Reform should begin from the top downwards
TPublic Administration
he Kuwaiti Government submitted its resignation on Monday, October 30, 2017, and the resigning Prime Minister was re-entrusted with re-forming the Government, the 7th Cabinet under his presidency in six years. He also lived up 5 national assembly’s in the same period, two were dissolved and 2 were revoked. The entire change, both reforming a government or running new elections, has nothing to do with their performance but rather with their relations, even with absence of performance measurement and linking the change with achievement/nonachievement. Therefore, it is impossible for the country to progress and for any development project to succeed, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
With every Cabinet reforming, demands and expectations soar high for an essential change in the Government forming approach. Every time, the Government returns with the same approach, i.e. quotas, and with some repair to include some professionals some of whom are among the best available in Kuwait. With the end of each Government most professionals quit full of frustration and the country loses their efforts. Those who are acquainted with their disappointing experience refrain from participation in forthcoming governments. Government incompetence level increases and corruption levels rise.
A very important principle in Administration and Politics Science is that liability is in par with authority. This means that failure of any department in achieving the general goals is followed by an essential change in its structure. In Kuwait, as testified by all, failure is not limited to achieving the general goals but includes failure on all levels. It is an official and declared failure for all development plans, deteriorating education, health services, the infrastructure, the airport and ports, and extends to include all perceptions of corruption, competitiveness, and easiness of doing business indexes.
If the new Government will repeat the same administration it will unfortunately continue to fail. There is no need to hold our breath awaiting the new Cabinet formation to reach that conclusion unless intentions are declared and decisive by an essential change in the approach and the persons. Administrative reform is the same as combatting corruption and should begin from the top downwards. As long as reform from the top does not happen, loyalty for survival will remain as the measurement tool and achievement deteriorates. This applies to the Cabinet and to all the State’s institutions.
Kuwait is passing through a critical condition. The financial pressure is real and increases. It is surrounded by a world of violent and disagreement events. With all due respect to all personalities, no one precedes the necessity of guaranteeing the country’s stability. Every time Kuwait fails in achieving reform, it has wasted non-compensable time and resources. Besides, reform opportunities in future, if any, become more costly but with less success opportunities.
Report of State Audit
Bureau
The Audit Bureau issued a report that covers the fiscal year ending on 31/03/2017. The report content suggests an elevated level and expanded supervision and more importantly still is the courage in calling things by their real names i.e. it calls a spade a spade. Our report will not present details of the violations listed in the report as they are covered adequately. Instead, the report will review the report’s qualitative content improvement which we hope will receive more support.
The higher level is reflected by the aspects being criticized. It states that the Ministry of Finance’s announcement of modernizing classification and sorting to activate the integrated set of structural reforms and the actual direction for the Government financial systems has not been achieved. The report indicates that the outcome of application in its first year make the Bureau reserved towards the validity of data in the final account for the State’s Financial Administration. It reaffirms that the financial reform through rationalizing spending was not achieved. In addition, actual oil revenues contributions to finance the budget are still about 89.2%, i.e. the same structural financial disorder. The mal-distribution of these expenditures is still quite big as current expenses eat up 87.5% of total general expenses; salaries and wages still consume 79.3% of total oil revenues and the general budget deficit remained unendurable by about KD 5.92 billion. General budget still supports the annexed and independent budgets by KD 4.1 billion despite their excessive and unjustifiable number. This renders public finance sustainability impossible.
The report’s thoroughness is reflected by the obvious concern with the future, i.e. the call for prudent preemptive policies which in fact is better than the subsequent supervision. In addition to its doubt about the sustainability of public finance, it calls for the necessity of linking public expenditures with the development project, which does not occur. It presents in detail the spending quality and criticizing bypassing the Bureau’s comments. It also criticizes the large number of public authorities, and demands not to create any new authority including the intentions to establish the Public Authority for the Silk City. It calls for dissolving or integrating existing authorities or ministries to prevent establishing more of these for no other purpose than benefitting some.
