Kuwait maintains investment plans
Mixed sentiments keep emerging about the commercial and business sector in Kuwait. On a positive note, the much-awaited expansion of the airport is underway. Conversely, in an unprecedented move, a key rating agency assigned a negative outlook for the economy due to the phenomenon of low oil prices for two years now.
The total estimated cost of the expansion amounts to $4.3 billion, undoubtedly a substantial figure. Officials are pressing for completion of the ultra modern terminal in less than five years. Upon completion, the new terminal would accommodate 13 million passengers a year, with capability to take in 25 to 50 million passengers in subsequent stages.
The airport handled some 11 million passengers in 2015, which is above the stated capacity. Passenger use has been growing by 6 per cent per annum without an expansion of facilities for a relatively long time, with cargo volumes serving as additional challenge.
Complaints of congestion and lack of seating areas is a common complaint in Kuwait, notably during the peak summer season. Many Kuwaitis flee the country’s scorching summer heat.
The expansion was originally due to start in 2012 but disagreements between parliament and the cabinet caused the delay. MPs wanted to ensure proper use of state money and the best possible deal for the treasury.
To be sure, aviation is a key sector in other Gulf countries, with Emirates, Qatar Airways and Etihad using Dubai, Doha and Abu Dhabi airports as hubs for their global businesses. The budget for fiscal year 2016-17 — which started in April — projects revenues and expenditures of $24.4 billion and $62.2 billion, respectively. Notably, revenues could only cover 71 per cent of government salaries and related costs, in turn estimated at $34.2 billion. The majority of spending is reserved for current expenditures covering public sector employees.
Credit ratings
There is the challenge in maintaining Kuwait’s hitherto outstanding credit ratings. In a recent move, Moody’s assigned a negative outlook for the economy reflecting concerns about implementing fiscal and economic reforms.
Yet, Moody’s also affirmed Aa2 ratings reflecting the government’s finances and external strength. It maintains longterm and short-term foreign-currency and deposit ceilings of Aa2 and Prime-1. For its part, Standard and Poor’s maintains AA/A-1+ for long-term and short-term foreign and local currency credit ratings.
An essential part of the comfortable rankings relates to Kuwait’s strong external assets. The SWFI puts the value of the country’s sovereign wealth fund as managed by Kuwait Investment Authority (KIA) at $592 billion. Kuwait set up KIA in the 1950s, the first SWF within the GCC.
Kuwaiti investors much like the government are known for exploring business opportunities on a global scale. For instance, they have major stakes in numerous financial institutions in Bahrain.
Currently, retail giant MH Al Shaya of Kuwait is leading a group of investors in developing The Avenues project on a stretch of waterfront in Manama. The project covers land of 265,000 square metres at an estimated cost of $50 million. Once completed in 2017, The Avenues will compete head on for business with City Centre Bahrain, in turn owned by Majid Al Futtaim of the UAE.
The strong external assets together with satisfactory credit ratings are hallmarks of the Kuwaiti economy. The SWF amount compares favourably with the country’s GDP of $176 billion.