Kuwait | a small country with a big future | KUW8
While small in terms of area (only
6,880 square miles) Kuwait is one of
the worlds’ wealthiest countries with the International Monetary Fund ranking
it 7th in the world for GDP per capita – (~US$69,000)
Before the discovery of the oil, Kuwait
served as a centre of pearl, wood, spice and date trading between India, the
horn of Africa, the Western Middle East and the Eastern Mediterranean rim
countries. Up until the expansion of Japanese pearl farming in the early 20th
Century, Kuwait had one of the largest sea fleets in the Gulf region and a
flourishing pearling industry.
Yet in the few decades since the
discovery of the world’s 7th largest oil reserves, Kuwait has been transformed into one of the worlds’
wealthiest countries with its vast sovereign wealth fund -the Kuwait Investment
Authority (KIA), managing an estimated US596 Billion of assets.
Now, in response to an age of declining
energy prices and global regulatory initiatives focused on reducing carbon
dependency, Kuwaiti policy makers, like many of their regional peers, have
embarked on an economic diversification and development plan designed to reduce
the country’s dependency on oil and transform Kuwait into a regional commercial
and financial hub.
This economic transformation provides
an opportunity for investors to benefit from expected growth in the non-oil
segments of the Kuwait economy.
The early stages of this transformation
have been seen recently in the improved structure and accessibility of Kuwaiti
capital markets. These changes have resulted in Kuwait being upgraded to
“Emerging Market” status by the world’s largest index provider, FTSE Russell
2018). Until that point, Kuwait had been an “Unclassified” country and was
consequently absent from a significant proportion of emerging market and
frontier market investment funds. MSCI, the world’s second largest index
provider is also considering including Kuwait in their Emerging Market indexes
in the first half of 2019 as part of their country classification review.
Kuwait: Quick Facts:
- The name “Kuwait” is derived from Arabic word
“Kut”, meaning “fort”
- Kuwait was the first Gulf country to have established a constitution and parliament
- The KIA (Kuwait Investment Authority) is the world's oldest sovereign wealth fund
- The falcon is the Kuwaiti national bird
- There are no railways in Kuwait
- Kuwait has no permanent rivers and lakes, which means that it has no fresh-water sources above the ground
- In 2006, Kuwait became the first country to introduce the sport of camel racing, with remote controlled robot jockeys
Gulf Economic Trends:
2018 was a bright year for the Gulf
Cooperation Council (GCC) Region. While global equities faltered significantly
and broad emerging markets (measured by the FTSE Emerging Index) dropped by 13%,
region outperformed its global peers with a return of 16.1% – the best yearly
growth in five years - as per the FTSE GCC Saudi Inclusion Index.
GCC equity markets performance proved
to have low correlation to global markets as they seemingly moved in opposite
directions throughout the year. The region was buoyed by country classification
upgrades to Emerging Market status for Saudi Arabia and Kuwait- upgrades which
saw interest in blue-chip stocks in both markets significantly increase.
Trends in the oil market which is of
particular interest to the region had a positive impact on both government and
the corporate sector. The year on year increase in oil prices in 2018 saw
decreased reliance on external finance to support state spending plans despite
the decline of oil prices at the end of the year. Deficits in the region are
set to reduce significantly as compared to the previous year. As per the IMF, deficits are forecasted to reduce to USD $14bn which would result
in almost 80% reduction to 2017 budget deficits.
The current price of oil is well within
comfort range to maintain a positive trade balance as in 2019 Kuwait is
forecasted to maintain a 11% surplus - Kuwait boasts one of the lowest
breakeven price of oil globally at USD $47.37. The positive trade balance is
projected to maintain a surplus for the coming 5 years especially with
significant efforts to boost non-oil revenues.
The most recent draft budget for FY
2019/2020 was presented for parliamentary approval in January 2019. The budget
presented an expansionary outlook with spending slated to increase by 4.7% YoY
to KWD 22.5 billion. Oil revenues are
projected to grow to KWD 13.3 billion (USD 43.8 Billion) up 13.7% from last
year’s budget. The budget assumes an average price of oil of $50, which would
be significantly under market projections especially considering the January
The construction budget increased by
14.7% YoY signalling a very positive indicator for infrastructure projects.
Kuwait Minister of Finance, HE Dr Nayef
AL Hajraf commented,
“The country is
currently instituting a structural fiscal and economic reform program, and
control of expenditures is a necessary precondition for these reforms to
succeed over time. Yes, the global economic outlook is improving, and the price
of oil is rebounding, however that should not and will not steer us away from
our path for reform. In fact, it makes our resolve for reform grow even
“We believe that
reform starts with curbing spending, while maintaining a healthy rate of
capital expenditures on infrastructure and minimizing the impact of our fiscal
reforms on citizens.
“Kuwait is in a
unique financial position that enables us to introduce reform gradually, and in
a controlled and responsible manner within a legislative and public environment
that encourages a lively debate of the issues and the opportunities.”
With oil prices trending upwards at the
start of 2019, combined with further news of projected country classification
upgrades in Kuwait, the future seems bright for the region.
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