Kuwait Pearl of Middle East
Investing in Development
Kuwait Tranformation from Oil to Knowledge Economy
Kuwait the Pearl of Middle East
Kuwait, with its strategic location on the Gulf, has flourished as a trading hub for centuries. Present ruling family is ruling since 1756.They elected Sabah Bin Jaber from among local Utub ruling families as the Emir of Kuwait. Under the rule of Sabah Bin Jaber’s son, Sheikh Abdullah Al Sabah, Kuwait became a prosperous international trading center. Large trading dhows set out from Kuwait for India and brought back merchandise that was then loaded onto desert caravans bound for the Mediterranean.
In 1938 oil was discovered and it was nationalized in 1975. The government chose to invest Kuwait’s oil revenues in creating modern infrastructure and a better quality of life.
Kuwait achieved independence from Britain in 1961, joining the Arab League and, two years later, the United Nations. Becoming a force for peace in the region as well as an example of a modern economy, Kuwait settled its long-running border dispute with Saudi Arabia in 1966, created the Central Bank of Kuwait in 1979, and played a major role in establishing the Gulf Cooperation Council in 1981. Kuwait was invaded by Iraq in 1990, and much of its infrastructure was destroyed. The first Gulf War ended in Kuwait’s liberation in February 1991.
Responsible, transparent public sector
With its vast oil reserves, Kuwait has based its economy on the petroleum sector for many years. . Kuwait is 5th largest reserves of oil and gas and member of OPEC.
The Emir calls for detailed development strategies to be devised in cooperation with Kuwait’s Supreme Council for Planning and Development, and for specific programs to be implemented to ensure the success of these strategies and measure their success.
The country's GDP has grown at over 5 per cent a year for five consecutive years to 2006. The combination of high oil revenues, which reached 14.8 billion dinars (US$54 billion) in 2006 (95 per cent of government revenues), massive budget surpluses and the highest national savings rate in the world has led to the emergence of a vision of Kuwait as a oasis of stability. In its Global Competitiveness Report for 2007-2008, the World Economic Forum rated Kuwait the most competitive economy in the GCC, largely by virtue of these firm moorings. In summary, since 2000 Kuwait has displayed a rising per capita GDP, a growing trade surplus, hefty budget surpluses and steadily increasing inflation. All of which can in some measure be accounted for by the rising price of crude oil, which continued its march toward the US$100 per barrel mark during 2007, though it started slipping towards the end of the year. The population of Kuwait reached 3.37 million by the third quarter of 2007, and per capita GDP stood at US$29,064 at the end of 2006. As IMF estimates Kuwait's GDP will rise to 4.4% in 2011 to $126.4-billion and 4.7% in 2012 to nearly $135.6-billion. Under the new development plan, the real GDP of the private sector is expected to grow at an average rate of 8.8%, while non-oil GDP is expected to witness growth at an average rate of 7.5% during the same period.
In an era of US$80+ per barrel of oil, the commodity is naturally the main motor driving Kuwait's economy. The hydrocarbons sector accounted for 58.8 per cent of the GDP at the end of 2006, and 70 per cent of GDP growth for the current year can be attributed to oil, according to the Central Bank of Kuwait. Production averaged 2.53 million bpd for 2006, bringing in export revenue of 16.2 billion dinars. But despite the record receipts and the boom-time prices, the outlook for the sector is puzzling. A plan to raise production capacity from the current 2.5 million bpd to 4 million bpd by 2020 has been on the table for a number of years now, but in reality very little has happened.
Encouragingly, deals that plan to use Kuwait's heavier crude assets that are more expensive to refine but offer better margins at current price levels than the fields under Project Kuwait are now beginning to filter through. An agreement between Kuwait and ExxonMobil to produce 900,000 bpd by 2020 is expected to be finalized. The KD 30-35 bn (USD100-USD 125 bn), 5 year plan is the first in a series of five such plans, stretching to 2035, which aims to convert Kuwait to a trade and financial hub of the region.
Kuwaiti economic prospects rose after the launch of an ambitious $104-billion Kuwait Development Plan (KDP) in February 2010. "The transformation of Kuwait into a financial and trade hub for investment, in which the private sector leads economic activity, fuelled by the spirit of competition, and raising the efficiency of production under a supporting institutional state agency, establishes values, preserves the social identity, achieves balanced human development and provides appropriate infrastructure, improved legislation and encouraging business environment."
KDP consists of more than 1000 projects of different size. In 2010/2011 plan the government is looking at 884 projects, valued at nearly KD5-billion, spread over four phases and includes those which have not yet begun. The second-year plan entails 1,240 projects, though 270 will be new projects while the remaining is continuation of existing projects.
