‘Foreign expertise can rarely capture local situation’ Balance of Payments 2015
Danger seen in formulating national economic policy by direct influence of foreign entities
The Council of Ministers at first glance, it seems positive to hold a meeting on May 16 to discuss the “Moody’s” international report on Kuwait’s credit rating, which maintained a good Aa2 grade, with the intention to review it within a year. But through scrutinizing the event of discussing the report issued by a foreign company at that meeting, we are about to question whether it is the Council of Ministers’ function in a sovereign State to discuss such report and even to declare that, quoting “KUNA”, the Council “will not save effort to take all measures which will maintain the credit rating”, while such matter deserves a statement from the competent minister only, says Al-Shall Economic Report prepared by Al-Shall Consulting Co headed by Jassem AlSaadoun.
A report such as the one issued by “Moody’s” contains nothing new in terms of warning of imbalances of the Kuwaiti economy. Many warnings preceded, including “Blair’s” report funded by the Government. Therefore, it is unlikely that the content of “Moody’s” report will be cited as a justification for driving the Council of Ministries to discuss it as if it were a new development. It is more likely that the debate came in the context of the unsuccessful political and media preparation, to market the economic reform agenda. But any political economic reform recipe must not be cooked by foreign quantities, but by solid national awareness and belief.
Soliciting foreign expertise is sometimes justified, whether in the form of private global corporations or international institutions such as the IMF, the World Bank, and the United Nations organizations, especially in purely technical matters. But, it is quite dangerous to formulate or draw the national economic policy by the great and direct influence of foreign entities. It entails a regression to the political and administrative pre-independence era of Kuwait.
We should pay attention that foreign expertise and opinions, however advanced they are, rarely can capture the different dimensions of local political and social situation, which cannot be separated from any major economic reform project. Any such reform will have winners, but also losers, and this clearly applies to policies such as tax reform, privatization and restructuring of salaries. This is the nature of economies functions, especially in the short terms. Whoever risks to deal with such matters as purely technical is not mature and will be unable to understand things as it is and will not gain the political and social acceptance necessary to implement the economic reform while ensuring the stability of the society.
Obviously, the various private and international foreign entities are keen not to address the economic political aspect of economy, which specifically means how the economic decision is made in the State, its quality, execution, and the accountability, holding the weak performers liable, which cannot be separated from the political system which produces and evaluates those in charge of the economic decision. Although it is understandable for foreign entities to keep a way from exposure to the political economic side, fearing exposure to the wrath of the public administration and losing income, this does not mean that political economic aspect is not important. It rather draws the attention that these foreign bodies cannot, but provide a partial picture of the economic reality. Hence, their opinions must be placed in this context without exaggeration.
There are other negative aspects in soliciting foreign experience, present in both in Kuwait and the GCC countries, such as exaggerating the number of experts, their salaries and benefits. In addition to the lack of supervision of the work quality and commitment, to allocate the budget and the project term, especially under a system of incentives that incited the expert to lengthen the project duration, thus opening up a new door for waste added to the already existing and flowing waste. That’s not to mention the media employment of the foreign expertise through benefiting from their expression of the Government’s message by a new voice, such as some of World Bank reports published in newspapers, which seems to be critical to the government’s technical and administrative performance, but not the political economic. They certainly do not publish anything without the prior knowing of the public administration.
The biggest danger remains the growing inclination of the public administration to attach an executive role to foreign entities and not an advisory role only in the State’s apparatuses. This usually occurs due to failure of the public administration and its incompetence in developing the national competencies. But the independence of the political-economic decision and the patriotism of the public administration cannot be compromised regardless of the economic deviation which we want to reform. Otherwise, we will find ourselves in a new type of environment, which is what failing public administrations do.
