankers expect to see a different operating environment than the one that preceded the downturn. There may well be a period of consolidation but as the economy continues to strengthen, it is inevitable that bankers will begin looking for opportunities to start lending once again.
This chapter features an interview with Sheikh Salem AbdulAziz Al Sabah, Governor, Central Bank of Kuwait; as well as a viewpoint from Stathis Kyriakides, Assistant Vice-President and Analyst, Moody’s.
CAPITAL MARKETS
After a turbulent period for global equities, the Kuwait Stock Exchange (KSE) and its regional peers appeared to have touched bottom, staging a comeback in the third quarter of 2009. However, the performance in the fourth quarter was again mixed and much will depend on whether the ongoing recovery of the world’s major economies finds traction in 2010. While the correlation between the price of oil and equities is not absolute, it remains a reliable indicator, and the strength of crude prices in the second half of 2009 has been key in shoring up the appetite for riskier assets, encouraging investors to return to equities. key in shoring up the appetite for riskier assets, encouraging investors to return to equities. While Kuwait still manages to earn a good standing in international investor protection rankings, improvements to the levels of transparency and independent regulation will help increase foreign investors’ confidence – currently they accounting for less than 10% of trading on the KSE. Greater regional competition from the bourses in Dubai, Qatar and Bahrain is expected to put pressure on both regulators and listed companies to improve their standards. Meanwhile, the financial crisis should increase shareholder activism, while attitudes towards investment are changing, with investors increasingly looking for long-term gains. Indeed, perhaps the most positive aspect of the correction is an adjustment of expectations as investors and companies are no longer looking for unrealistic returns and speculation is dissipating. At any rate, the loss of market capitalisation – which declined by 36% from end-2007 levels to $130bn in August 2009 – will be felt on the market for several years, even as the exchange begins to recover. While the recent global correction has rattled many investors, analysts point out that in risk-adjusted terms, the KSE was one of the top performers in 2000-09, and is poised to become a regional leader once again in terms of growth. Regulatory reform and transparency are key in terms of increasing the KSE’s global competitiveness, and there are positive signs of change on both fronts. Within the GCC region it continues to offer one of the most compelling value propositions in terms of liquidity, breadth and growth prospects.
This chapter includes an interview with Maha K Al Ghunaim, Chairperson & Managing Director, Global Investment House; and a round-table discussion between Fawzi Al Jouder, GM, Al Mal Investment; Faisal Al Mutawa, Chairman & MD, Bayan Investment; Masaud Hayat, Chairman & MD, KAMCO; Diraar Alghanim, Chairman & MD, Kuwait Financial Centre (Markaz); and Salah Al Fulaij, CEO, National Bank of Kuwait Capital. OSK Investment Bank also provides a share analysis and data of select stocks and bonds from the KSE.
ISLAMIC FINANCIAL SERVICES
With a well-established history in the Islamic financial services sector, Kuwait is at the forefront of the rapidly growing industry. The GCC as a whole makes up more than 40% of the estimated $750bn to $1trn in global sharia-compliant assets and Kuwait’s Islamic financial institutions (IFIs) have established a strong reputation and are competing aggressively with their domestic conventional counterparts. Indeed, sharia-compliant companies made up 57% of the total market capitalisation in the country as of July 2008, suggesting there is significant scope for investment and growth. While it was previously thought the more conservative conception of risk would insulate sharia-compliant operators from the worst of the financial crisis, the sector did not escape unscathed. Kuwaiti IFIs avoided several impaired asset classes but were hit by their exposure to asset bubbles in the local and regional stock and real estate market. Although Kuwait’s IFIs have been affected by the financial downturn, the potential in the market is clear and conventional banks are looking to enter the sector. As Islamic windows have not been permitted, the trend is towards conventional banks buying stakes in Islamic banks – as NBK did this July, buying up 13% of Boubyan Bank – or full conversion to sharia compliance, the path chosen by the Kuwait Real Estate Bank in 2007. The three established Islamic banks (a fourth, the Bank of Kuwait and the Middle East is in the process of conversion) are looking to build on their strengths moving forward by bolstering their core businesses and expanding both their retail and corporate operations – with a further roll-out of branches expected. The sector needs new and innovative products – including a drive towards the sukuk (Islamic bond) market – to move to the next stage of development. For this to happen, the government may have to take a more active role in introducing regulations and issuing its own sukuks to provide a sovereign benchmark.
