Kuwait is the most democratic state in the Gulf Cooperation Council and attracts a number of our clients. Thanks to the high standard of living enjoyed by Kuwaiti citizens as well as the strict controls on the large expatriate workforce, the risk of widespread social discontent is low. Oil wealth typically enables the state to run a fiscal surplus, although the large size of the public sector hampers the development of the non-oil private sector.
We keep our clients abreast of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 18 of Kuwait’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you ahead of the curve, so you can do business with ease in Kuwait.
Kuwait Country Risk
We expect the Kuwaiti economy to see modest growth over 2016 and 2017, forecasting real GDP growth of 1.5% and 1.2%, respectively, from -1.6% in 2015. 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'...
Kuwait Operational Risk Coverage (9)
Kuwait Operational Risk
Kuwait Operational Risk
BMI View: Kuwait is reasonably attractive for commercial businesses due to offering one of the more secure operating environments in the region, along with excellent availability and low cost of fuel and electricity. However, poor economic diversity and reliance on the hydrocarbon sector mean there are few options for investors, while extensive and time-consuming bureaucracy hinder many business operations. Subsequently, Kuwait scores 55.9 out of 100 in our Operational Risk Index. This puts it in eighth position out of 19 countries in the Middle East and North African (MENA) region.
|Labour Market, Logistics and Trade and Investment Risk Scores drag down the Total Operational Risk Score|
|Kuwait - Operational Risk Scores|
Kuwait Crime & Security
Kuwait Crime & Security
BMI View: Overall, especially when compared regionally, Kuwait possesses a relatively secure operating environment for businesses and investors. The most prominent threat stems from Islamic State terrorist activity within Kuwait's borders; however, this threat is counteracted by Kuwait's strong counter terrorism capabilities. Kuwait generally has low levels of petty and violent crime; however, further threats stem from the country's limited financial and cyber crime combating capabilities. Therefore, Kuwait scores a fairly respectable 66.2 out of 100 for the Crime and Security Risk pillar of the BMI Operational Risk Index. This places the country in fourth place out of 19 Middle East and North African states.
|Low Security Risk for Businesses by Regional Standards|
|Kuwait & Regional Crime And Security Risk Scores|
Kuwait Labour Market
Kuwait Labour Market
BMI View: Owing to structural weaknesses in the national education system and a net inflow of uneducated migrant workers from South Asia, we see fundamental risks that undermine labour market competitiveness and threaten investment performance in Kuwait. While migration acts to lower basic skills levels in the labour market, it is also the backbone of competitiveness, providing two thirds of the workforce and helping to lower the cost of labour. Overall, Kuwait performs moderately well in our Labour Market Risk Index with a score of 52.9 out of 100. This puts Kuwait in eighth place among 19 countries in the...
B MI View: Driven by considerable oil reserves, Kuwait's economy is expected to enjoy sustained growth over the coming years, which is likely to translate into an increasing appetite for consumer imports. Resource wealth also enables firms to benefit from cheap electricity and fuel prices, though a possible removal of subsidies could significantly increase energy and gasoline costs in the coming months. Although Kuwait's transport network is relatively efficient, particularly in the aviation sector, the absence of railways and a limited road network drive up transport costs, while a lengthy and cumbersome trade...
Kuwait Trade & Investment
Kuwait Trade & Investment
B MI View: Low levels of foreign direct investment (FDI) flowing into Kuwait reflect poor economic openness and an unfavourable business environment for foreign investors. The Kuwaiti government still has a strong involvement in the economy, and privatisation has been very slow. Meanwhile, limited reforms have failed to yield vital improvements in foreign investment law, patent protection and public administration, which create fundamental stumbling blocks to business. We also expect to see increased taxation, which will undermine Kuwait's primary investment incentive. In the short term, therefore, we do not expect to see FDI increase significantly, and portfolio investment into the Kuwaiti Stock Exchange will present the most attractive channel for investors to capitalise on strong economic growth.
Kuwait has low levels of economic openness, moderate legal risks...
Kuwait Industry Coverage (18)
BMI View: A combination of a slowing economy and rising interest rates underpins BMI's measured stance towards the Kuwaiti new vehicle sales market in 2016. We are targeting 3% sales growth for the sector.
|Total Vehicle Sales, Kuwait|
|e/f = BMI estimate/forecast. Source: CSB, BMI|
Kuwait Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Kuwait Consumer Electronics
BMI View: We downgraded the outlook for 2015 in our Q415 report update to reflect the drag on demand coming from a weak Kuwait economic outlook due to the prolonged global oil price slump, a factor that was weighing in on consumer confidence. Nevertheless, we believe the market will return to positive growth in 2016 as population grows and the economy stabilises in 2016 and beyond, over the course of our forecast period. Opportunities will still remain limited compared to emerging markets due to the high penetration of smartphones and tablets, which means there remains only a small pool of first time buyers for vendors to target. Nevertheless, Kuwait has one of the highest GDP per capita levels in the world and consumers have demonstrated their preference for luxury items and fashionable brands such as Apple. We expect this trend...