The Central Bank of Kuwait published preliminary figures on the balance of payments for 2015. Which indicate that the current account surplus scored about KD 1.797 billion, approximately US$ 5.970 billion, representing a huge decline by KD -13.682 billion, or -88.4% of 2014. The Central Bank has adjusted 2014 figure 2014, slightly upwards putting the surplus at KD 15.479 billion instead of the KD 15.140 billion, i.e. with adjustment rater of approximately +2.2%. The current account consists of balances of goods, services and investment incomes in the two sectors, the public and private and the current transfers foe the two sectors. The commodity balance surplus (the difference between values of exports and commodity imports) dropped noticeably from about KD 22.059 billion to KD 8.419 billion, down by KD -13.640 billion, or by -61.8%. oil export revenues dropped from KD 27.753 billion, or 93.3% of total commodity exports in 2014, to about KD 14.683 billion, or 88.2% of total commodity exports in 2015, a decline by -47.1%. The value of good imports rose by about 7.1%. Net investment income value in both public and private sectors declined by KD -351 million, or by -7.8%, from KD 4.487 billion in 2014 to approximately KD 4.136 billion in 2015.
The Central Bank tables point to a few significant numbers, such as workers, remittances in 2015, which scored about KD 4.492 billion, the equivalent of US$ 14.9 billion, compared to about KD 5.108 billion in 2014. Total paid compensations during the year 2015, about KD 123 million, including about KD 68 million paid by the public sector and about KD 55 million paid by the private sector, vis-a-vis about KD 1.095 billion received compensations in 2014, including nearly KD 69 million paid by the public sector and about KD 1.214 billion received by the private sector and about KD 50 million paid by the private sector in 2014.
Kuwait, presumably, through its public and private sectors, achieved surplus in its foreign investments by approximate KD 2.066 billion, a noticeable decline from KD 16.354 billion in 2014. This surplus includes portfolio investments, i.e. securities by about KD 9.890 billion, and other investments by KD 7.824 billion. Summary tables indicate that the balance of payments had achieved a deficit by about KD 886 million in 2015, compared with KD 363 million surplus in 2014. It is expected that oil market weakness will continue in 2016 data.
Interest Rates
The Monetary Policy Committee at the Federal Reserve Bank expressed great desire in raising the interest rate perhaps more than once this year, if the old desire after the first increase still holds. Prospects of its increase in next June from 6% before the meeting to 30% after the Committee’s meeting. This means on the one hand that the American Federal Reserve Bank became confident of continued and stable positive growth rates for the American economy and less worried about prospects of fragile growth for main and emerging economies — Europe, China and Japan, probably encouraged by the American labor market reaching a level close to full employment after the unemployment rate broke the 5% level downward. On the other hand and in according with the Economist magazine, May 19 issue, some believe that this is a hasty decision that would place the fragile growth under negative pressure; besides, its concern with increasing interest rates fearing inflation due to the disappearance of labor market surplus, it is assumed that there is a reverse relationship between inflation and unemployment, but that relationship is uncertain.
Because Monetary Authorities in developed and most emerging countries are independent authorities and have great impact in influencing the economy path in their states and in the paths of other main economies, these authorities remain permanently confused about the timing of the move from policies of supporting growth or expansive monetary policy, to contracting policies to act before the inflationary risks, and vice versa. After one increase in interest rates last December, there is reluctance in repeating it out of fear from undermining foundations of the fragile economic growth. It seems the Federal Reserve has decided and only the timing of the forthcoming increase remains; is it in June or after.
The Economist believes it is an early resolution endangers the Federal Reserve’s credibility since it has to wait at least until the targeted inflation figure reaches 2%. It should be ascertained of the serious threats to real GDP growth;, it should also be ascertained of prospects of the impact of the weak entire demand later on unemployment levels because the ability of the fiscal and monetary policies have become weak to confront potential risks, albeit with less likelihood. The Economist adds to the justification for slow action the fragile world status and prospects of the negative reflections of the decision on the American growth. Brazil is in political and economic chaos; China is still unable to control the growth of its debts; and next June 23 is the date of referendum whether Britain will stay or quit the European Union. There is a political tendency in the West to elect the extremist right, like Austria.
