Beruflich Dokumente
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Economic Brief - June 2010
Oil Market...............................................Page 6
Public Finance.......................................Page 8
FY09/10 preliminary accounts: Stronger capital 2.20 40
spending… Large KD 6.0 bn surplus expected May-09 Aug-09 Nov-09 Feb-10 May-10
Monetary Developments....................Page 10
April credit picks up mildly, led by a small monetary indicators
advance in the “productive” sectors (y/y percent growth)
25
Real Estate...........................................Page 11 20
0
Kuwait Stock Exchange......................Page 17 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
Hurt by deteriorating international markets. Money Supply (M2) Credit Facilities
1000
Balance of Payments..........................Page 20 100
% y/y
600
Higher surplus projected this year 0
400
-50
200
0 -100
2007 2008 2009 2010
Sales Volume (LHS) Sales values (RHS)
8000
150
7000
million KD
index
100
6000
50
5000
0 4000
May-09 Aug-09 Nov-09 Feb-10 May-10
3
Economic Brief - June 2010
115 150 35 35
110 140 30 30
105 130 25 25
100 120 20 20
95 110 15 15
90 100 10 10
85 90 5 5
80 80 0 0
Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10
-5 -5
Consumer confidence index (LHS) Durable Goods (RHS) Personal Facilities Excluding Securities (LHS) Corporate (Ind., Trd & Const)
KD 60 million in April, matching its best performance of though, the speed of execution on the government’s
the past 7 months. projects remains crucial. Of the major projects, the Sabiya
power plant, Jaber el Ahmad Hospital, and the Jahra
Inflation motor way were awarded in 4Q2009, worth a total of KD
Inflation has dwindled over the course of 2009 from a high 948 million (USD 3.3 billion). More similar projects are in
of 11.6% y/y (Aug 2008) to 2.1% in December 2009 (chart the process of being tendered and awarded this year. This
5). The most recent data, January 2010, show a rate of type of spending will affect the economy once financed,
2.8% y/y. With the economy and commodity prices rising, and the project actually started. The money will of course
we expect that inflation will average 4.2% this year, almost be spent and enter the economy over time. These large
the same as last year. This would be near the average of projects are multi-year projects. Nonetheless as more
the past few years and, by itself, should not prompt any of the projects, large and small, in the 5-year plan are
policy changes. tendered, awarded, financed, etc. the more they will add
to growth and the sooner we will get to the 5% or better
Budget and government finances GDP growth rate expected beyond 2010.
The preliminary budget numbers for FY 2009/10 show a
surplus of KD 8.2 billion. We expect that number will be
revised, close to KD 6.0 billion, when the final accounts
are released. It would be the 12th consecutive surplus
and would leave the state’s finances in superb shape,
giving it flexibility and latitude to stand behind the projects
of the 5-year plan. (One half of the KD 31 billion worth of
projects for the next 4 years is expected to be financed by
the public sector.)
real estate sales (3-mos avg. mmkd) consumer price index (%y/y)
140 40 20 20
35 18 18
120
16 16
30
100
14 14
25
80 12 12
20
10 10
60
15 8 8
40 6 6
10
20 4 4
5
2 2
0 0
0 0
Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10
Residential (LHS) Apartments (LHS) Commercial (RHS) CPI Housing (27% of CPI)
Economic Brief - June 2010
Crude prices fall sharply on global financial turmoil... to-trough drop of USD 21 – while the year-end 2012
Kuwait could see a KD6 bn budget surplus in futures contract price fell by USD 18 to USD 58 pb.
