COUNTRY NAME: State of Kuwait
LAND AREA: 17,800 km2
POPULATION: 2.8 million (2010 est.)
LANGUAGE: Arabic (official), English (commercial)
CURRENCY: 1 Kuwaiti Dinar (KWD) = 1000 Fils; 1 EUR = 0.38 KWD (Nov. 2010)
MAIN CITIES: Kuwait City (capital), Hawalli, Jahrah, Sabahiyah
NATIONAL DAY: 25 February
TIME ZONE: Standard Time is GMT + 3
Kuwait is a small, rich, relatively open economy with self-reported crude oil reserves of about 104 billion barrels – 10% of world reserves. Kuwait is the seventh largest oil exporter in the world; sits on a tenth of global crude reserves, and has plans to boost output to 4 million barrel by day by 2020. Kuwait plans also to spend some $55bn on oil projects in the coming five years, which will help Kuwait to increase its oil output by 300,000 bpd starting from mid-2009. The spending includes a multi-billion dollar scheme to produce more oil from some northern oil fields under the delayed ‘Project Kuwait’ which involve foreign firms in production. Kuwait is also rich with gas. Its natural gas reserve is the twentieth in world, with an estimated reserve of 62.8Tcf which contributes to 0.9% of the world’s total reserves.
Macroeconomic performance has been strong due to high oil proceeds, and the outlook remains very favourable. Structural reforms continued, aimed at promoting a dynamic private sector driven economy and enhancing incentives for bringing in foreign technical know-how. Kuwait’s structural reforms aiming to promote a dynamic open economy driven by the private sector have been gaining momentum. The National Assembly in 2007 passed three important economic laws. One law reduces the profit tax on foreign investors from 55% to 15% and exempts capital gains from stock investment from tax. The new legislation removes an important obstacle for the flow of foreign investment into the country. The sale of state properties law sets guidelines for the government to provide state land to local or foreign investors. It also provides a legal basis for projects involving public-private partnerships (PPPs). Finally, a bill was passed authorizing the privatization of Kuwait Airways, which would mark the first major privatization in the country. Kuwait granted licenses to three private airlines and four new private universities, and privatized a number of gas stations.
Oil & Petroleum
Kuwait petroleum accounts for nearly half of GDP, 95% of export revenues, and 80% of government income. Oil will account for around half of Kuwait’s nominal GDP in 2009-10, and will drive the wider economy through its knock-on impact on government consumption, and hence private-sector domestic demand. Kuwait experienced rapid economic growth over the last several years on the back of high oil prices and in 2008 posted its tenth consecutive budget surplus. However, oil output is expected to fall sharply in 2009, following an OPEC agreement to cut production, before expanding by 9% in 2010. The global financial crisis might have also slowed the pace of investment and development projects, but Kuwait has vowed to use its considerable financial resources to stabilize the economy if necessary.
Kuwait has one of the most robust banking sectors in the Gulf Cooperation Council (GCC) region, benefiting from the country’s outstanding economic performance in recent years. Kuwaiti banks are also benefiting from fairly effective banking supervision by Central Bank which has been very successful role in restoring confidence in the system and nurturing its development. The fact that Kuwait has relatively undiversified economy, with half of its GDP generated from oil-related activities, the result of banks having limited non-oil related exposures and sizeable balance-sheet concentrations, both to the oil sector and to individual entities. The Central Bank of Kuwait (CBK) is monitoring banks closely, including through regular stress testing. Kuwait recognizes that the number, size and activities of investment companies have grown significantly over the last few years, making that sector systemically important. The overall current regulatory framework covers disclosure, credit concentration and provisioning, anti-money laundering, and consumer/installment loans limits. The CBK is carefully watching individual banks’ exposures to investment companies. Kuwait’s domestic banking system is also relatively saturated, with 16 banks – including Islamic financial institutions, specialized bank and foreign banks branches – competing to serve a total population of 3.4 million (only a third of which comprises the banks’ traditional retail target market). Conventional banks have historically dominated the financial system. To date, Kuwait Finance House has been their primary Islamic competitor but other Islamic financial service providers are set to pose increased competitive pressures.
While Kuwait was among the first Gulf States to launch a domestic insurance industry, with the Kuwait Insurance Company founded in 1960 and Al Ahleia Insurance in 1962, the sector still only accounts for around 1% of Kuwait Gross Domestic Product (GDP). However, Kuwait’s insurance industry is developing at a steady pace, with growing popularity among locals being driven by a wider range of available products, especially from companies that provide Sharia-compliant services. The local Kuwaiti market has strong potential for expansion. According to official figures, the Kuwaiti population is growing at a rate of 3.6% a year. The increase is largely being fuelled by a continued influx of foreigners. While foreign companies do operate in the Kuwaiti insurance industry, the 12 local firms dominate the sector, accounting for more than 85 percent of the market. Activity is mainly centred on general insurance, or non-life policies, which include property, marine, general accident and fi re insurance. Life insurance has recently been gaining in popularity, with such policies accounting for almost 30% of total premiums as of the end of 2006, according to a report issued by Dubai-based firm CPI Financial in 2008. This is due in part to new regulations that require expatriates to have medical insurance. The change in attitude toward life insurance may also stem from the rise of companies offering Sharia-compliant products, first offered in 2000. Takaful insurance has been strengthening over years in the Kuwaiti market, as it is the case in other GCC States, accounting for around 20% of all premiums as of mid-2007.