It is a Gulf region interest not to raise interest rates on the US dollar. Currencies of five of its states are completely pegged to the US dollar, and Kuwait is highly pegged to the dollar. Its options are limited in not raising the interest in line with lifting it on the dollar. The first consequence will be the rise of local lending cost at a time when their economies are passing through recession. They need cheap credit to bypass their stagnation era. If they do not raise the interest rates similar to the dollar, their currencies will migrate from their own currencies to the dollar or others. The second consequence is the rise in borrowing to finance the public finance deficit. They will be subject to reduce or the threat to reduce their credit rating which will increase their borrowing cost and the rise of interest on the dollar at a time when the public finance does not endure more costs. The third consequence is that negative impact on the prices of financial assets and others caused by raising interest rates. Assets are the mortgages of local banks. Surely, raising the interest rate on the US dollar has become a matter of time. This means that the GCC states should classify and deal with it as an additional pressure factor and should provide an additional pretext to expedite adopting the surgery action to counter the crisis of the their public finances.
Al Ahli Bank of Kuwait Financial
Results – First Quarter 2016
AlAhli Bank of Kuwait announced results of its operations for the first quarter of the current year, which showed that the bank’s net profits, after deducting taxes, scored about KD 7.8 million, down by KD 1.3 million, or by 14.2%, (KD 9.1 million in the first quarter 2015). This drop in the net profits is mainly due to the rise in total value of provisions by 9.9%. Operational profits prior to deducting provisions scored KD 22.1 million, up by KD 286 thousand versus KD 21.8 million. The increase in losses in the item of wet loss on investment securities went up from KD 131 thousand to KD 2.3 million resulted from liquefying some investments, which reduced the profits.
Total operational incomes increased by KD 5.4 million, or by 17.4%, to KD 36.4 million versus KD 31 million. That resulted from rise in net interests incomes by KD 5.1 million to KD 27.1 million (74.4% of total incomes) versus KD 22 million (70.9% of total incomes) for the same period in 2015. Likewise, item of net fees and commissions income rose by KD 1.6 million to KD 8.1 million versus KD 6.5 million. But item of net losses (profits) on investments securities decreased by KD 2.2 million when losses scored KD 2.3 million compared with a loss by KD 131 thousand in the first quarter 2015.
Total operational expenses increased by KD 5.1 million, or by 55.9%, and scored KD 14.3 million versus KD 9.2 million for the same period of 2015 as a result of rise in all items of operational expenses. Percentage of total operational expenses to total operations incomes scored 39.3% up from 29.6% in the first quarter 2015. Total provisions increased by KD 1.2 million, or by 9.9%, and scored KD 13.1 million versus KD 11.9 million. Therefore, the net profit margin dropped to 18.2% versus 30.8% for 2014.
Total bank assets scored KD 4.520 billion, an increase by 3.7%, KD 4.359 billion in the end of 2015. They rose by 26.3% when compared with the total assets in the first quarter 2015 when they scored KD 3.577 billion. Loans and advances portfolio, which forms the largest component of the bank’s assets, increased by about KD 46 million, or by 1.5%, putting up the total portfolio to KD 3.093 billion (68.4% of total assets) versus KD 3.047 billion (69.9% of total assets) in the end of December 2015. They increased by KD 567.5 million, or by 22.5%, when compared with the same period 2015 when they scored KD 2.526 billion (70.6% of total assets). Item of cash and balances with banks increased by KD 184.9 million to KD 617.1 million (13.7% of total assets) vis-à-vis KD 432.2 million (9.9% of total assets) in the end of last year. It rose by KD 453.1 million, in the end of 2015 when it scored KD 163.9 million (4.6% of total assets). While the item of investments securities dropped by KD 29.5 million and scored KD 314.3 million (7% of total assets) versus KD 343.8 million (7.9% of total assets) in the end of 2015 and it dropped by KD 24.5 million, or by 7.2%, in the end of the first quarter 2015, when it scored KD 338.9 million (9.5% of total assets).