FY10/11…
Analysts see solid rise in global oil demand in 2010…
Flight to US dollar may have assisted crude sell-off… Analysts continue to tweak their forecasts for 2010 global
Crude oil prices fell sharply in May, posting their biggest oil demand growth, though most agree that this year
correction since the crash of 2008. The price of Kuwait will see a solid increase. The Centre for Global Energy
Export Crude (KEC) fell some USD 18 from a peak of USD Studies (CGES) has revised up its forecast for demand
84.3 per barrel (pb) in early May to a low of USD 66.0 pb growth by 0.2 mbpd, to a strong 1.8 mbpd (2.1%). It
on May 26th, its lowest since September last year. Some brushed off the impact of the European debt crisis on the
of these losses were quickly reversed, however, with the global economy (though acknowledging the rising risk of
price bouncing back above USD 70 by the end of the a further slump). The International Energy Agency (IEA),
month. meanwhile, sees oil demand growth of 1.6 mbpd, slightly
lower than last month, owing to their adoption of a higher
The catalyst for the fall was intensifying fears over oil price assumption. Although not extreme, these figures
the escalating debt burden of various governments are at the stronger end of forecasts. OPEC, for example,
– especially in Europe – and the associated risks of both expects more sedate growth of 1 mbpd this year, thanks
economic relapse and financial turmoil. Such fears also to what it sees as vulnerabilities relating to the withdrawal
helped generate a sharp rise in the US dollar – a traditional of government stimulus packages. As in previous months,
safe haven. The trade-weighted dollar index leapt 4% non-OECD countries are expected to account for most of
in the first three weeks of May to its highest level in ten – if not all - the increase in demand.
months. A rising dollar tends to put downward pressure
on crude prices. OPEC sees output rise; plays down drop in oil
prices…
Deepwater oil spill could continue through August… Crude output of the OPEC-11 (i.e. excluding Iraq) continued
This crisis atmosphere played out alongside growing its steady rise in April, increasing by 58,000 bpd on the
concern about the impact of the oil spill at BP’s Deepwater month, to 26.905 mbpd. Overall production stands nearly
Horizon operations in the Gulf of Mexico. Although 2.1 mbpd above its official quota levels. Both Nigeria and
estimates of the size of the spill differ greatly, the US Iran – already producing well in excess of their official
government puts the volume of leaking oil at 12,000- targets - saw month-on-month increases of around
19,000 barrels per day (bpd). While the immediate focus 25,000 bpd. Although OPEC representatives played
of attention is on the calamitous environmental fallout down the sharp May fall in prices, the drop may move the
of the spill – which it is now thought could last until cartel to try and restrain any further creeping production
August - some observers have identified the crisis as a increases. For now at least, officials have declared that the
potential obstacle for plans to expand US offshore drilling organization has no plans to discuss output levels before
operations. the next scheduled gathering in October. If it remains at
current levels, OPEC crude output should average around
…but no visible impact on crude prices so far… 0.6 mbpd higher this year than in 2009.
So far, the impact of the oil spill has been felt more on BP’s
share price – which has fallen by one-quarter - than on Solid gains in both demand and supply seen in
crude oil prices, probably because the quantities of oil lost 2010…
are relatively small. The price of West Texas Intermediate Although both the demand and supply of oil are expected to
(WTI) crude fell by even more than KEC in May – a peak- see decent sized gains this year, there remain considerable
risks on both sides. On the demand side, problems in the KD 6bn budget surplus possible in FY10/11…
Euro zone could – even without a ‘double dip’ recession The While the government’s spending plans have not
– generate enough uncertainty to significantly downgrade yet been finalized, the above scenarios could yield the
global demand. There are also concerns about the Kuwaiti government another large fiscal surplus this fiscal
possibility of an abrupt slowdown in Chinese economic year. Total revenues would be between 15% lower and
growth, which could be of even greater significance for 16% higher than our estimates for FY2009/10. Public
oil prices. On the supply side, meanwhile, the main risk spending, on the other hand, could rise by between 26-
could be that the solid increases expected in both non- 48% this year, partly due to big increases in spending
OPEC crude (+0.6 mbpd) and OPEC natural gas liquids under the 5-year development plan and partly due to a
(+0.6 mbpd) disappoint, as they have sometimes done in large transfer to the Public Institute for Social Security.
the past. Based upon these assumptions, the government’s budget
position for FY2010/11 would end-up between balance
…which could leave prices range bound… and a surplus of KD 6.3 billion. This comes on top of what
Assuming that neither of these events occurs, increases may have been a KD 7 billion surplus in FY2009/10 (official
in demand and supply – at around 1.8 mbpd - may turn figures are not yet available).
out to be broadly offsetting, implying no great changes
in market fundamentals for the year as a whole. In that
case, prices might remain more or less range bound, at
between USD 70-75 pb, dipping slightly in 2H10 as the
big year-on-year gains in demand fall away. The price of
KEC would average USD75 for FY2010/11.