Kuwait is looking at introducing greater private sector participation in the delivery of the country’s healthcare system. The Ministry of Health in June 2008 stated that it was looking at the outsourcing of the management of government clinics and hospitals to private sector professionals. Kuwait is putting efforts to extend the private sector participation in the health care system, and opening the sector to private and foreign investment.
Power & Water
The Kuwait Electricity and Water Ministry’s current five-year plan concentrates on developing and upgrading electricity and water services for consumers, including several major projects to meet increasing consumer demand. Proposed new projects include building new power generating stations that will be capable of generating up to 6,700 megawatts of power equivalent to 70% of the current production. One such project involves establishing a power generation plant at the north Zour station that will operate on gas turbines. The project will be divided into two stages. The first was floated through a public tender during 2008. It includes constructing the first part of the station generating 1,600 megawatts and will be completed in 2010. The second stage commenced in 2009 to generate 1,600 megawatts too and is slated for completion in 2011. Kuwait is also to float a tender to construct the Subiya power station that will generate 2,000 megawatts; work on which is expected to commence in 2010. There are plans to undertake a number of projects to increase water production. Construction of new water desalination plants will produce 275 million gallons of water per day and ease continuing water shortages.
In an effort to promote food security, Kuwait is considering new projects in the agricultural sector, such as the production of plant and fish farming, livestock, dairy production, fattening of calves and cattle-breeding. In general, the non-oil contribution to GDP continues to expand rapidly and both the fiscal and external current account remains in large surplus. Growth in the non-oil economy has been over 9%, and the large increase in oil revenue generated substantial fiscal and external current account surpluses, enabling the country to build up the stock of foreign assets.
Export volumes in 2009 are similarly expected to decline as demand weakens in Kuwait’s biggest export markets, notably in East Asia. Growth in the services sector (led by financial services, logistics, telecommunications and retail), which accounts for around 40% of nominal GDP, will be modest in 2009-10. As a result, the Economic Intelligence Unit (EIU) forecast that real GDP will contract by 0.7% in 2009, after expanding by an estimated 8.5% in 2008, before returning to growth of 4.4% in 2010, as the external outlook begins to improve. Kuwait’s global integration is underpinned by active membership in global and regional trade initiatives and an ongoing push to liberalize domestic regulations. A member of the WTO since 1995, Kuwait also participates in various preferential trade arrangements, including the GCC customs union and the Greater Arab Free Trade Area. The GCC common market agreement was launched in January 2008. In May 2007, Kuwait adopted a fiscal strategy involving higher capital spending, limiting expanding current expenditure, and saving part of the oil wealth to reduce dependency on oil income for funding the budget. In 2007 also, Kuwait abandoned the peg to the US dollar in favour of a peg to an undisclosed currency basket. Kuwait is undertaking large-scale investments to expand oil production and refining capacity. The IMF in a 2008 report urged Kuwait to support more private sector-led investment and growth by bringing capital market, companies, competition, public-private partnerships and privatization laws in line with best international practice. Progress in 2007 included reduction of taxes on foreign investors, priority given to the new capital market law and other draft laws to facilitate broadening the role of private sector. There is potential to enhance the involvement of foreign technical know-how in the development of the northern oil fields. The EIU expects that Kuwait will follow an expansionary fiscal policy, using its oil revenue to raise spending on infrastructure and redistribute wealth. The fiscal surplus is forecast to average 8.3% of GDP a year in 2009-13. The EIU expects also that the oil sector will drive most economic activity. Real GDP growth is set to decline from the highs of recent years, as oil output rises only slowly (following recent OPEC cuts) and efforts to draw in foreign investment to boost production in the northern oilfields remain stalled, despite the fact that some new energy projects will be initiated towards the end of the forecast period. Following a slight upward revision to EIU oil price forecast, EIU now expects a budget surplus of 2.4% of GDP in fiscal year 2009/10.
Foreign Direct Investment
The net flow of foreign direct investment into Kuwait should rise modestly over the forecast period. Nevertheless, apart from Equate II (a petrochemicals venture) and some smaller-scale projects, most developments will be financed almost exclusively from domestic sources. The upstream oil and gas sectors will remain largely closed to foreign investors, limiting technology transfer.
Source: Austro-Arab Trade Directory 2011.
The mentioned data are subject to modification. No responsibility is taken for the correctness of the details provided.
Last modified: 26 January 2011