Figures indicate that the bank’s liabilities (without calculating total equity) increased by KD 168.8 million, or by 4.4%, and scored KD 3.971 billion versus KD 3.803 billion in the end of 2015. And increased by KD 940.3 million, or by 31%, if compared with the total in the first quarter of last year percentage of total liabilities to total assets scored 87.9% versus 84.7%.
Analysis of the bank’s financial statements calculated on annual basis indicates that all bank’s indexes decreased compared with the same period 2015. Return on average equities relevant to the bank shareholders (ROE) decreased to 5.6% (6.6%). Likewise, the return on average capital (ROC) decreased to 19.2% (22.4%). And the return on average assets (ROA) decreased to 0.7% (1%). (EPS) decreased to 5 fils (6 fils). (P/E) scored 16.8 times (15.6 times), due to the drop in the share’s market value by 10.7% versus its price on 31 March 2015. in contrast the highest decrease in EPS dropped by 16.7% below its level in the end of March 2015. (P/B) scored 1 time compared with 1.1 times in the same period of last year.
The Weekly Performance of Kuwait
Stock Exchange
The performance of Kuwait Stock Exchange (KSE) for last week was mixed compared to the previous one, where the traded volume index, number of transactions index, and general index, showed an increase, while the traded value index showed a decrease. AlShall Index (value weighted) closed at 340.5 points at the closing of last Thursday, showing an increase of about 0.1 points or about 0.03% compared with its level last week. While it decreased by 25.4 points or about 6.9% compared with the end of 2015.
KUWAIT CITY, May 26: Kuwait stocks headed north on Thursday to end the week on a high note. The price index, pared back steeper early gains to close 28.42 points higher at 5396.67 pts as sentiment remained buoyant amid oil prices gains.
The KSX 15 benchmark slipped 4.69 points to 831.5 pts taking the month’s losses to 32 points while weighted index 0.6 pts lower to 357.67 points. The volume turnover meanwhile rose further after hitting a multi-month high in the last session. 245.48 million shares changed hands — a 6.74 pct increase from Wednesday.
The sectors closed mostly in the positive territory. Industrials outled the rest with 1.34 pct gain whereas technology gave up 0.76 percent, the biggest loser of the day. In terms of volume, financial services accounted for the highest market share of 33 pct while real estate stood next with 29.2 pct. Telecommunications trailed behind with 18.17 pct contribution.
Among the notable movers, Humansoft Holding spiked 100 fils to KD 1.340 while Kuwait Food Co (Americana) climbed 20 fils to KD 2.340 taking the year’s gains to 340 fils. KIPCO was down 10 fils at KD 0.520 after trading 1.8 million shares.
Zain was unchanged at KD 0.350 off slight early highs with a volume of 2.42 million whereas Kuwait Telecommunications Co (VIVA) slipped 10 fils to KD 0.930. Agility stood pat at KD 0.495 and Wataniya Telecom was not traded during the session.
Sector bellwether National Bank of Kuwait was down 10 fils at KD 0.630 and Burgan Bank fell 5 fils to KD 0.330. The bank has registered a net profit of KD 14.28 million and earnings per share of 4.4 fils in the first quarter of 2016.
The market opened flat and ticked up in early trade. The price index
moved sideways briefly before revving up to hit the day’s highest mark of 5405.95 pts past the mid-session. It retreated thereafter back to its opening level before pulling higher to close with modest gains.
Top gainer of the day, National Ranges Co (Mayadeen) rallied 8.89 pct to 24.5 fils while First Dubai climbed 8.2 percent to stand next. Al Aqaria dropped 4.44 pct, the steepest decliner of the day and Hits Telecom topped the volume with over 42 million shares.
Reflecting the day’s upswing, the winners outnumbered the losers. 48 stocks advanced whereas 41 closed lower. Of the 127 counters active on Thursday, 38 closed flat. 4989 deals worth KD 15.6 million were transacted — a 14.4 percent rise in value from the day before.