The Bureau has an exceptional feature of criticism, as we are used to public institutions behave the opposite and wrap the wrong doing with the correct to get promotion or a high position. The report criticizes the Cabinet which is resorted to so as to avoid the Audit Bureau’s comments by the abusive use of Article (13) of the Audit Bureau Law. It cited 4 instances in which the Cabinet overlooked the Bureau’s reservations and caused the Public Finance to assume additional burdens in the amount of KD 38.39 million. No investigation was conducted to hold someone accountable. In the same context, the Cabinet activated Article (33) of the Audit Bureau Law bypassing the Bureau’s comments constantly by siding with the concerned entities. This encroaches on the Audit Bureau’s Authority. The Bureau was very candid in criticizing expenses of medical treatment abroad since the beginning of their inflation in earlier reports.
We believe that the Audit Bureau is among the very few institutions that perform their duties honestly despite the difficult general climate conditions. It should be appreciated and its independence and professionalism should be protected.
Trading Features at Boursa
Kuwait – October 2017
Kuwait Clearing Company issued its report titled “Trading Volume According to Nationality and Category” for the period extending from 01/01/2017 to 31/10/2017 published on the official website for Boursa Kuwait. The report indicated that individuals still form the largest trading group and their share started to increase and they captured 49.14% of total value of sold shares (45.8% for the first ten months of 2016) and 49.11% of total value of purchased shares (41.1% for the first ten months of 2016). Individual investors sold shares worth KD 2.556 billion and purchased shares worth KD 2.555 billion with a net trading, selling, by KD 1.401 million, selling and buying are almost equal.
The second large contributor to market liquidity is the clients’ accounts (portfolios) which captured 22.6% of total value of sold shares (17.8% for the same period 2016) and 20.9% of total value of purchased shares (15.5% for the same period 2016). The sector sold shares worth KD 1.176 billion and purchased
File photo shows traders at Boursa Kuwait trading floor.
shares worth KD 1.086 billion, with a net trading, more selling, by KD 90.019 million.
The third contributor, is corporations and companies sector which captured 20.9% of total value of purchased shares (33.8% for the same period 2016) and 20.7% of total value of sold shares (27.2% for the same period 2016). The sector purchased shares worth KD 1.089 billion and sold shares worth KD 1.077 billion with a net trading, purchasing, by KD 12.093 million.
The last contributor to liquidity is the investment funds sector which captured 9.1% of total value of purchased shares (9.7% for the same period 2016) and 7.5% of total value of sold shares (9.1% for the same period 2016). The sector purchased shares worth KD 471.535 million and sold shares worth KD 392.207 million, with a net trading, more purchasing, by KD 79.327 million.
Boursa Kuwait still continues to be a local boursa with more share for Kuwaiti investors forming the biggest trading group and sold shares worth KD 4.609 billion capturing 88.6% of total sold shares, (85.2% for the same period 2016), and purchased shares worth KD 4.507 billion capturing 86.6% of total value of purchased shares (86.1% for the same period 2016). Thus, their net trading, the only one selling, by KD 102.336 million, which is an indicator of reduced confidence of local traders.
Other investors share, out of the total value of purchased shares, scored 9.2%, (9.9% for the same period 2016), and purchased shares worth KD 477.139 million and sold shares worth KD 405.152 million, or by 7.8% of total sold shares (11.6% for the same period 2016); thus their net trading value, more purchasing, by KD 71.986 million.
GCC Investors’ share out of total value of purchased shares scored 4.2% (3.9% for the same period 2016), worth KD 217.296 million, while value of sold shares scored 3.6% (3.2% in the same period 2016), worth KD 186.946 million, their net trading, purchasing, by KD 30.350 million.
Relative distribution among nationalities changed from its previous one and became as follows: 87.6% for Kuwaitis, 8.5% for traders from other nationalities, and 3.9% for GCC traders vis-à-vis 85.7%, 10.8% and 3.6% for Kuwaitis, other nationalities and GCC traders respectively for the same period in 2016. This means that Boursa Kuwait remained a local one with the rise in the share of its investors from local traders. However, the turnout is still higher from investors mainly outside the GCC region than from the inside of the GCC region in which an overtrading of individuals is a dominant factor, who also increased their share with the increasing activity of the Boursa.
Number of active accounts between the end of December 2016 and the end of October 2017 rose by 13.5%, (compared to a decrease by -40.2% between the end of December 2015 and the end of October 2016). Number of active accounts in the end of October 2017 scored 17,703 or 4.7% of total accounts versus 18,232 accounts in the end of September 2017, i.e. about 4.8% of total accounts for the same month, with a decrease of -2.9% during October 2017.