This chapter features an interview with Mohammed Al Omar, CEO, Kuwait Finance House.
INSURANCE
With the global financial sector experiencing pronounced instability in 2009, Kuwaiti insurance companies have adopted a more defensive approach to risk, looking to restructure their investment portfolios while paying greater attention to the quality of underwriting in order to improve their net combined ratios. The sector is set for a period of consolidation, with larger and more diverse companies that have invested in regional expansion better placed to weather the downturn. Consolidation may, in fact, be the best strategy for smaller insurance companies in 2010 since access to capital is more limited than it was in the past, due to lower credit ratings coupled with erosion in net worth from investment losses. Challenging economic conditions notwithstanding, the domestic insurance market in Kuwait offers plenty of growth potential, with around one-third of the population uninsured and premiums estimated at less than 1% of GDP, compared to a 9% average in OECD countries. Sharia-compliant instruments are on the rise and takaful (Islamic insurance) is estimated to have captured about 14% of the Kuwaiti market since its launch in 2000. As volatile stock markets repel insurance companies from equity-based profits, they are being pressured to focus on their core business of managing and insurance risks, even if that means lowering shareholders’ expectations of returns. Thankfully there is plenty of room for expanding technical profits in Kuwait by underwriting traditional forms of risks and focusing on core business. Kuwaiti firms, most of which are still locally owned, can capitalise on knowledge transfer from overseas. Mandatory insurance segments for health, motor and professional indemnity will continue to characterise insurance premiums in 2010, but awareness of life insurance has been steadily growing. Increasing complexity in the sector has not been matched by proper regulation and an updated insurance law has been outstanding for some 15 years. But, with the downturn stoking popular demand, prospects for a regulatory breakthrough are reasonably bright and with new legislation 2010 may be a turning point for the entire sector, which could see more depth, sophistication and oversight.
This chapter also includes a viewpoint from Vishal Shah, Financial Analyst, Global Investment House.
TRANSPORT
Kuwait’s transport sector weathered the global economic turmoil in 2008 and 2009 in relatively good shape. While commercial cargo and airline passenger businesses saw a temporary drop in demand, logistics firms were protected by long-term fixed defence and government contracts. Indeed, Kuwait-based logistics leaders such as Agility and Kuwait and Gulf Transport (KGL) maintained their solid providing services linked to US military operations in Iraq. While Kuwait continues to vie for a regional role in transport and logistics, its proximity to Iraq and access via a land border will remain its major competitive advantage in the short to medium term. Some new players are entering the fray, looking to capitalise on the Iraq logistics market. Project developers have cited Kuwait’s excellent highway infrastructure, international links, proximity to Iraq and security as factors that make the country an ideal base to enter the Iraqi market. Indeed, the country ranks high on road quality measures (it earned the 36th spot in the WEF’s 2009-10 Global Competitiveness Report). However, the country received a relatively low global ranking for both its port infrastructure (68th) and air transport infrastructure (58th), with capacity issues in both segments hampering the country’s competitiveness as a regional logistics centre. But there is fresh optimism that long-awaited projects like the airport expansion, Boubyan Island and the railway network will finally come on-line in the near future. Though airline traffic suffered in 2009 on account of the global crisis, Kuwait is likely to enjoy a strong rebound in air traffic volumes – both from regional and wider international demand – in 2010. Two private Kuwaiti airlines, Wataniya Airways and Jazeera Airways, pressed ahead with expansion plans that are designed to cater to both the high and low ends of the passenger market. The aim is to serve specific niches that were underserved by the state-owned Kuwait Airways, which, as the only long-haul operator in Kuwait, maintains its specific niche and is also facing increased competition from regional providers.
This chapter features interviews with Hamad Abdullatif Al Falah, Chairman & Managing Director, Kuwait Airways; and Ali Esmail Dashti, Chairman, KGL Holding.