National Industries Group took in 2 fils to settle at 112 fils while RISCO gained 20 fils. Kuwait Portland Cement dropped 10 fils while Kuwait Foundry Co closed 4 fils in red. Boubyan Petrochemicals Co rose 10 fils to KD 0.520 recouping Wednesday’s loss.
Jazeera Airways was flat at KD 0.900 and ALAFCO clipped 2 fils to settle at 204 fils. United Projects Group shed 20 fils whereas Burgan Well Drilling Co stood pat at 98 fils. Mezzan Holding climbed 20 fils to KD 1.060 extending an identical rise in the previous session.
Added
Gulf Cable added 5 fils whereas Kuwait Foundry Company dialed down 4 fils. The company has penciled a net profit of KD 592,402 and earnings per share of 3.85 fils in the January- March period.
Equipment Holding Co eased 2 fils after trading over 3 million shares whereas ACICO Industries Co gained 10 fils. The company has clocked a net profit of KD 3.85 million and earnings per share of 14.11 fils in the first quarter of 2016 as compared to net profit of KD 3.94 million and earnings per share of 14.46 fils in same period of 2015.
Kuwait and Gulf Link Transport Co was flat at 48 fils and KGL Logistics Co dialed up 2 fils on back of 2.7 million shares. Qurain Petrochemical Industries Co took in 2 fils whereas Kuwait National Cinema Co and Mashaer Holding Co paused at KD 1.200 and 78 fils respectively
In the banking sector, Gulf Bank was unchanged at 226 fils and Ahli United Bank followed suit. Commercial Bank rose 5 fils to KD 0.435 whereas Kuwait Finance House gave up 5 fils to settle at KD 0.465.
Boubyan Bank stood pat at KD 0.405 and off early lows and Kuwait International Bank too did not budge from its earlier close of 200 fils, Warba Bank nudged 2 fils into green on back of 1.36 million shares.
National Investment Co took in 2 fils with brisk trading and Al Mal Investment Co inched 1 fils up. Securities House Co ticked 0.5 fils up on back of 6.4 million shares whereas Securities Group Co closed flat. Bayan Investment Co closed 2.5 fils in green.
Sokouk Holding and Al Deera Holding stood pat at 37 fils and 40 fils respectively while KFIC added 2.5 fils to close at 38 fils. Ekttitab Holding eased 0.5 fils while Kuwait Insurance Co and Warba Insurance Co closed flat.
United Real Estate and Al Enma Real Estate Co fell 1 fils each whereas Mabanee Co climbed 10 fils. Al Mazaya Holding clipped 2 fils to end at 120 fils.
The market, after a weak start rallied strongly during the week. The price index closed higher in three of the five sessions and soared 72 points week-on-week. It has added 16 points from start of the month but is down 3.9 pct year-to-date. KSE, with 190 listed companies, is the second largest bourse in the region.
In the bourse related news, Hilal Cement Company has registered a net profit of KD 415,000 and earnings per share of 5.4 fils in the first quarter of 2016 rebounding from a net loss of KD 78,685 and losses per share of 1.0 fils in 2015 Q1.
Advanced Technology Company has registered a net profit of KD 1.53 million and earnings per share of 10.25 fils in the three-month period ending March 31, 2016 as against a net profit of KD 1.15 million and earnings per share of 7.69 fils in the same period last year.
Shuaiba Industrial Co. has posted a net profit of KD 629,557 and earnings per share of 7.93 f ils in the first quarter of 2016 as compared to net profit of KD 444,921 and Earnings per share 5.65 fils in the same period last year.
Aqar Real Estate Investments Co as penciled a net profit of KD 278,860 and earnings per share 1.30 fils in the first three months of 2016 as against a net profit of KD 506,241 and earnings per share of 2.22 fils in the same period last year
Mezzan Holding Co has reported a net profit of KD 5.19 million and earnings per share of 16.68 fils in the quarter ending March 31, 2016 as against net profit of KD 5.45 million and earnings per share of 17.52 fils in the same period last year