Kuwait Finance House (KFH) Financial Results – 30 September 2017
Kuwait Finance House (KFH) achieved profits for its shareholders during the nine months of the current year an amount of KD 137.9 million, rose by KD 14.7 million, or by 12% compared with KD 123.1 million in the same period of last year. The bank achieved operational profits in the amount of KD 311.7 million, rose by KD 51.5 million, compared with KD 260.3 million, due to the rise in total operational income versus a drop in total expenditures. The bank’s net profits from continuing and suspended operations rose by KD 29.1 million, or by 23.2%, and scored KD 154.3 million, compared with KD 125.2 million for the same period 2016.
In details, total operational income increased by about KD 43.7 million, or by 9.1%, and scored KD 525.1 million vis-à-vis KD 481.3 million in the same period of last year, due to a rise in the item of net investments income by KD 42.4 million and scored KD 88.2 million (representing 16.8% of total income) versus KD 45.8 million (9.5% of the total). Likewise, item of fees and commission income rose by KD 8.7 million and scored KD 73.4 million, compared with KD 64.7 million. While item of net financing income dropped by KD 2.8 million and scored KD 322.9 million, compared with KD 325.7 million. Likewise, item of net gain from foreign currencies dropped by KD 1.3 million and scored KD 13.6 million, compared with KD 14.9 million.
On the other hand, total operational expenditures decreased by KD 7.7 million, or by 3.5%, from KD 221.1 million to KD 213.3 million as a result of drop in the item of depreciation and amortization by KD 4 million and scored KD 25.2 million, compared with KD 29.2 million. Item of staff costs and general and administrative expenses dropped by KD 3.7 million, or by 2%, and scored KD 188.1 million, compared with KD 191.9 million. Percentage of total operational expenditures to total operational income scored 40.6%, compared with 45.9% in the same period 2016. Total provisions increased by KD 37.5 million, or by 42.9%, and scored KD 125.1 million, compared with KD 87.6 million. The net profit margin from continuing and suspended operations rose to 29.4% vis-à-vis 26% in the same period of last year.
KFH’s total assets rose by KD 902 million, or by 5.5%, and scored KD 17.401 billion, versus KD 16.499 billion in the end of 2016. If total assets were compared with its amount in the same period of 2016, it would rise by KD 759 million, or by 4.6%, when it scored KD 16.642 billion. Item of financing receivables rose by KD 1.098 billion, or by 13.4%, and scored KD 9.274 billion (53.3% of total assets) compared with KD 8.176 billion (49.6% of total assets) in the end of 2016. It rose by KD 847.3 million compared with the same period of last year, when it scored KD 8.427 billion (50.6% of total assets). Percentage of financing receivables to depositors’ accounts scored about 80% compared with 77.3%.
The bank’s total liabilities (without calculating total equity) rose by KD 857.2 million, or by 5.9%, and scored KD 15.318 billion compared with KD 14.461 billion in the end of 2016. If we compare total liabilities with the same period of last year, it would rise by KD 757.4 million, or by 5.2%, when it scored KD 14.560 billion. Percentage of total liabilities to total assets scored 88% compared with 87.6% in 2016.
Results of analyzing the profitability indexes calculated on annual basis indicate the average return on bank’s assets (ROA) increased to 1.1% compared with 1%. The average return on shareholders’ equities (ROE) rose to 10.1% compared with 9.2%. While, the average return on bank’s capital (ROC) dropped to 33.4% versus 34.3%, due to the rise in the profit relevant to the bank shareholders at the end of the period, by less value than the rise in average capital between the end of 2016 and the end of third quarter of 2017. (EPS) rose to about 24.26 fils compared with 21.69 fils. (P/E) scored 18.9 times versus 16.3 times, due to the rise in EPS by 11.8% above its level in the end of September 2016, while the market share price rose by 29.8% compared with its price on September 30, 2016. (P/B) scored 1.5 times compared with 1.2 times.
The Weekly Performance of
Boursa Kuwait
The performance of Boursa Kuwait for last week was mixed, where the indices of traded value, volume, and number of transactions showed an increase, while the general index showed a decrease. AlShall Index (value weighted) closed at 384.5 points at the closing of last Thursday, showing a decrease of about 24.9 points or about 6.1% compared with its level last week, while it increased by 21.5 points or about 5.9% compared with the end of 2016.
The following tables summarize last week’s performance of Boursa Kuwait