ENERGY
Home to the world’s fourth-largest oil reserves (totalling over 1bn barrels), Kuwait is a major player in the global energy market. Over the years, constrained investment, a war and geology combined to lower output and production today is down nearly a quarter from its peak in 1972. As a result, about a decade ago, the government set out to maximise its oil extraction efforts with extra drilling and better reservoir maintenance. The tactics seem to have worked and average daily output has been on an upward trend since 2002. But the viability of more capital-intensive production techniques was called into the question by the steep decline of oil prices in 2009, prompting energy companies to rethink their cost-benefit analysis. Oil demand will quickly rebound once the global economy improves – and strong recovery signs were already showing in late 2009 with oil trading at close to $80 per barrel in November – but it is uncertain whether production capacity will expand in line with it. The downturn has threatened numerous capacity-increasing projects, with some in the industry estimating that more than half of the 14.5m bpd worth of projects planned over the next five years are at risk of being deferred or cancelled. Nevertheless, Kuwait’s oil authorities remain committed to investment projects as they recognise that the medium to long term oil outlook is positive. The Ministry of Oil has embarked on an $84bn investment plan in the hydrocarbons industry, with funds marked for both upstream and downstream facilities, and oil output capacity has expanded from 2.7m bpd to 3m, with plans to reach 3.2m in 2013-14. Project Kuwait – an $8.5bn plan to utilise international oil companies (IOCs) to redevelop four fields covering 10% of total reserves – remains stuck in a parliamentary committee after a decade in limbo. Though it is unlikely to be realised under the original specifications, major IOCs maintain offices in the country, mainly to serve as a base of operations for their work in Iraq. In the natural gas segment, Kuwait has been successful in increasing output of the past few years, with production rising to 175m cu ft per day by mid-2008. The goal is to boost production to 1bn cu ft by 2015, but there are still no plans to export natural gas; it will instead be used for domestic electricity and utility production and petrochemicals feedstock. Like much of the Gulf, Kuwait is facing electricity production capacity issues on the back of rapidly rising demand. The state plans on spending at least $9bn on power projects by 2011. Gaining the political support needed for increased capital spending across the whole of the energy sector will be a significant determinant as to whether or not the state proceeds with its big projects as the global economy recovers. But many local officials are optimistic that Kuwait will be able to implement its plans.
In this chapter OBG sits down with Saad Al Shuwaib, CEO, Kuwait Petroleum Corporation; Sara Akbar, Deputy Chairman and Managing Director, Kuwait Energy. Richard H Jones, Deputy Executive Director, International Energy Agency, also offers up a viewpoint.
CONSTRUCTION & REAL ESTATE
Following several years of plentiful infrastructure and real estate projects, the repercussions of the credit crunch have given the industry a pause for thought. The construction sector in Kuwait grew at a CAGR of 13.3% from 2002-07, but its contribution to the overall economy was less than 2% of GDP in 2007, which is minor compared to the rest of the region. And while the rest of the GCC has embarked on an expansionary spending programme – focused on infrastructure building – Kuwait has announced another contractionary budget for 2009-10. The country still has an estimated $3bn worth of infrastructure projects under construction and over $24bn in planned projects. In late August the government announced plans for a series of projects to provide low-cost homes in the country and indicated that the private sector may be encouraged to participate in these developments. The Public Authority for Housing Welfare, which guarantees housing for Kuwaiti nationals, had over 90,000 applications pending in October 2009, with a waiting list of over 85,000. Plans to address the housing issue through government-backed projects will undoubtedly provide a major boost to the country’s construction sector. While the shaky economic climate of 2009 threw up some hurdles in the form of liquidity issues and delays, the government has stepped in to ease stringent project-financing conditions. Meanwhile, the crisis at least caused materials prices as well as land prices – both of which presented problems for developers over recent years – to fall. Land is still relatively expensive and, moreover, is scarce as the government has released very little new space for private sector development.
Fuelled by record oil prices and high liquidity, Kuwait’s real estate sector has seen unprecedented growth in recent years. But through 2008 and the first half of 2009 this changed dramatically. Laws No 8 and 9 of February 2008, which banned the mortgaging and trading of residential property and land by shareholding companies, coupled with the slowdown in the local economy, have resulted in real estate activity drying up. On the upside, the fall in land and real estate transactions has slowed price inflation, which was affecting the ability of nationals to get on the property ladder. And while the total value of real estate transactions declined to $6.7bn in 2008, a fall of around 33% compared to 2007 – an exceptionally active year – it was still slightly higher than the 2006 figure. Moving forward, the Kuwaiti market remains well placed for growth and recovery. Demand is largely driven by Kuwaiti nationals, nearly 60% are under the age of 25, suggesting that there is significant potential for an increase in homeownership over the next decade. Indeed, the residential segment has been and will likely continue to be the main driver of sector growth, with some room for expansion in the office segment. To enable developers to bridge the supply-demand gap in the coming years, a greater access to land and the ability to build residential properties will be required. This, in turn, should bring a greater stability to prices and a further maturity to the market.
