Kuwait aims to broaden econ­omy through in­dus­try

Ox­ford busi­ness group spe­cial re­port

Kuwait Times - - BUSINESS -

The govern­ment of Kuwait is hop­ing to di­ver­sify the econ­omy through in­dus­trial ex­pan­sion, tar­get­ing dou­ble-digit growth on the back of its petro­chem­i­cals and plas­tics seg­ments.

New in­dus­trial tar­get

In late Septem­ber Mo­ham­mad Al-Ajmi, di­rec­tor-gen­eral of the Pub­lic Au­thor­ity for In­dus­try (PAI), an­nounced plans to boost Kuwait’s in­dus­trial out­put by 25 per­cent in the com­ing years, telling in­dus­try stake­hold­ers at a con­fer­ence that the sec­tor’s cur­rent con­tri­bu­tion to GDP stands at 9 per­cent.

In­dus­trial ex­pan­sion is par­tic­u­larly crit­i­cal in light of per­sis­tently low global oil prices, which are ex­pected to re­sult in a record bud­get deficit for Kuwait in fis­cal year 2016/17, be­gin­ning on April 1. Oil rev­enues - which are fore­cast to com­prise more than 78 per­cent of govern­ment rev­enues this year - are pre­dicted to fall by 46 per­cent in 2016/17, lead­ing the deficit to swell to KD12.2 bil­lion ($40.3 bil­lion), roughly 50 per­cent higher than the pre­vi­ous year. The sit­u­a­tion has prompted the govern­ment to launch a host of eco­nomic re­forms aimed at re­duc­ing state sub­si­dies, in ad­di­tion to in­ten­si­fy­ing its ef­forts to ex­pand non-oil sec­tors. The Kuwait De­vel­op­ment Plan (KDP) 2015-20, for ex­am­ple, tar­gets 4 per­cent non-oil growth this year, be­fore ac­cel­er­at­ing to 5-6 per­cent per an­num in the fol­low­ing years. Though the KDP’s $100 bil­lion in­fra­struc­ture agenda is fore­cast to com­prise the bulk of non-oil growth, boost­ing in­dus­trial out­put - par­tic­u­larly in the high-po­ten­tial chem­i­cals and plas­tics seg­ments - will also form a cru­cial com­po­nent of eco­nomic di­ver­si­fi­ca­tion.

Petro­chem­i­cals and plas­tics to lead ex­pan­sion

To this end, in Au­gust Equate Petro­chem­i­cal Com­pany - a joint ven­ture be­tween US-based Dow Chem­i­cals and lo­cal firms Petro­chem­i­cal In­dus­tries Com­pany, Boubyan Petro­chem­i­cal Com­pany and Al Qu­rain Petro­chem­i­cal In­dus­tries Com­pany - an­nounced plans to build a 200,000sq-me­tre in­dus­trial com­plex in Al-Shuaiba.

This fa­cil­ity will but­tress op­er­a­tions al­ready be­ing car­ried out by state-owned oil pro­ducer Kuwait Petroleum Com­pany (KPC). At present, KPC pro­duces 1.8m tons per an­num (tpa) of eth­yl­ene, 825,000 tpa of poly­eth­yl­ene, 1.2m tpa of eth­yl­ene gly­col and 829,000 tpa of paraxy­lene.

More re­cently, the Min­istry of Com­merce and In­dus­try an­nounced in mid-Oc­to­ber that it had ap­proved a re­quest from KPC to es­tab­lish a new sub­sidiary, Kuwait In­te­grated Petro­chem­i­cal In­dus­tries, to carry out re­fin­ery and petro­chem­i­cals projects. The com­pany, which will launch with $6bn of cap­i­tal, is ex­pected to ex­e­cute ma­jor down­stream projects in­clud­ing the green­field AlZour re­fin­ery com­plex, with a pro­duc­tion ca­pac­ity of 615,000 bar­rels per day and an as­so­ci­ated petro- chem­i­cals com­plex. The Al-Zour re­fin­ery is slated for com­ple­tion in 2019. Over­all, the Kuwait Di­rect In­vest­ment Pro­mo­tion Au­thor­ity fore­casts the coun­try’s petro­chem­i­cals out­put will in­crease from 7.57m tpa in 2014 to 10.54m tpa in 2019. Pro­duc­tion should also go some way to boost ex­port rev­enues, with or­ganic chem­i­cal ex­ports val­ued at KD77.9 mil­lion ($257.4 mil­lion), or 2.2 per­cent of to­tal ex­ports be­tween April and June, fol­lowed by plas­tics and plas­tic prod­ucts, at KD60 mil- lion ($198.2 mil­lion) or 1.7 per­cent.

New in­dus­trial projects com­ing on-line are also ex­pected to sup­port in­creased pro­duc­tion, in­clud­ing the KD160 mil­lion ($528.3 mil­lion) AlNaayem In­dus­trial Zone, launched by the PAI last year for heavy in­dus­tries.

The new zone joins Kuwait’s Sab­han In­dus­trial Zone, which re­cently ben­e­fit­ted from a KD12 mil­lion ($39.6 mil­lion) in­vest­ment to es­tab­lish Block 11 of the in­dus­trial zone. More re­cently, in Oc­to­ber the Kuwait In­dus­tries Union (KIU) an­nounced plans to re­lease 1056 in­dus­trial plots in the KD80 mil­lion ($264.1 mil­lion) AlShadadiyah In­dus­trial Zone to kick-start de­vel­op­ment in the area.

The KIU has al­ready ap­proved over 230 ap­pli­ca­tions for new in­dus­trial projects - pri­mar­ily con­cen­trated in West Shuaiba, Amghara and Sub­han - in the past two years, Al-Ajmi said at an in­dus­try con­fer­ence in Oc­to­ber. West Shuaiba, for ex­am­ple, will be home to 35 new in­dus­trial in­vest­ment projects worth some KD1 bil­lion ($3.3 bil­lion). This an­nounce­ment fol­lows on KIU’s part­ner­ship with the Pub­lic Au­thor­ity for Man­power to roll out a sin­gle-win­dow elec­tronic por­tal to fa­cil­i­tate pro­ject regis­tra­tions. The KIU has al­ready com­pleted 150 trans­ac­tions un­der the new sys­tem, ac­cord­ing to Al-Ajmi. Reg­u­la­tions in­tro­duced as part of Kuwait’s new for­eign di­rect in­vest­ment law from 2013 will make it eas­ier to find for­eign ten­ants for the ex­pand­ing in­dus­trial zones. The law en­ables a lo­cal com­pany with up to 100 per­cent for­eign eq­uity or a branch of an in­ter­na­tional com­pany to in­vest in the coun­try, though 100 per­cent for­eign own­er­ship is re­stricted in some reg­u­lated sec­tors, such as oil and bank­ing.

Note: This Kuwait eco­nomic up­date was pro­duced by Ox­ford Busi­ness Group.

In­vest­ment in in­dus­trial zones

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