Defence & Security
Kuwait Defence & Security
BMI View: Kuwait continues to have a close defence relationship with the US, although Kuwait's role in facilitating terrorism in the region is creating tensions within the relationship. BMI does not believe that Kuwait faces any immediate serious threats to its security. However, rapidly changing regional dynamics, and particularly the instability in Iraq, could potentially pose a threat to Kuwait in the long term.
Kuwait is one of the more stable countries in the Middle East, and integrated under the US defence security umbrella, it is generally perceived as a Western ally. However, we believe that its failure to stamp out financing activities on its territory in support of terrorism is creating tensions in its relations with the US. In this sense, the...
Food & Drink
Kuwait Food & Drink
BMI View: We have a subdued outlook on Kuwait's food and drink industry, with mass grocery retail forecast to perform moderately over our forecast period of 2014-2019. Investment in the sector is limited by a small population size as well as the dominance of government-backed UCCS. Nonetheless, high disposable income levels and increasing health awareness in the region will increase food consumption as well as soft drinks growth.
Headline Industry Data
Total food consumption (local currency) y-o-y growth in 2015: +2.4%; compound annual growth rate (CAGR) 2014-2019: +2.6%
Kuwait Freight Transport
BMI View: We expect positive growth across the Kuwaiti freight transport sector in 2016, as the country recovers from the nominal fall in trade in 2015 - which was driven by a fall in oil prices which didn't affect the non-oil freight transport sector overly in the first place. Although the outlook is slightly more precarious than in years gone by, high levels of reserves and a wealthy population means that spending on both capital goods - driving bulk and project volumes - and consumer goods should continue, supporting the freight transport sector.
Although our growth forecasts for volumes carried on Kuwait's different freight modes in 2016 and 2017 - namely Air and Road, the rail network is not yet operational - are not for spectacular growth, they are...
Kuwait Information Technology
BMI View: We forecast a weak growth outlook for the Kuwait IT market, with a decline in oil prices and saturation of the retail market playing a key role in this. However, high incomes will ensure the market remains lucrative in per capita terms, despite a small population and limited growth prospects. Within the enterprise sector, we expect IT investments to benefit from the need to diversify the economy away from the oil sector.
Latest Updates And Developments
IT hardware sales in Kuwait will increase from KWD158mn in 2016 to KWD164mn in 2019, recording a compound annual growth rate (CAGR) of 1.3%.
Software will experience heightened growth compared to hardware, with sales of KWD59mn in 2016 increasing at a CAGR of 3.8% to reach KWD66mn in 2019.
Services will lead the sector...
BMI View: A flurry of infrastructure funding announcements and key contract awards characterised H115. Long-delayed turnkey projects in the power and transport sectors have been put back on track and may be an indication that the government will honour its USD116bn 2015-2020 development plan. However, a track record of project delays and under-spending means we remain cautious on the reality of major project momentum.
The KWD34bn (USD116bn) spending promised as part of a five-year development plan covering 521 key projects, including 45,000 housing units, a metro and railway system , and several power projects started to kick in H115 with several contracts awarded.
From January to October 2015, the country had awarded USD30bn in project funding, with...
BMI View: We expect to see healthy growth in Kuwait's insurance market throughout the forecast period to 2019, though the market will remain small in both regional and global terms, with life insurance in particular reflecting low rates of penetration and density. Kuwait's insurance market is highly fragmented, and a lack of sufficient regulatory oversight continues to undermine the operating environment and deter potential investment. There is, however, substantial growth potential, including via the expanding takaful lines. The country is undertaking reform of the financial sector, including implementing the Basel III banking sector regulation and supervision framework, which...
Kuwait Medical Devices
BMI View: While the persistence of lower oil prices will drive down national budgets and curtail some investment programmes, the healthcare sector will continue to be largely insulated from major cuts to funding. Market growth will be moderate, benefitting from healthcare infrastructure developments and health insurance expansion. Public spending risks exist due to regional security concerns and, to a lesser extent, internal political instability.
|Total (USDmn)||Per Capita (USD)||Total (Local Currency mn)||...|
Oil & Gas
Kuwait Oil & Gas
BMI View: Kuwait has made progress on key oil and gas projects that have previously been stalled, namely a major investment push targeting the downstream sector, but we maintain the country will fall short of ambitious production targets for both oil and gas. In addition to political and regulatory risks, Kuwait's oil sector also faces structural challenges from a surplus in both OPEC and non-OPEC supplies, and this will further weigh on the long-term production outlook.