Some major projects for 2011/12
· Shuaiba Power Plant
· Sabiya Power Plant
· Al Zour IWPP
· Boubyan Port
· Kuwait International Airport Terminal expansion
Project Estimated Cost (KWD mn)
1. Silk City 25,000
2. Railroad System 4,000
3. College City in Shadadiya 1,597
4. Boubyan Island Development 1,500
5. Northern Gas Turbine Station 1,430
6. Jaber Al-Ahmed Bridge 1,036
7. Mutlaa Residential City 890
8. Boubyan Port Development 872
9. Khiran Residential City 424
10. Kuwait International Airport 329
Economic Growth Policy
- Asses the need for workforce, infrastructure
- Increase the participation rate of private sector entities while reducing public sectors dominance on the economy
- GDP growth rate should reach an average of 5.1% (annually) over the period of the plan
- Reduce oil dominance while improving non-oil sectors; Goal growth rate of non-oil sector is 7.5% annually.
- Increase capital formation to KD 9.27 bn from KD 5.7 bn by the end of the 5 year plan (24% of GDP) which is in line with projected 10.2% annual growth rate
Spending & Legislation
- Increase spending by the state more specifically on KDP projects; furthermore, promote private sector spending giving them the opportunity to finance the development plan
- Update legislations to keep it in line with the government‘s vision in attracting investors, foreign and domestic, legislations to be revamped include; Public Private Partnership, Privatization law, M&A law, CMA law, Bankruptcy law, Corporate governance law, anti-trust law, consumer protection law and State property laws.
3) Private Sector Support and Growth Policy
- Restructure private sector‘s role in the economy
- Restrict the role of government to enforcing rules, regulations and ensuring economic efficiency
- Motivate and support the private sector to have an active role in the development plan. The private sector
- expected growth rate is 8.8% annually Vs. 2.4% Public growth rate (2010-2014)
- Currently private sector accounts 37% of GDP with a goal of reaching 44% by 2014 through increasing investment. In the base year (09/10), the private sector had 26% of total investment by the end of this
- plan the private sector‘s portion of total investment is expected to rise to 54%
- Privatization in the first year of the plan to being with hospitals and schools
- Privatization to happen gradually by incorporating publicly listed companies from which a percentage gets distributed to Kuwaiti nationals either free or pay nominal fees while the rest is auctioned off to strategic partners, the Government will retain a golden share in all privatized entities
- Revamp BOT law to attract the private sector
- Motivate the private sector with mega projects such as Silk City, ports, sport complexes, water and electricity projects.
- The government should promote small business and entrepreneurship
4) Policies for Diversifying Productive Base (Financial Sector)
- Improve the financial structure in the country and promote Kuwait as a wealth management hub in the region in order to reach a 7% annual growth rate for financial sector
- Fortify the role of the Central Bank as a regulatory body
- Promote efficient and ethical management values by incorporating best practices
- Capital Market Authority and other supervisory entities should be created
- Ensure that the national currency has a stable exchange rate
5) Policies for Diversifying Productive Base (Commercial Sector)
- Commercial activities should increase from 0.8% to 3% (as a % of GDP) by the 5 year plan
- Streamline processes and remove amount of red tape by reducing the time taken to gain a permit, Visa requirements and reducing paper work through a one stop electronic portal
- Increase developments in ports, road and airports to increase the volume of trade
- Become a regional hub for re-exports to the north (through Boubyan Port)
- State Properties (Land) law to be changed and investors will be able to own, sell, rent industrial, commercial property without government intervention.
6) Policy for Renovating Oil Sector
- Natural Gas and Oil production shall be maintained by the state, however, derivatives may be assigned to the private sector
- Development of oil reserves through state of the art excavation and extraction techniques.