BUDGET FORECAST
(million KD, unless otherwise noted)
Under Alternative Oil Price Scenarios
FY 2009/10 FY 2010/11
Official Low Base High Possible Low Base High
Budget Price Case Price Budget Price Case Price
Oil Price ($/barrel) 35.0 68.6 68.6 68.6 43.0 64.3 75.3 83.7
Total Revenues 8,075 17,998 17,998 17,998 9,719 15,358 18,019 20,868
Oil Revenues 6,925 16,848 16,848 16,848 8,617 14,256 16,917 19,766
Non-Oil Revenues 1,150 1,150 1,150 1,150 1,102 1,102 1,102 1,102
Expenditures (official) 12,116 12,116 12,116 12,116 16,162 16,162 16,162 16,162
Surplus (deficit) -4,041 5,882 5,882 5,882 -6,443 -804 1,857 4,706
After RFFG -4,849 4,083 4,083 4,083 -7,415 -2,339 55 2,619
Economic Brief - June 2010
Public Finance
FY09/10 preliminary accounts: Stronger capi- These revenues, which reflect only the value of crude oil
tal spending… Large KD 6.0 bn surplus expected produced, represented 94% of total revenues, in line with
The 12-month follow up statement for the fiscal year the previous 5 years.
2009/10 (FY09/10) reveals a preliminary surplus of KD 8.2
billion (bn), compared to the KD 4 bn deficit projected in Reflecting the slump in economic activity last year, non-oil
the budget. We expect the final number to be near KD 6.0 revenues were also down, 14.3% y/y. By the end of 2009
billion when the closing accounts are released very soon. (3QFY2009/10), however, these revenues had been down
The surplus would be the 11th consecutive surplus for Ku- 26%. The apparent “improvement” in non-oil revenues in
wait. the first quarter of 2010 may indicate improving business
conditions, especially in the real estate market. For the
Total revenues reached KD 17.9 bn, more than double the whole fiscal year, “income tax revenues” (-23%) were hit
amount expected, thanks to higher than assumed oil pric- by lower proceeds from corporate income taxes (-42%).
es. At KD 9.7 billion, preliminary expenditures were 81% “Property fees” fell 9.3%, reflecting waning real estate ac-
of budgeted, versus a historical average of 74%, indicat- tivity last year.
ing better reporting and/or faster disbursement by govern-
ment agencies. Though total reported expenditures were In contrast, “Service charges”, more related to consumer
down 35% from a year ago, the drop reflects the absence activity, ended the fiscal year up 11%. We know the con-
of an extra-ordinary transfer to the social security fund sumer sector held out relatively well throughout the slow-
that amounted to KD 5.5 bn in the previous fiscal year. down. The major contributor to the drop in non-oil reve-
Excluding this transfer, and all other transfers and spend- nues was “miscellaneous revenues and fees”, down 44%.
ing categories that do not affect domestic demand, such
as spending on military hardware and the cost of fuel used
in power generation, demand-impacting expenditures demand-impacting expenditureS (12 months into fy)
saw a significant increase of 18% (y/y). These expendi-
1,200 80
tures, which have more impact on economic growth, rep-
resented roughly two thirds of the total. The final accounts 1,000
70
are likely to reveal significantly different figures since most
800
categories of expenditure are typically revised higher when 60
the closing figures are released.