As an export-oriented sector, Kuwait's petrochemicals industry will be highly dependent on external markets, particularly Asia. The global market downturn is affecting strategic decisions by the sector. Karo was looking to develop its production facilities and improve the performance and flexibility of its aromatics complex and Petrochemicals Industries Company (PIC) is examining the viability of more aromatics plants. However, there has been no further progress on these plans.
Externalities will be crucial to the performance of the Kuwaiti petrochemicals industry and unless the industry sustains a competitive edge, it will suffer diminishing margins on production. While the predominantly naphtha-fed sector has taken advantage of the recent decline in crude prices, it may struggle with the surge in output from Iran following sanctions relief as well as low-cost output from US shale-fed...
Pharmaceuticals & Healthcare
Kuwait Pharmaceuticals & Healthcare
BMI View: Kuwait's pharmaceutical sector will remain insulated from the impact of lower oil prices given the country's strong fiscal buffers. Risks to our outlook include increasing generic penetration as health insurance coverage increases.
Headline Expenditure Projections
Pharmaceuticals: From KWD287mn (USD1.01bn) in 2014 to KWD300mn (USD1.01bn) in 2015; +4.7% in local currency terms and +0.6% in US dollar terms. Forecast unchanged from Q415.
Healthcare: From KWD1.53bn (USD5.38bn) in 2014 to KWD1.64bn (USD5.55bn) in 2015; +7.3% in local currency terms and +3.1% in US dollar terms. Forecast in line with Q4...
BMI View : Significant changes are on the cards in the Kuwaiti power sector as the government attempts to spur investment into the country's ageing infrastructure. The government has earmarked USD9.9bn for infrastructure projects including power and progress is being made on greenfield thermal and renewable projects. The electricity and water ministry is aiming to approximately double generating and desalination capacity by 2017 to cater to growing demand and an estimated USD2.5bn is expected to be invested over the medium term.
Latest Updates And Structural Trends
Kuwait's finance ministry has given approval for building a series of power...
Kuwait Real Estate
BMI View: Over the long term the Kuwaiti real estate sector continues to provide enticing opportunities. The country enjoys immense oil wealth and high GDP per capita, while government initiatives are supporting an increasingly dynamic private sector. However, we believe that forecast growth in the sector will be pushed back several years due to developments in 2014. The drop in the price of oil and political instability in the region surrounding Kuwait has meant that the Kuwaiti economy is not growing as quickly as previously forecast, and thus supply continues to outpace demand in the real estate sector.
Demand for commercial real estate is set to grow in Kuwait, as the country has a stable government and...
BMI View: As a highly oil-dependent country, Kuwait has been and will be facing an economic slowdown. The decrease of commodity prices has come before the economy diversified significantly and households in the country have few reasons to expect sizeable income gains. Non-essentials retailers will be hit the hardest as Kuwait's consumer will shift a large part of their budgets to the housing sub-sector.
After a tough year due to the turbulence in the petroleum markets which led to lower oil prices - with oil the overwhelmingly dominant industry of the Kuwaiti economy - we expect the country to post 2.6% and 2.4% real GDP growth in 2015 and 2016, respectively. Kuwait's dependence on oil and oil-related activities as a driver for economic growth does make it vulnerable which was underlined by the slowdown in the last two years. Despite these frailties and...
|New Data Services Key To Revenue Growth|
|Mobile Operators' Quarterly Revenues (USDmn), 2014-2015|
|Note: no Q215 data available yet for VIVA. Source: Operators|
Monthly blended average revenue per user (ARPU) continued to decline in the face of intense competition, to KWD7.2 in Q215. Despite a boost from data services, ARPU's will decline to KWD7 by the end of 2015 and further to KWD6 by the end of our forecast.
Take-up of 3G/4G data connections has...
BMI View: The water sector of Kuwait faces a daunting challenge. The country is one of the most arid on the planet and yet its water consumption levels per capita are among the highest in the world. With extremely limited natural resources the government has relied on desalination as its method of choice for providing households and industry with water. This process is expensive however and exploration into other processes has begun. Despite this interest in new technology and techniques, the environment for foreign investors looks unlikely to become particularly appealing. The country has a poor record for completing infrastructure projects and coupled with a somewhat unstable political landscape leading to frequent alleged cases of corruption, levels of foreign investment are forecast to decline.
Kuwait is susceptible to long periods of drought, as has been the case over recent months. This...