- Increase production to 3.1m/bbl per day
- Modernize current fleet by adding 8 oil tankers, 11 petrochemical tankers, 4 LNG tankers and 2 bunkers, furthermore new ventures & partnerships concerning the oil industry should be promoted
7) Manufacturing Policy
- Increase manufacturing contribution to GDP to 12% by the end of the period and increase investments by KD 505 mn annually
- Restructuring of the manufacturing industry by providing a new manufacturing city ―Al Na‘ayim City‖
- Reduce bureaucracy and promote high-value added manufacturing such as Semi-conductors and micro processors
8) Agriculture Policy
- - Agriculture output level should grow 6.5% p.a. over the period and investment in agriculture to increase 20.1% annually
- Encourage investments across all areas of Agriculture
- Train local personnel and create agriculture unified data base that includes Fish and Meat
- Innovation of agriculture marketing should be a high priority
9) Infrastructure Policy
- Increase electricity production by 11% annually; production capacity must reach 6360 Mw by the end of the plan
- Electricity and Water projects should be constructed by the private sector. Investment in E&W is projected to reach KD1.8bn during the period
- Increase production of water desalination plant by 355mn imperial gallon and increase the strategic stock by 5,182mn imperial gallon during the period
- Complete electricity circuit integration between GCC countries
- Environment protection and the efficient use of energy and water through segmented pay plan
10) Roads and Transport Policy
- Improve transport infrastructure roads, airports and ports. Transport sector is estimated to grow by 15.5% per annum
- Increase private sector involvement in road and transport sectors
- Increase the capacity of road circuit by adding 1200Km of new road and the introduction of metros and railroads
- - Improve waterway transport by expanding current ports and building new ports in anticipation of a big increase in regional and international re-exportation
- Regulation of air transport market and adding new capacity for the current airport (Terminal 2)
- Privatize air, water and land shipping and logistics
11) Fiscal Policy
- Achieve efficiency in the allocation of resources and increase investment and spending to achieve a GDP growth rate of 5.1%
- - Non-oil revenues projected to reach 30% of GDP by the end of the period, (from 12% in base year 2009)
- Regulation and supervision to control fiscal spending and protection of public funds
- Support GCC integration initiatives
12) Human and Societal Development Policies including 12 sub-policies:
- - Demographics policies aiming to increase the current percentage of Kuwaiti nationals to the total population from 31% in December 2008 to 34% by 2014.
- - Labor Market and Employment Policies aiming to improve the environment and working conditions in the private sector.
- - General Education Policies aiming to develop the integration of policies and mechanisms of the educational system at all stages.
- - Higher Education Policies ensuring ongoing evaluation of the undergraduate academic programs.
- Scientific Research Policies aiming to support the efforts of Kuwait Institute for Scientific Research, Kuwait Foundation for the Advancement of Sciences and Kuwait University‘s research efforts.
- Health Affairs Policies aiming to support the role of the health private sector.
- Natural Environment Policies aiming to build an integrated system for the protection of the environment in Kuwait.
- Women and Youth Affairs Policies aiming to develop an institutional mechanism for investigating issues of women, youth, and family.
- - Knowledge, Arts, and Culture Policies aiming to nurture the production of culture, art, thought and literature.
- - Housing Welfare Policies aiming to expanding the role of the private sector in the financing and executing housing welfare plans.
13) General Management Planning and Information Policies
- Government administration, transparency, and accountability policies aiming to develop leaders in the public sector to increase performance efficiency.
- Planning and Statistics Policies aiming to the development of statistical indicators in a number of areas such as the empowerment of women, unemployment, labor force surveys, and the measurement of consumer confidence.
- Information Society Policies aiming to develop and update the infrastructure of telecommunication and information.
Important Projects of Kuwait Development Plan
Strategic Joint Stock Companies
Company name Progress
Low cost Housing Company
The study is completed, on 18/8/10 the government received IPO tenders from 16 companies however no company offered to buy more than 50% of the company, the bidding is pending the new government financing law regarding mega projects
Kherian City Company
Feasibility study is completed, regulations and by laws are in the process , IPO Tenders will commence pending laws & regulation
Hospital Insurance Company
Kuwait Clearing Company was appointed as Lead IPO Manager and offered to sell 26% of the company costing KWD45.8mn ( the cash was deposited ), finally in 3/10/2010 the Kuwait clearing company contracted to offer the company to the public (no deadline)
June 2010 the BOT committee was assigned to provide a feasibility study for the company.
Warehouses (Al Shiqaya and Al Abdily)
5/10/2010 Booz & co was appointed as the consulting firm for the company, the warehouse company have to develop 6.1mn meter square of land for warehouses and a 12.2mn (msq) of land for the development of a free zone.
Healthcare Services Company
The founding committee of the company approved the feasibility plan, prepared by the advisory group, moreover the committee invited the advisory group to be included in the re-negotiation of the tender offer
High Value Projects
Government Entity Project Cost (KD)
Kuwait Petroleum Corporation (KPC) Other projects (Under Business Budget)
Ministry of water and Electricity 2000 Mw energy turbine station (Al Sabiya)
Credit and savings Bank Credit for personal housing projects KD 206,173,000
Kuwait Petroleum Corporation (KPC) Purchase of assets abroad ( exploration & Production)KD 152,640,000
Kuwait Petroleum Corporation (KPC) 551 oil wells KD 139,826,000
Kuwait Petroleum Corporation (KPC) Environmental fuel Project KD 103,000,000
Kuwait Petroleum Corporation (KPC) Fortified Plants construction KD 101,007,000
Source: Kuwait development plan 2010/2011