KDmn
600
%
50
400
The price of Kuwait Export Crude (KEC) averaged USD
68.3 pb during FY2009/10, well ahead of the USD 35 pb 200
40
In fact, excluding those, non-oil revenues would have been ever, we reiterate that the official closing numbers for the
flat. fiscal year are due soon and are likely to show upward revi-
sions to spending. We could end up with a surplus close to
Spending on “development projects, maintenance, and KD 6 bn, or 19% of our estimate of 2009 GDP.
land purchases” was running faster than usual and contrib-
uted to the stronger spending picture. Despite being cut
24% in the budget, “Chapter 4” expenditures were actually
up 4.7% y/y (KD 989 million). More importantly, they were
running at 78% of the amount budgeted compared to their
43% average of the past five years. We expect the closing
accounts to show an even higher spending rate as this
chapter receives the largest adjustments in relative terms.
Capital spending is set to grow further in FY10/11 as the
government has budgeted KD 2.1 bn (perhaps more) for
this chapter (+66%) and has reiterated its dedication and
commitment to development projects and their execution.
“Wages and salaries” saw the largest increase in spending
this year, up 25% y/y (to KD 2.7 bn).
10 25
8 20
KDbn
6 15
%
4 10
2 5
0 0
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
Other Capital Serv. & Eqpt. Total Salaries
Growth in demand-impacting spending (RHS)
Economic Brief - June 2010
Monetary Developments
April credit picks up mildly, led by a small advance in remaining maturities fell between 1 and 3 bps. Rates
the “productive” sectors averaged 1.08%, 1.29%, 1.52%, and 1.77%, for the 1, 3,
April credit got a small boost from loans to the industrial 6, and 12-month maturities, respectively.
sector. This offset sluggishness in lending to the real estate
sector and a drop in personal facilities. Meanwhile, private Comfortable liquidity in system
deposits in foreign currencies fell considerably in April. As Total bank assets fell KD 40 million in April. Banks’ liquid
a result, money supply (M2) fell KD 293 million (-1.1%) in assets (including net interbank deposits) also fell KD 72
April, pushing year on year (y/y) growth down to 1.7%. million, reducing its ratio to total assets 20 bps to 11.3%.
Despite the drop in liquid assets, banks remained very
Credit shows some form after a 4- month slump comfortably liquid as average KIBOR (Kuwait interbank
Outstanding credit extended to residents rose KD 47 offer rate) remained close to its lows during the month.
million m/m (+0.2%) in April, breaking a four month slump
that saw credit fall a combined KD 25 million. April’s upturn Dinar strengthens versus Euro
pushed up y/y growth to 4.5% from 3.9% in March, the Since November of last year, the dinar has been gaining
first improvement in that rate in ten months. steadily vis-à-vis the Euro, reflecting the growing trouble in
the Euro Zone. This trend only accelerated since the start
The bulk of the increase in April came from increasing of April, leading to an 8% appreciation of the dinar to the
loans to the industrial sector, up KD 68 million, and Euro by mid May. Meanwhile, the dinar is holding relatively
unclassified loans, up KD 51 million. Some of this increase steady against the dollar.
in lending could have fallen under the umbrella of the
financial stability law.
in April. Average rates offered on 1-month KD private Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10
deposits rose 1 basis point in April, while rates on Money Supply (M2) KD Resident Deposits Credit Facilities
10
Real Estate
Slight increase in real estate sales during April, led by from Kuwait City, there has been an increased interest in
commercial and apartments sales them, perhaps due to the completion of infrastructure.
The value of real estate sales increased slightly in April.
A total of KD 96.7 million worth of transactions was Real estate sales have fallen significantly thus far in 2009,
registered, up by 8% from March. Year on year, sales fell with the average value of sales during the first four months
by 42.6% in number and by 53% value. The rise in the of the year 56% lower than the same period last year. The
value of sales was led by the commercial sector, which number of transactions was also 54% lower. Most of the
surged by 51%. Sales of apartments also rose by 13%, decline in sales during the period occurred in residential
while residential sales dropped by 8%. property with their sales values and transactions down by
62% and 63%, respectively.
