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Kuwait diversifies to strengthen economy

Kuwait: Wednesday, April 30 - 2008 @ 11:47

The result is almost double the Finance Ministry’s budget estimate and puts the country on target to achieve its ninth consecutive year of budget surplus.

Continuing rising crude prices could see exports total at least $70bn in 2008. Kuwait’s surplus will also be augmented by the country’s increasing income from foreign assets and investments.

Overseas assets

The Kuwait Investment Authority (KIA) is believed to manage overseas assets of at least $225bn, but the actual sum may be considerably higher. The Institute of International Finance estimates the KIA’s foreign assets at $400bn.

The authority has been making investments in major foreign businesses for the past 50 years, including global players such as Daimler-Benz and BP, and continues to do so. In 2006 the KIA bought a $720bn stake in Industrial and Commercial Bank of China, making it the bank’s largest investor.

Shares are also held in chemical ventures in Bahrain, Turkey, Tunisia and China as well as a stake in Aventis, the merged company of Germany’s Hoechst and France’s Rhone-Poulenc.

The government continues to diversify its revenue sources. KIA recently bought shares in the US’ Citigroup valued at $3bn and a further $2bn in Merrill Lynch.
It has been rumoured that the KIA is interested in investing in Visa’s forthcoming $18bn initial public offering.

Long-term crude markets

Last year, Kuwait Petroleum Company (KPC) also agreed to take a 50% shareholding in Dow Chemical Company’s commodity plastics unit for $9.5bn, its biggest ever foreign investment. The two companies are to co-operate in future ventures both in Kuwait and Asia.

KPC is looking to increase investments in Asian refineries to guarantee long term markets for its crude and has agreed a $5bn joint venture in China to build a $5bn refining and petrochemicals complex in Guangdong province.

Even though it has a small indigenous population of less than1 million and is one of the region’s richest countries, Kuwait has long recognised a need to diversify its economy from oil production and to reduce the dominant role of the state as the main driver of economic activity.

The government is keen to press ahead with infrastructure development and mega projects delayed by extended debate between the administration and Kuwait’s parliament.

Economic potential

Kuwait has an outspoken press and a vociferous parliament that makes for lively if sometime fractious debate. While this has delayed some decisions, accountability and transparency in the country have been enhanced.

This has also meant that there is substantial potential. Observers believe that a favourable tax regime, booming economy and infrastructure projects all provide good opportunities for foreign investment.

The reconstruction of Iraq has also provided Kuwait with substantial business opportunities for supply, storage and as a logistics centre. As a result, the country’s services sector, particularly financial services, retail and logistics, is growing at 8% a year.

Liberalisation has been boosted with recent approval on a framework for build-own-operate contracts as well as a decision to cut taxes on foreign companies to 15% from 55%. A bill was also passed by parliament allowing Kuwait Airways to finally be privatised.

Privatisation programme

Kuwait has an ambitious, if slow moving, privatisation programme that includes the ports, public transport and the country’s power sector as well as the national airline. It is anticipated that build-own-operate projects will gain favour, especially in the power, wastewater, urban development and transport areas.

Current developments include residential and tourism projects on the islands of Bubiyan and Falaika, which also include a deep sea port on Bubiyan and the $85bn plan for Madinat al-Hareer (City of Silk).

The project involves the development of a 250-square-kilometre new city in Subiya that will feature the world’s tallest building, the one-kilometre high Burj Mubarak al-Kabir. Other major urban projects are also planned to relieve pressure on Kuwait City while a $1.8bn metro system is also planned for the capital.

Petrochemical investment

There are also investment opportunities in the country’s expanding petrochemical sector. The $2bn Equate complex, 45% owned by Dow Chemical, has now recorded a decade of operations.

Further development of intermediate petrochemical products including ethylene, polyethylene and ethylene glycol will create opportunities for a range of chemical and plastic industries.

Last September, Kuwait also finally approved a $14.3bn project to build the Middle East’s largest refinery at Al Zour. The planned 615,000 barrels-a-day facility will raise Kuwait’s refined products capacity nearly 70% from its current 930,000 b/d.

See also:
Oil prices propel GCC inflation surges

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Wednesday, April 30- 2008 @ 11:47 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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