This chapter offers a round table discussion with Tawfiq Ahmad Al Jarrah, President, Kuwait Real Estate Union; Tarek Mohammed Abdulsalam, CEO, United Real Estate; and Khaled Al Mashaan, Chairman and MD, ALARGAN International Real Estate Company; as well as an interview with Adel Yacoub Al Ghanim, MD, Kuwait Portland Cement.
TELECOMS & IT
As one of the region’s leaders in telecommunications, Kuwait is expanding services at home and abroad. The local communications sector is characterised by full mobile penetration, widely available fixed and wireless broadband technology, and one of the highest average revenue per user (ARPU) levels in the Gulf, at $54 amongst Zain subscribers. With the roll-out of VIVA – a third mobile operator – at the end of 2008, the sector is expected to reach saturation, with Kuwait-based telecoms providers likely to look outside the country’s borders for expansion in the future. Interestingly, Kuwait’s highly advanced private communications sector has expanded against the background of a relatively weak regulatory environment, being the only country in the Gulf that does not have an independent telecommunications regulatory authority (TRA). Licensing and sector regulation are conducted by the Ministry of Communications (MoC), which also operates the country’s only fixed-line operator and has a monopoly on international telephony. Kuwait will remain an essential market for globally oriented Kuwaiti telecoms companies and the focus in the next few years is likely to remain on new broadband services and product differentiation, with the aim of defending the subscriber base from competition. Mobile penetration levels – though already above 100% - will continue to rise, with fixed-line operators seeing a decline in their market share.
Boasting an early adoption of computer technology and strong purchasing power, Kuwait has been a favourable market in which to launch new IT solutions. Domestic demand for IT services received a boost recently as the country’s three mobile operators have begun to play a more active role in promoting wireless broadband services, while the demand for data services has taken off with the introduction of high-speed mobile internet. Fasttelco, one of Kuwait’s leading solutions providers, has launched WiMAX technology to bridge connectivity gaps in areas that lacked physical infrastructure. Estimates put internet penetration in Kuwait at around 40%, giving Kuwait second place in the Arab world in terms of penetration. IT companies are also benefitting from the outward expansion of telecoms operators like Zain and, going forward, Kuwait’s IT companies are expected to be active in branching out to fast-growing emerging markets in the Middle East, Africa and Asia. Domestically, IT services for higher education institutions are targeted as an area of potential. Along with the banking and telecoms sectors, the government is a significant source of new IT projects. It has had an e-road map in place, known as the National Strategy for Building an Information Society, since 2004 and is focusing on delivering digital services. This dynamic interplay of domestic and regional demand should keep Kuwait’s IT sector above the international curve as the global economy shakes out of the downturn.
This chapter features interviews with Najeeb Al Awadi, CEO, VIVA; and Khaled Faraj Al Saeid, Managing Director, International Turnkey Systems.
INDUSTRY
The economy and heavy industry are largely tied to the country’s vast hydrocarbon reserves, with the government refocusing its attention and capital on sectors that maximise oil wealth, such as the petrochemicals industry. Officials have been encouraging foreign investment to build industry and in October of 2009 announced it was preparing a strategy to open new free trade and logistical zones. Much like the rest of the Gulf, Kuwait has been using windfall oil profits to diversify the economy and grow its industrial base. Manufacturing grew by about 14.5% for the years 2003-08 and the total share of net exports’ contribution to GDP has grown at a CAGR of over 60% between 2002 and 2007. Chemical products have become the main component of the manufacturing sector and the government, through the Petrochemical Industries Company (PIC), has made clear its intent to construct a petrochemicals cluster. The industry has created a strong foundation of basic chemicals and will soon be turning its attention to speciality chemicals, though the economic downturn has delayed any potentially major transition in the short term. Indeed, the global crisis presented some difficult tests for the industry as global demand flagged and industrial companies listed on the Kuwait Stock Exchange struggled through the second half of 2009. Industries providing for the construction sector also saw the prices of their products fall steadily through most of the year, though this trend started to reverse in the second half. Whilst industry in Kuwait has been affected by global conditions in the latter half of 2008 and the first half of 2009, confidence remains. With conditions in the markets of Asia beginning to improve, Kuwait’s export-oriented industries and in particular its petrochemicals firms are set for better news in 2010. Furthermore, the incentives for industrial growth are robust. While land availability presents challenges for the sector, the country’s tariff regime and cheap energy should act as magnets for industrial investors.