More detailed data from the Ministry of Justice (MoJ,
not shown in the tables) reveal that more than half of The apartments sector was also weaker, with the average
all residential sector transactions were accounted for by of monthly sales values dropping by 62%. Meanwhile,
sales of existing homes, rather than new plots. Meanwhile, the average transaction size rose 19.7% for commercial
two areas that are among the most active markets for property, but declined by 57% for apartments.
privately held vacant plots, Abu Futaira and Ishbilya, both
represented 58% of the total traded vacant residential The number of Savings and Credit Bank (SCB) loans
plots. Despite the fact that these areas are relatively far approved increased moderately by 2% to 460 in April over
900 180
200 200
800 160
150 140 150
700
600 120
100 100
number
number
% y/y
% y/y
500 100
50 50
400 80
300 60 0
0
200 40
-50 -50
100 20
0 -100 0 -100
2007 2008 2009 2010
2007 2008 2009 2010
Sales Volume (LHS)
Sales Volume (LHS) Sales Value (RHS)
Sales values (RHS)
Sales Values (mn KD) 156.2 108.7 99.5 205.8 177.2 -13.9 83.3
Residential Property 74.8 55.5 53.0 141.6 97.4 -31.2 119.3
Apartments 56.7 36.9 42.6 49.6 69.8 40.8 136.9
Commercial 24.7 16.3 3.9 14.6 9.9 -32.1 -56.4
Number of Transactions 514 382 383 760 744 -2.1 135.4
Residential Property 381 277 255 598 558 -6.7 141.6
Apartments 121 100 124 154 168 9.1 121.1
Commercial 11 6 4 8 18 125.0 100.0
Average Transaction Size (000 KD) 320.3 281.2 259.7 270.8 238.1 -12.1 -22.2
Residential Property 203.3 199.3 207.6 236.8 174.6 -26.3 -9.2
Apartments 477.2 373.3 343.8 321.9 415.5 29.1 7.2
Commercial 2563.4 2880.6 972.5 1830.0 552.2 -69.8 -78.2
Value of Approved Loans (mn KD) 15.0 13.5 7.6 9.0 10.2 13.3 -42.5
New Construction 10.2 8.0 2.6 3.1 3.1 -1.8 -71.6
Purchase of Existing Homes 3.2 3.9 3.3 4.4 5.3 20.0 9.6
Additions & Renovations 1.5 1.6 1.7 1.4 1.8 26.0 -10.8
Number of Approved Loans 412 371 274 309 345 11.7 -25.0
New Construction 195 126 50 60 53 -11.7 -68.6
Purchase of Existing Homes 89 77 68 92 112 21.7 24.4
Additions & Renovations 128 167 156 157 180 14.6 -10.4
Value of Disbursed Loans (mn KD) 12.1 12.8 11.8 16.3 13.4 -18.1 -10.5
New Construction 7.0 7.8 6.5 7.6 7.4 -3.2 -26.5
Purchase of Existing Homes 3.6 3.3 3.7 6.8 4.2 -38.8 36.2
Additions & Renovations 1.5 1.6 1.5 1.9 1.8 -2.8 -1.7
11
Economic Brief - June 2010
300 450
15 100
number
% y/y
200 400
number
50
% y/y
10 100 350
0
300
5 0
250 -50
-100
200 -100
0 -200
2007 2008 2009 2010 2007 2008 2009 2010
Sales Volume (LHS) Sales Value (RHS) Volume of loans (LHS) Value of loans (RHS)
12
Corporate Earnings
2,500
2,000
million KD
1,500
1,000
500
0
1Q07 1Q08 1Q09 1Q10
Net Profits
13
Economic Brief - June 2010
14
CORPORATE EARNINGS - 1Q 2010
(thousand KD)
Code Company Name First Quarter Growth
2010 2009 %
405 Pearl of Kuwait Real Estate - … …
406 Al-Tamdeen Real Estate 2,059 1,099 87
408 Ajyal Real Estate Entertainment Co. 34 -4,537 …
409 Al-Massaleh Real Estate Co. 217 -430 …
