Kuwait’s private sector is enjoying a brighter than usual outlook. High oil prices have sent liquidity surging through the bank system, while the government has promised business will take a more prominent role in the country’s multibillion-dollar infrastructure investment plans.
The central bank estimates that the non-oil economy should grow more than 5 per cent this year as the $110bn development plan, approved by parliament in 2010, moves into gear.
With the private sector still dependent on government spending for its day-to-day health, business is set to benefit as public-private partnerships become a new model for infrastructure development.
While some big projects have been put on hold as plans for privatisation are reviewed, analysts say the overall increase in spending is set to feed through into the private sector.
The near-term pipeline of budgeted ministry projects stands at about $10bn with completion ranging between 2014 and 2016, says M.R. Raghu, senior vice-president for research at the Kuwait Financial Centre, or Markaz.
“Business confidence seems to be coming back, given political stability and expectations of fast tracking of programmes conceived in the Kuwait Development Plan, and other initiatives,” he says.
Infrastructure spending will receive a boost alongside service sectors, including education, healthcare and information technology, says Mr Raghu.
Credit growth has been flat in 2013 after nominal growth of 5 per cent last year, a far cry from the pre-crisis levels of 30 per cent to 35 per cent, he says.
“I doubt if those levels will ever again come back, though single-digit credit growth should improve to double digits over time, spurred by the government investment programme,” he says.
Contract awards have started brightly this year, say analysts, with about $3bn of deals signed in the first quarter, including the country’s first independent water and power project.
The bulk of the estimated remaining $50bn in projects slated for this year is earmarked for the energy industry.
The overall project pipeline – about $28bn of which will be awarded by the public-private-partnership programme – has been complemented by a new companies law that aims to improve the environment for business, providing a one-stop shop for incorporation and more efficient corporate governance.
The law was passed in November last year after more than two decades of debate. The government will over the next six months define the detail of the regulations and how to implement changes that have transformed the previous 53-year-old law.
The private sector says red tape is still an impediment. “Now we need a restructuring of the commerce ministry,” says Abdul Aziz Al-Yacout, regional managing partner for DLA Piper, who helped draft the legislation.
Administrative procedures need to evolve, allowing the business sector a more progressive environment in which to work. Foreign investors still need to retain majority Kuwaiti partners, although the government says the rules are changing.
“The problem is how to transform the law into reality,” says Saud Alfarhan, general manager of building materials supplier National Industries Company.
“This is the problem of Kuwait and applies to all oil projects and the development plan – slow spending and tendering procedures sometimes take years and, even then, often there is a change of minds and a re-tender.”
One example was last year’s low-cost housing contract for the construction of 10,000 residential units and related facilities. National Industries paid KD500,000 to bid for the tender, only to find it eventually lost to a competitor after a process of three or four retenders.
“We feel the executive branch needs to do more in this regard,” Mr Alfarhan says. “In short, this is still a government issue, it’s about red tape – all fundamentals are helping but the government is still backward.”
National Industries sets its budgets based on national infrastructure projects, but execution lags behind.
To make up for this lack of public sector clarity, the company is refocusing on private sector work and exports. Making up 40 per cent of its revenues, the company’s 18 domestic factories have been marketing its building supplies to residential and commercial projects, reducing reliance on big government contracts, that form 60 per cent of its business.
“We are always optimistic. Even if sometimes the situation seems bleak, we always have optimism,” he says. “From year to year we are doing better, it’s on an upward trend,” says Mr Alfarhan.
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