Kuwait must reform policies on subsidies

According to the Undersecretary of the Ministry of Electricity and Water, annual subsidies cost for electricity and water is KD 2.250 billion. This is called negative tax which means selling the service unit at less than its production cost, or supporting the individual income by discount from the public income. More dangerous still is that local oil consumption will reach one million barrels per day by 2035 if consumption of electricity and water continues at their present level. As a result, the oil available for export will be less than the minimum limit adequate to meet the basic necessities of people even if we assume that oil will continue to be an important energy component, which is doubtful. What applies to electricity and water services applies also to the subsidized gasoline. It is part of human nature to over consume what is cheap. Although rising prices support public revenues, their bigger significance lies in limiting consumption. If continuing the consumption of the services and commodities at the current price level were sustainable, then it could be ignored. But continuing it is impossible; therefore, it is not the senior officials of the state who will pay for fixing the prices but common people in their jobs, food and basic services.

We mention this on the occasion of stopping the increase in the prices of those commodities and services. We emphasize that all the excuses about government corruption and its waste are correct and that marketing these policies requires an exemplary government which is currently non-existing. In fact, financial reform begins by strongly confronting corruption and corruptors, fierce combat of waste in public expenditures, thirdly by positive taxes in par with the ability of each party’s endurance, and finally by bridging the gap of negative tax, or, by adopting all the above simultaneously.

Solution is not by rejecting the reforming of subsidized services and commodities but by accepting their gradual and conditioned rise by practical start of other steps within a specific time. General responsibility is promoted when the citizen feels his/her contribution to its remedy.

Then he/she can elevate the level of political questioning similar to tax payers’ democracies. We emphasize that the government, through the control by its fixed members, will succumb to any pressures, halt decisions of adjusting prices or make them without any real effect, and some serious ministers may resign, but the core ministers of the government will not pay the cost of what would happen to the citizen and the country in the future. Most of them will live comfortably anywhere on earth, but the real cost will be paid by those who are truly believed to defend its interests, i.e. the majority of the simple public. What we stress is the necessity for a moment’s of thinking; reform is no longer an option. Kuwait is at a crossroads and its only option is to transform all policies to what guarantees sustainability. Otherwise, the alternative, ie, loss, is increasing the number of failing states in the geographic neighborhood which will not save except those states with prudent policies. The quality and efficiency of reform, is in its good timing, i.e. adopting this reform at the earliest.

Trading at Boursa Kuwait

Kuwait Clearing Company issued its report titled “Trading Volume According to Nationality and Category” from 01/01/2017 to 28/02/2017 published on Boursa Kuwait official website. The report indicated that individuals are still the largest group, their share started to increase and they captured 54.2 percent of total value of purchased shares (42.3 percent in January and February 2016) and 53.3 percent of total value of sold shares (47.1 percent in January and February 2016). Individual investors purchased shares worth KD 1.117 billion and sold shares worth KD 1.098 billion with a net trading, more purchasing, by KD 18.279 million.

The second largest contributor to market liquidity is the clients’ accounts (portfolios) which captured 22.4 percent of total value of sold shares (18.5 percent in the same period of 2016) and 21.4 percent of total value of purchased shares (16.9 percent in the same period of 2016). The sector sold shares worth KD 460.529 million and purchased shares worth KD 439.741 million, thus making its net trading, wore selling, by KD 20.788 million.

The third sector, is the corporations and companies sector which captured 18.2 percent of total value of purchased shares (34 percent in the same period of 2016) and 17.5 percent of total value of sold shares (24.2 percent in the same period of 2016). The sector purchased shares worth KD 375.402 million and sold shares worth KD 360.321 million with a net trading, purchasing, by KD 15.081 million.

The last contributor to liquidity is the investment funds sector which captured 6.8 percent of total value of sold shares (10.2 percent in the same period of 2016) and 6.2 percent of total value of purchased shares (6.8 percent in the same period of 2016). This sector sold shares worth KD 139.564 million and purchased shares worth KD 126.992 million, with a net trading, selling, by KD 12.572 million.