410 Arab Real Estate -2,758 80 …
411 Union Real Estate 315 277 14
412 Enma’a Real Estate - 382 …
413 Mabanee Co. 5,251 4,776 10
414 Injazzat Real Estate Development 3 1,373 -100
415 Jeezan Holding -50 -84 …
416 Investors Holding Group - 285 …
417 International Resorts Co. -488 -132 …
418 Commercial Real Estate Co. 2,851 7,169 -60
419 Sanam Real Estate Co. 215 -224 …
420 A’ayan Real Estate Co. 274 1,536 -82
421 Aqar Real Estate 47 34 36
422 Kuwait Real Estate Holding 146 -415 …
423 Al Mazaya Holding 2,120 5,051 -58
424 Al Dar National Real Estate -1,130 … …
425 Al-Themar International Holding - … …
426 Grand Real Estate Projects - 244 …
427 Tijara & Real Estate Investment 40 -835 …
428 Tameer Real Estate Investment -314 -600 …
429 Arkan Al-Kuwait Real Estate - 417 …
430 Safat Global Holding - … …
431 Al-Argan International Real Estate 341 811 -58
432 Abyarr Real Estate Development Co. -911 3,300 …
433 Munshaat Real Estate Projects Co. -3,434 570 …
434 First Dubai For Real Estate Development 1,235 7,047 -82
435 Kuwait Business Town real estate -7,420 370 …
436 Manazel Holding Co. -524 -1,140 …
437 Real Estate Asset Managemnet Co - Ream 163 … …
438 Mena Real Estate Co. - … …
439 Al Mudon International Real Estate 4 … …
Industrial
501 National Industries 41,322 -36,610 …
502 Kwt Pipes Industries & Oil Services - -7,021 …
503 Kuwait Cement 13,928 -8,939 …
504 Refrigeration Industries 134 -192 …
505 Gulf Cable & Electrical Industries - 6,365 …
506 Heavy Engineering Ind. & Shipbuilding -754 1,005 …
507 Contracting & Marine Services -332 1,225 …
508 Kuwait Portland Cement 4,308 2,045 111
509 Shuaiba Paper Products 103 283 -64
510 Metal & Recycling 119 67 77
511 Kuwait Foundry 492 557 -12
512 Aerated Concrete Industries 663 2,146 -69
513 United Industries 2,991 -201 …
514 Boubyan Petrochemical Co. - … …
515 Gulf Glass Manufacturing - 880 …
516 Al-Hilal Cement 799 -599 …
517 Al Kout Industrial Projects Co. - 787 …
518 Kuwait Packaging Materials Manufac. -64 402 …
519 Kuwait Building Materials Manufac. - 245 …
520 National Industries Co. for Bldg. 9,024 -6,811 …
521 Gulf Rocks Co. - 352 …
522 Equipment Holding 1,295 -656 …
523 Mena Holding -306 501 …
524 National Co. for Consumer Industries -47 … …
525 Kuwait Gypsum Manuf. & Trading -12 126 …
526 Qurain Petrochemical Industries -5,538 8,789 …
527 Salbookh Trading Co. -319 -839 …
528 IKARUS Petroleum Industries -6,490 -4,437 …
Services
601 Kuwait Cinema 1,604 576 178
602 Kuwait Hotels 353 736 -52
603 Agility 17,588 36,952 -52
604 Kuwait Commercial Markets Complex -1,609 -699 …
605 Zain Kuwait 51,542 75,728 -32
606 Al Safat Energy Holding Company 504 … …
607 Educational Holding Group - … …
608 Independent Petroleum Group 1,792 1,482 21
609 National Cleaning Co. 310 -402 …
610 The Sultan Center 2,571 2,198 17
611 Al-Arabi Holding 175 106 65
15
Economic Brief - June 2010
16
Kuwait Stock Exchange
Hurt by deteriorating international markets suspended from trading and further eroded sentiment.