RETAIL
While results for 2009 are expected to be sobering for a retail industry that experienced rapid growth in 2007 and 2008, many remain optimistic about the long-term health of the sector. Although it remains significantly smaller than the Saudi and UAE markets, strong demand coming from a young, rapidly growing and wealthy population should ensure that Kuwait remains a profitable market for leading franchises and retail developers. Nearly 60% of Kuwaiti nationals are under the age of 25 and the local population alone is growing by 3% per annum. It is thus more resilient than other regional markets that depend on demand from expatriates and tourists. The introduction of more grade-A shopping space – such as Marina Mall and the Avenues Mall – has provided a strong stimulus for retailers looking for new opportunities. As the global economic outlook improves, the return of confidence to the sector will be assisted by an inflation rate that has been in steady decline since mid-2008 and is predicted to average 5-6% in 2009. While retailers have had to revise their projections and targets in 2009, their overall expectations for medium-term growth remain bullish.
HEALTH AND EDUCATION
With a distinguished history in terms of health care, Kuwait rapidly built up its infrastructure in the 1960s and 1970s. However, since 1981, development has slowed and the country’s population growth has begun to put pressure on its existing health care capacity. The government is now taking measures to address this situation, with a number of capacity-building initiatives to increase bed inventories, improve human resources and encourage private sector development in the works. In 2007 the government unveiled a $173m plan to increase bed capacity, followed by a July 2008 announcement to spend $3.1bn on eight new hospitals. The first stage of the new plan will see the construction of the $1.2bn Jaber Al Ahmed Al Sabah Hospital, followed by the three-phase construction of eight additional hospitals with varied specialisations, which are expected to be operational in 2015-16. Retaining qualified staff in the public sector is also a priority, with salary raises introduced in February 2008 expected to help in this regard. Funding to the sector continues to increase. By 2008, total health care expenditure accounted for 3.7% of the country’s GDP. In March 2009, the minister of health requested a budget of KD962m ($3.42bn) for the fiscal year 2009/10. This expansion in funding will be used to offer additional health care services, with the Ministry of Health (MoH) planning to open 19 new health centres and support the private sector. The government is looking to expand the role of the private sector, with indications that it could enlist its help in building a national health insurance scheme.
Education is a central part of the government’s strategy of prioritising social services. Indeed, the government espouses inclusive education, which has seen the country become a leader in the region when it comes to the provisions of female and special-needs education. With the government committed to investing heavily in the sector, Kuwaitis are rightly proud that they rank 29th on the UNDP’s Human Development Index, making them the leading Arab nation. However, with a young population, this commitment to education will need to be continuously renewed over the coming decade as demographic burdens increase. Public expenditure on education increased by 9% in real terms between 2003/04 and 2005/06, the last year for which statistics are available. In the latter year, expenditure on education stood at KD904m ($3.29bn), the majority of which was spent on vocational and tertiary institutions. This put Kuwait firmly in line with international trends in education – the country’s spending as a percentage of total public expenditure (13.3%) in 2005 was almost equivalent to the OECD average of 13.4%. Private sector education is growing in importance in Kuwait, increasing its share of the sector by 1.4%in 2006/07. While most private school students are still expatriates, the number of Kuwaiti nationals is also growing. This trend is attracting a number of investment funds eager to capitalise. Indeed, while basic indicators for education are strong, there is certainly room for further development at all levels.
In this chapter OBG sits down with Dr Ali Al Shamlan, Director-General, Kuwait Foundation for the Advancement of Sciences.
BUSINESS GUIDE
This section provides a comprehensive overview of relevant information for foreign investors, including recent revisions in tax law. Moore Stephens Al Nisf & Partners acts as accountancy partner, while Al Sarraf & Al Ruwayeh guides readers through the legal system of Kuwait.
Viewpoints are provided by Qais Al Nisf, Managing Partner, Moore Stephens Al Nisf & Partners; and Ahmed Barakat, Managing Partner, Al Sarraf & Al Ruwayeh.
THE GUIDE
This section provides practical information for first-time visitors, including local etiquette and tips for navigating the country, as well as a comprehensive listing of useful numbers and hotels.
