(MENAFN- Arab Times) A report issued by KFH-Research expected through an overall view of the Kuwaiti economy in Q4 of this year, that the GDP will grow by 4.5% in 2013 and 5% in 2014. Growth will be supported by unprecedented oil production that forms the largest chunk of exports, in addition to a boost in the non-oil sector, the strong investments in the private and public sectors in infrastructure projects, and an increase in the volume of direct foreign investments. Further growth is underpinned by the expansion of fiscal policy in the form of contributions and debt relief programmes for citizens introduced by the government, which will boost private consumption going forward. The following are the details:
We maintain our real GDP forecast for Kuwait at 4.5% in 2013 and 5.0% in 2014. Growth will be supported by resilient oil production which forms the bulk of exports, on-going recovery in the non-oil sector, strong public and private investment in infrastructure projects and increasing foreign direct investment (FDI). Further growth is underpinned by the expansion of fiscal policy in the form of contributions and debt relief programmes introduced by the government, which will boost private consumption going forward. These include:
* Personal Debt Relief Plan: Introduced in March 2013, which will purchase all outstanding loans taken by Kuwaitis in the period of 1 January 2002 and 30 March 2008; waive all existing interest payments; and rescheduling easy repayments to a maximum of 40% of the debtor's monthly income. The total cost is estimated to be up to KD 4.0bln.
* SME Fund: The National Fund for the Welfare of Small and Medium-Sized Enterprises (SMEs) and Development was introduced in April 2013. The purpose of the fund is to provide financing for small businesses, submitted or initiated by Kuwaiti citizens, thus enhancing private sector activities in Kuwait. SMEs represent 85% of total private institutions in the country. The capital of the fund is now increased to KD 2bln; taken from the public reserve.
* Upcoming proposals - land grant, 30% increment for pensioners, cash distribution to citizens.
Kuwait's oil sector will remain as a vital driver of economic growth and is expected to expand 4.4% in 2013. For non-oil sector, growth is likely to rebound to 4.6% in 2013 on the back of further recovery in the manufacturing, construction and real estate sectors backed by strong government capital expenditure budget allocation for FY2013/14.
At 5.0% growth, the Kuwaiti economy continues to remain commendably among the GCC countries and is ranked the third after Qatar (6.9%) and Saudi Arabia (5.3%) but is ahead of the UAE (3.7%), Bahrain (3.5%) and Oman (3.5%) in 2014.
KUNA (Kuwait News Agency) in mid-July 2013 announced that a new oilfield has been discovered in the country's western region of Kabd, north of the Minagish oilfield. According to Hashim Sayed Hashim, the managing director of the Kuwait Oil Company (KOC) - the upstream subsidiary of the state oil company, the Kuwait Petroleum Corporation (KPC) - initial surveys of the field indicate commercial quantities of oil and gas. Although this is encouraging news, Kuwait's oil sector faces significant challenges; despite the discovery of new oilfields in recent years - accompanied by the announcement of sizeable investment plans - political and institutional obstacles have continued to hinder development.
The new find, if it is confirmed as commercially viable, could help support the official goal of raising Kuwait's oil production capacity from around 3.4mln barrels per day (bpd) to 4.0mln bpd by 2020. The key to raising output in the short term will be efforts to boost production from the country's northern fields (which include Raudhatain, Sabriya, Al Ratqa, and Abdali). Officials believe that an extra 1mln bpd of output could come from this region by 2015 - although this projection is likely to prove overoptimistic unless the authorities manage to secure increased involvement on the part of international oil companies (IOCs).
Meanwhile, the government's overall ambitions for the sector are underlined by the announcement in late 2012 that it is planning to invest USD100bln in upstream and downstream ventures over the next five years. Included in this investment drive are two long-delayed projects: the construction of the Al Zour refinery, which would have a capacity of 615,000 bpd, and the Clean Fuels Project, which will upgrade the country's existing refineries. Together these projects are projected to raise refinery capacity by 50%, from 936,000 bpd currently to 1.4mln bpd.
The oil industry continues to play a pivotal role in the Kuwaiti economy. As the world's eighth-largest oil producer (accounting for over 3% of global production), oil income comprises over 90% of budget revenue and merchandise exports. The country is home to the seventh-largest proven oil reserves in the world, at 101.5bln barrels (while another 5bln barrels are located in the Partitioned Neutral Zone field shared with Saudi Arabia).
We predict that Kuwait's oil production will continue to rise, albeit more slowly over the next five years, reaching 3.1mln bpd in 2017. However, our forecast is subject to a number of downside risks. In the short term, Kuwaiti production, a large portion of which is shipped to Asian markets, will remain dependent on global oil demand and prices. Given the country's membership of OPEC, a significant fall in international oil prices could trigger a decision by the organisation to lower production to support prices, as was the case during the global financial crisis in 2009, when Kuwaiti oil output fell by around 10% year on year.
The authorities recognise that, in order to meet their long-term production goals, they will need to attract and maintain the interest of the IOCs. However, the prohibition on the foreign ownership of energy assets - which has failed to be fully compensated by the government's offer of alternative arrangements, such as incentivised buyback contracts - has led to a generally lukewarm response on the part of the IOCs. Similar obstacles have also impeded the development of new oil fields, with many failing to make progress beyond the planning stage. The hope is that the new, more inclusive parliament that has emerged following the recent election for the National Assembly will provide a fresh opportunity for the government to push through its investment agenda.
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