(MENAFN - Arab Times) KFH-Research issued a report about the expected improvement in the Kuwaiti economy in 2013 in light of the government's focus on the economy, the positive political developments, and recent legislations, such as issuing the new companies law that will attract foreign investments to Kuwait.
The report noted that Kuwait has improved its commercial environment through a series of governmental steps, which increases expectations that Kuwait's current image of being unsuitable for business among its GCC counterparts will change. This will improve Kuwait's performance rate regarding reports issued by World Bank every year; thus boosting non-oil sectors.
The Kuwait government reiterated that it will continue to follow the latest developments in the local economy closely and will not hesitate to take appropriate action to enhance elements of sustainable growth in various economic sectors.
Recently, Kuwait has introduced a new companies law, which replaces the Commercial Companies Law of 1960 and is aimed at encouraging investment. Foreign direct investment (FDI) inflows to Kuwait rose by 25.1% y-o-y to 398.6mln in 2011 from 318.7mln in 2010. We believe with this new law, FDI inflows to Kuwait will rise further in 2013 and the years ahead. Kuwait has made headway in improving its business environment in recent years, including through the introduction of a 15.0% flat rate corporate tax regime for foreign companies in 2008 and the passing of the 2001 law regulating foreign direct capital investment, which allows 100.0% foreign ownership of companies in some sectors.
With these steps, the perception of Kuwait as the least business-friendly country in the Gulf Cooperation Council (GCC) will change. At the same time, we expect Kuwait's ranking performance in the World Bank's Doing Business will prove in the coming years and this will give boost to the non-oil sectors.
The non-oil sector GDP growth in Kuwait will be mainly supported by the infrastructure industry. Demand for infrastructure development has grown in parallel with population in Kuwait. Kuwait's total population increased by 3.4% y-o-y to 3.7 million in 2011 from 3.6 million in 2010 according to the figures published by the Public Authority for Civil Information (PACI). A rapid growth of population is expected to continue in Kuwait in the coming years. The United Nations (UN) forecasts that Kuwait's population will reach 4.6 million by 2040. Furthermore, the launch of the Kuwait Development Plan (KDP) looks set to push ahead with many infrastructure schemes. As such, the state is set to become a hub for private infrastructure investment over the coming years if all goes according to plan.
Government's prompt and prudent policy measures to spur the economy. We retain forecast for Kuwait GDP at 5.2% y-o-y in 2012 lower than 8.2% y-o-y in 2011 but still a healthy growth rate (2007-2011 average: 3.2%). Economic growth will continue to be mainly driven by government expenditure, both directly as well as indirectly, as well as resilient private consumption and fixed investment growth.
Nevertheless, we expect real GDP growth to ease to 4.5% y-o-y in 2013 as oil production and export growth slows after two years of sharp rises, owing to weaker global demand and as Kuwaiti output approaches its maximum capacity (3.2 million bpd). Kuwait has boosted oil production in 2012, to an average of 2.8 million bpd in the first eleven months of the year, up from 2.5 million bpd in 2011. Kuwait will benefit from elevated international oil prices on the back of geopolitical instability in the region. However, the economy appears particularly vulnerable in the context of regional tensions. Import growth will remain robust, in line with rising domestic demand.
Conclusion
Kuwait's growth is expected to moderate to 5.2% y-o-y in 2012 and 4.5% y-o-y in 2013 from 8.2% y-o-y in 2011. Projects from the 2010-2014 KDP have been delayed so far over implementation. Nonetheless, the oil sector in Kuwait is expected to remain strong as a buffer and catalyst for the economic growth. Crude oil production is forecasted to reach 3.5mln bpd by 2015 and 4.0 million bpd by 2020 (November 2012: 2.8 million bpd).