May was a bad month for equity markets globally and Delay concerns in Zain’s anticipated dividend payout also
the Kuwait Stock Exchange (KSE) was far from immune. weighed on the market, as had Tamdeen’s postponed sale
Like other regional markets, the KSE was hit by the global of its shares in Bahrain-based Ahli United Bank shares.
turmoil, suffering major losses. The price index was down Market “talk” of KIA selling its 24.6% stake in Zain was an
more than 8% on the month, falling below its level at the added negative. Meanwhile, positive news from the recent
beginning of the year by more than 4%. The market index passing of a number of long-awaited laws appeared to
ended the month at 6700, less than 300 points above the have little impact on market sentiment.
market bottom in Mar08. On a value weighted basis, while
the market was down almost 7% in May, it maintained The KSE had moved higher following the announcement of
modest gains made since the beginning of the year. The the EU’s 750 billion euro rescue package for Greece in the
market shed almost KD 3.5 billion of its capitalization middle of May, only to be hit again by news of the collapse
during the month (to KD 31 billion). of a Spanish bank and a downgrade of Spain’s sovereign
debt (by Fitch). Falling oil prices and a tense political scene
The market decline was accompanied by a sharp drop in further exacerbated market concerns.
market liquidity, which hit a record low. Average daily value
traded was KD 34.5 million in May, 50% lower than the Indexes for all sectors were down on the month.
previous month. Going forward, traders anticipate a boost “Investment” and “Non-Kuwaiti” companies were the
in market liquidity and a shift in sentiment because of an worst performers, dropping 11.2% and 9.4%, respectively.
extraordinary Zain dividend payout related to the sale of its “Banks” fared the best losing a smaller 5.3% in May.
African assets.
60
80
index
50 7000
40 60
30 40
6800
20
20
10
0 6600 0
2 5 10 13 18 23 26 31
May-07 Feb-08 Nov-08 Aug-09 May-10
May 2010
Value of Traded Shares (left) KSE Index (right) MSCI Emerging MSCI Kuwait MSCI GCC
Banking 8764 -5.4 5.0 -5.3 8.7 11011 35.7% 16.8 9.5 17
Investment 5011 -11.2 -10.6 -11.8 -12.2 2826 9.2% 49.9 6.0 ...
Insurance 2436 -6.2 -15.7 -3.3 -11.5 288 0.9% 0.1 0.0 15
Real Estate 2459 -7.4 -12.0 -10.5 -13.7 1733 5.6% 27.7 2.0 ...
Industrial 5317 -7.5 -2.2 -9.1 4.3 2650 8.6% 14.7 4.0 11
Services 14723 -8.3 0.2 -3.4 15.3 9532 30.9% 40.1 10.8 17
Food 4686 -3.1 11.9 -5.3 3.6 736 2.4% 0.5 0.1 12
Non-Kuwaiti 6853 -9.4 -6.4 -12.2 1.9 2109 6.8% 35.8 2.2 15
Total Market 6700 -8.2 -4.4 -6.6 5.5 30885 100.0% 185.6 34.5 15
Kuwaiti Companies 28776
Source: Kuwait Stock Exchange and Zawya.
Note: * PE is calculated using market cap as of month close and 12 months trailing earnings, ending Q12010.
17
Economic Brief - June 2010
2009: surge in private sector Kuwaiti employment… waitis working in the private sector with the same benefits
available in the public sector. Of course, the expansion of
Population continues modest expansion in 2009… the private sector during the boom years was also a help-
Kuwait’s population reached 3.48 million at the end of ing factor.
2009 according to the Public Authority for Civil Informa-
tion (PACI). The population grew by 1.3% on the year. The The services industry employs more than 66% of Kuwait’s
number of Kuwaiti nationals continued to increase but at labor force. Most of it is in the community, social and per-
a slower rate than the average of the previous five years. sonal services sector, which includes the government/
The number of non-Kuwaiti residents increased by 0.5%. public sector. Services also accounted for 71% of the net
There were 1.11 million Kuwaitis, or 32% of the total popu-
lation.
