Kuwait Country Risk Report

Published 29 April 2015 | Quarterly

  • 50 pages
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$1,195.00
Kuwait Country Risk Report

Core Views

  • 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.

  • 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 tensions to remain between the government and the legislative branch, even with the election of a renewed 'loyalist' parliament.

  • 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.

Key Risks To Outlook

  • As ever, given the economy's heavy dependence on oil, any further downturn in global energy prices would prove disastrous. That said, Kuwait has the financial arsenal to cope with any short-term volatility in oil prices, and therefore the underlying risks in this regard are minimal.

  • Our forecasts assume that the implementation of the government's development plans will be slow owing to the impact of bureaucratic gridlock. However, the state certainly has the firepower to move forward with its capital spending plans if political compromises can be reached. Furthermore, a renewed loyalist parliament, following legislative elections in July 2013, offers the prospect of an acceleration of long-delayed...

Table of Contents

Executive Summary
5
Core Views
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Political Difficulties To Weigh On Investment Outlook
8
Kuwait's ongoing political crisis will continue to hamper investment activity and long-term economic growth
The government's latest
attempts to quell opposition by stripping citizenship from opponents will only further political paralysis, whilst also hinting towards a more
attempts to quell opposition by stripping citizenship from opponents will only further political paralysis, whilst also hinting towards a more
authoritarian leaning for the current regime, a worrying development for Kuwait's relatively open political system
Table : Politic al over view
8
Long-Term Political Outlook
10
Democracy: No Turning Back
10
Kuwait's political backdrop is complicated by labour and population imbalances, as well as a parliament which has consistently blocked
Kuwait's political backdrop is complicated by labour and population imbalances, as well as a parliament which has consistently blocked
the government's reform efforts
Meanwhile, with six dissolutions of the National Assembly and subsequent elections since 2006, the
prospect of new polls and policy instability is always on the horizon
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Lower Oil Prices Add To Woes
14
Lower oil prices will have a marginal detrimental effect on Kuwait's economy
However, the country's political stalemate will have a
greater impact and ensure only modest rates of growth over the coming years, leaving the country as the laggard of the GCC
We retain
our forecast for real GDP growth of 2
0% in 2013, with investment and
consumption playing a more significant role
table : Economic Activit y
14
Fiscal Policy
16
Drastic Fall In Budget Surpluses Ahead
16
Kuwait's near total reliance on hydrocarbon means lower oil prices will slash the country's budget surpluses from around 25% of GDP to
Kuwait's near total reliance on hydrocarbon means lower oil prices will slash the country's budget surpluses from around 25% of GDP to
5% over the coming years
The county will remain in a healthy position compared to other Middle Eastern states and there is little risk of
deficits in our forecast period to 2024
In addition, Kuwait's substantial reserves means the need to tap international debt markets will be
non-existent
CAPEX projects will continue,
although political stalemate, as ever, will hinder their implementation
table : Fiscal Policy
16
Banking Sector
17
Development Plan To Bolster Banks' Outlook
17
The outlook for Kuwaiti commercial banks is brightening as moderate signs of progress in the government's development plans herald
The outlook for Kuwaiti commercial banks is brightening as moderate signs of progress in the government's development plans herald
the prospect of new lending opportunities
A relatively loyalist parliament should ensure the approval of the next five-year development
plan which will present substantial lending opportunities
5% by the end of 2015, compared to
6
Monetary Policy
19
Higher Inflation Ahead, But Gains To Slow
19
Kuwait's consumer price inflation will reach 3
We expect the
housing market to increasingly account for inflationary pressure and for food prices come back to the fore in 2015
Banking Sector
20
Islamic Banking: Growing To Slow Globally, But Opportunities Remain
20
We maintain our bullish outlook on the global Islamic Banking sector over the coming years, and while growth rates have peaked, there
We maintain our bullish outlook on the global Islamic Banking sector over the coming years, and while growth rates have peaked, there
are significant opportunities in the Gulf and Pakistan
Growth in Central Asia will remain lacklustre due to political intransigence, with the
notable exception of Kazakhstan
table : Islamic Bonds & Loans Issued
21
Chapter 3: 10-Year Forecast
25
The Kuwaiti Economy To 2024
25
High Wealth, Yet Challenges To Growth
25
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2023,
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2023,
keeping the government in surplus
table : Long -Term Macroeconomic Forecasts
25
Chapter 4: Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
Table : Oper ati onal Risk
28
Availability Of Labour
29
table : MENA - Availability Of Labour
30
table : Top Ten Source Countries for Migrant Labour ('000)
31
table : Workforce - Divisions of Occupation-
32
Crime Risk
33
table : Crime Statistics
34
table : MENA - Crime
35
Chapter 5: Key Sectors
37
Autos
37
table : Autos Total Market - Historical Data And Forecasts
38
Food & Drink
40
table : Food Consumption Indicators - Historical Data & Forecasts
41
table : Soft Drinks Sales , Production & Trade
43
Other Key Sectors
45
table : Oil and Gas Sector Key Indicators
45
table : Telecoms Sector Key Indicators
45
table : Infrastructure Sector Key Indicators
45
table : Pharma Sector Key Indicators
46
table : Defence and Security Sector Key Indicators
46
table : Freight Key Indicators
46
Chapter 6: BMI Global Assumptions
47
Global Outlook
47
New Era For Oil
47
Table : Global Assumptions
47
Table : Developed States , Real GDP Growth, %
48
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
48
Table : Emerging Markets , Real GDP Growth , %
49

The Kuwait Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Kuwait. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Kuwait's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI  Research.

Key Uses

  • Forecast the pace and stability of Kuwait's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Kuwait's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Kuwait, including currency volatility, the commodity price boom and protectionist policies.

The Kuwait Country Risk Report by BMI  Research includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the Kuwait' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Kuwait through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Kuwait Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Kuwait and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Kuwait, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Kuwait over the next 5-years?

BMI's Kuwait country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Kuwait Market - Political Strengths, Weaknesses, Opportunities and Threats facing Kuwait.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Kuwait's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Kuwait’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Kuwait's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Kuwait?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Kuwait against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Kuwait’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in Kuwait will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Kuwait's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express