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Analysis

No wait in ‘building’ Kuwait

From building boats in the late eighteenth century to being home to one of the fastest growing construction industry today, Kuwait’s past turbulences seem too far away. It has parlayed its natural rich resources, hearing the soft voice of intellect, which has indeed led to an optimistic future for Kuwaitis as well as the globe, with whom the country has been collaborating effectively.

It is not just the abundance of affluence that makes Kuwait a desirable destination, its resources support its prosperity and its strategic location is just apt to greet the world. According to MEED’s project database MEED Projects, in terms of future projects, there are some US$116bn-worth of projects planned or unawarded in Kuwait.

Gearing up, the government has set a budget of $79.6bn for 2015, which will be split between spending on salaries, commodities and services, transport, construction and other expenses. Kuwait News Agency quoted the chairman of the National Assembly’s state budget committee, MP Adnan Abdualsamad, stating that ‘$7.2bn would be spent on construction…The budget, which runs from the beginning of April to 31 March 2016, has been set with the expectation that Kuwait will earn around $65bn (KD19bn) from oil revenues, which will provide around 90% of total income. It is also based on the premise of crude oil at $75 a barrel – considerably higher than its current rate of around $60…Over the past year, contracts for several major projects have been awarded, such as the $12bn clean fuels project to upgrade refineries and the $4.8bn Kuwait International Airport expansion’.

According to reports, GCC is to witness construction projects worth USD 103 billion this year, an increase of 21.2 per cent over last year. Within this, Kuwait is expected to award about $47.2 billion (KD14 bn) of projects this year, almost double the value of those awarded in 2014 as the government concentrates on infrastructure. The Kuwait’s Central Tenders Committee had already awarded around $5bn (KD1.5bn) of tenders this year. According to Kuwait News Agency, the Committee held 26 meetings which led to around 152 tenders being awarded though the vast majority of the tenders were in the oil sector with five worth $4.17bn, were issued by Kuwait Oil Company. Last year Kuwait awarded $25bn of contracts, four times as much as in 2013 and more than the last three years combined, stated the report by MEED Projects. The total value of Kuwait’s projects market (planned and active projects) is estimated to be in the region of $212bn (KD64bn), it said.

Another boost for the plethora of construction works is a new law which makes it uncomplicated to invest in Kuwait. There have also been dramatic changes which pamper new companies to be set up in just 30 days. The country is also focusing on improving its business climate and reduce red tape through the Direct Investment Promotion Law agreed by government at the end of 2014.

Strengthening its belief on strong public-private partnerships, in October last year, Kuwait revised its PPP laws, establishing a clear regulatory framework for implementation of projects. Now the Partnerships Technical Bureau (PTB) will be superseded by the Kuwait Authority for Partnership Projects (KAPP), an independent government body with greater executive powers in order to more effectively manage all PPP projects.

According to KFH Research, the residential/non-residential construction sector is set to benefit greatly from these initiatives and the country’s will to diversify the economy and move itself up the hydrocarbons industry value chain. Also, Kuwait was one of the first countries in the region to announce an increase in social spending in the wake of the Arab Spring and, buoyed by elevated oil production, the researchers believe the government is well placed to sustain its social spending commitments.

The research identifies education as an emerging major new thrust of government policy. The country’s healthcare development plan centres on the construction of eight public hospitals by 2016, in order to deal with the heavy pressure placed on the healthcare sector. Other developments, such as a USD160mln project to build nine towers to be annexed to hospitals, adding 2,000 hospital beds, suggest that there is political support for the necessary healthcare drive. There is also a series of planned investments to overhaul medical facilities and health centres.

Another sector which is not being ignored by Kuwait is tourism. The government had announced a five-year development plan for its tourism industry back in 2011. And since, the country has spent billions to fortify the sector. One of its major projects is the construction of a massive new terminal at the Kuwait International Airport. By 2016, annual capacity will jump from six million to 13 million, and then up to 25 million by 2025. And then there is the metro railway system. Kuwait’s metro is part of the Kuwait National Rail Road System project, which will be a 511-kilometre network. These developments will only compliment the growth of the construction business in the country.

According to a BMI Research, ‘Kuwait has seen a flurry of populist legislation recently, including several measures specifically targeting expatriate workers. This runs the risk of increasing uncertainty within the private sector, as well as cementing perceptions of the country as a hub of policy instability.We expect the Kuwaiti economy to perform relatively well over 2015 and 2016, and retain our forecast for real GDP growth of 2.6% and 2.4%, respectively, from an estimated 2.7% in 2014. After a long period of stagnation, the Kuwaiti investment outlook appears to be improving, while the prospects for consumption remain bright. However, we again highlight Kuwait’s ever-volatile political situation as the key downside risk to economic activity.We forecast average consumer price inflation for Kuwait of 3.8% and 4.0% for 2015 and 2016 respectively, up from 3.0% in 2014. While we expect a slight fall in Kuwaiti food inflation over the near term on the back of lower global prices, a tight supply picture in the real estate market will fuel housing inflation over the coming quarters, in a trend seen across the GCC’.

Given the positive mood, new and friendly laws, forward-looking statistics and a welcoming partnership from around the globe, time seems to be just right for the construction industry to boom further. Kuwait’s landscape has been changing, but it is time to widen the scope, higher.

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