Boursa Kuwait continues to be a domestic Boursa with the Kuwaiti investors forming the biggest trading group and sold shares worth KD 1.869 billion capturing 90.8 percent of total value of sold shares (83.3 percent in the same period of 2016) and purchased shares worth KD 1.836 billion, capturing 89.2 percent of total value of purchased shares (86.6 percent in the same period of 2016). Thus, their net trading, the only one selling, scored KD 32.234 million.

Other investors’ share, out of total value of purchased shares, scored 7.7 percent (9.9 percent in the same period of 2016), and purchased shares worth KD 159.323 million, while their value of sold shares worth KD 137.717 million, 6.7 percent of total value of sold shares (12.8 percent in the same period of 2016). As a result, their net trading, more purchasing, scored KD 21.606 million.

Share of GCC investors, out of total value of purchased shares, formed 3.1 percent (3.5 percent in the same period of 2016), worth KD 63.045 million, while value of sold shares formed 2.5 percent (3.9 percent in the same period of 2016), worth KD 52.417 million, their net trading, purchasing, by about KD 10.628 million.

Relative distribution among nationalities changed from its previous one and became as follows: 90 percent for Kuwaitis, 7.2 percent for traders from other nationalities, and 2.8 percent for GCC traders vis-‡-vis 84.9 percent, 11.4 percent and 3.7 percent for Kuwaitis, other nationalities and GCC traders respectively in the same period of 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.

Number of active accounts between the end of December 2016 and the end of February 2017 rose by 18 percent (compared to a decrease by -5.3 percent between the end of December 2015 and the end of February 2016). Number of active accounts in the end of February 2017 scored 18,416 accounts, 4.9 percent of total accounts, versus 17,920 accounts in the end of January 2017, 4.8 percent of total accounts, with a rise by 2.8 percent during February 2017.

Boursa Kuwait Liquidity

To complete our previous reports on liquidity trends, Boursa liquidity totaled in 48 working days, since the beginning of the current year and until the end of last week, scored about KD 2.240 billion, or about 78 percent of total 2016 liquidity. The daily average trading value scored about KD 46.7 million, less by about 6.7 percent than the daily average trading value in 41 working days. It dropped by 13.4 percent below the daily average for January 2017 (22 working days) while it rose by about 4 times compared with the daily trading average value for 2016 and about 2.9 times compared to the daily trading average value for 2015. But liquidity during the last days was declining significantly. Liquidity trends since the beginning of the year indicate that half of listed companies got only 3.3 percent only of that liquidity, including 50 companies there from which got about 0.2 percent only of that liquidity and 6 companies remained without any trading. As for liquid companies, 14 companies of them whose market value is equal to 1.5 percent only of the value of listed companies, got 20.8 percent of the Boursa liquidity.

The share of the highest market capitalization of the Boursa that the high liquidity activity still deprives about half of the listed companies from it. On the contrary, it strongly goes to valueless companies, which is an unhealthy condition.

Liquidity of Boursa sectors

There are 5 active sectors in the Boursa that contribute by 86.9 percent to its value; they obtained 91 percent of liquidity suggesting consistency between liquidity and the weight of those sectors in the Boursa value. But there was deviation within those sectors in the direction of liquidity. The financial services sector obtained 26.8 percent of Boursa liquidity, equivalent to about 2.7 times its contribution to its value. The real estate sector got 20.8 percent of Boursa liquidity which equals 2.6 times its contribution to its value. (The two sectors are speculative ones). The banking sector got 22.4 percent of Boursa liquidity which accounts for 46.3 percent only of its contribution to its value. This means its share of liquidity is less than half of its contribution to value. The banking sector is the more disciplined, the more solvent, and the more beneficiary from rising assets prices. The remaining seven sectors, liquid and illiquid, all acquired liquidity ratios close to their contribution to the Boursa value.

The weekly performance of Boursa Kuwait

The performance of Boursa Kuwait for last week was mixed compared to the previous one, where the traded volume index and the number of transactions index, showed an increase, while the traded value index and the general index showed a decrease, AlShall Index (value weighted) closed at 405.2 points at the closing of last Thursday, showing a decrease of about 2.5 points or about 0.6 percent compared with its level last week and it increased by 42.2 points or about 11.6 percent compared with the end of 2016.