ABSOLUTE CHANGE IN KWT’S LABOR FORCE (DEC 08-09)
The slow growth of Kuwait’s population since 2008 was
caused in large part by the much slower growth of the (in 000)
13
expatriate population, due to the fallout from the eco- 10
nomic crisis. The number of expatriates grew only 11,700 7
in 2009, versus an average yearly gain of 109,000 in the 4
years 2001-08. Nearly 1.2 million people were added to 1
Kuwait’s population over the last ten years, of which 73% -2
were expatriates, reflecting the strong economy of the -5
Manufact.
Kuwait’s total adult population (over 20 years of age)
Utilities
Mining
reached 2.25 million, 65% of the total population. For Ku-
waitis, the data show that 49% are under 20-years old. Non-Kuwaiti Kuwaiti
GROWTH IN KUWAIT’S POPULATION, % (END YEAR( LABOR FORCE BY SECTOR (END YEAR)
15 (in thousands)
12
Kuwaiti Non-Kuwaiti
Public Private Public Private Domestic
Total Total
9 Sector Sector Sector Sector Sector
6
2005 276.1 31.9 308.2 93.4 911.4 478.7 1,483.4
3 2006 241.3 42.4 283.7 96.9 1,010.5 501.0 1,608.4
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2008 262.7 57.0 319.7 111.8 1,120.6 501.1 1,733.5
-3
2009 270.6 68.2 338.8 114.8 1,086.0 519.3 1,720.1
-6
Source: Public Authority for Civil Information (www.paci.gov.kw).
Kuwaitis Non-Kuwaitis Total
18
increase in jobs during 2009. The wholesale and retail to rise further as the trend continues and as it is reinforced
trade and restaurant sector is another major employer ac- by upcoming measures mentioned in the current 5-year
counting for over 15% of the country’s labor force. economic plan.
19
Economic Brief - June 2010
Balance of Payments
Large drop in current account surplus limited the result of Kuwait’s adherence to OPEC quota cuts. So far in
accumulation of foreign assets in 2009 … Higher 2010, the price of KEC has held above USD 75 per barrel
surplus projected this year which supports an improved exports outlook.
The impact of the global financial crisis on the Kuwaiti
economy is well evident in the recently-released balance Non-oil exports, however, saw more satisfactory
of payments figures for 2009. The current account performance in 2009 despite the weak external
surplus dropped by 50% in 2009 on the back of lower environment. Non-oil exports were down by only 9%
oil prices, reduced oil production, and lower returns on from the previous year, primarily from a drop in re-export
the country’s investments abroad. The impact of the activity. Other exports, comprising fertilizers and ethylene
domestic economic slowdown was also visible in the 20% products were little changed.
drop in merchandise imports. Overall, Kuwait continued
to accumulate foreign assets, though at a much slower Imports, on the other hand, which are usually reflect overall
pace than in the previous four years. With the ongoing domestic activity, declined by 20% in 2009. Besides the
recovery in the global economy and financial markets, slowdown in domestic demand, a significant portion of the
however, 2009 may prove to be the low point for Kuwait’s drop in imports may be attributed to declining international
external position. We project a substantial improvement in prices of raw materials and finished commodities as a
the current account surplus this year and possibly further result of the global recession.
improvements over the medium term.
Lower deficit in service account despite rising
Current Account spending on travel abroad
According to preliminary data released by the Central The services account deficit fell 6.3% in 2009 to KD -961
Bank of Kuwait (CBK), the current account surplus shrank million. This account suffers from a persistent travel/
from KD 16.2 billion (40.7% of GDP) in 2008 to KD 8.1 tourism deficit. At KD 2.1 billion in 2009, outflows for
billion (25.9% of GDP) in 2009. In the case of Kuwait, the travel services were up 5.2% from 2008, and accounted
trade balance and investment income remain the major for 55% of total payments for all services provided by
determinants of the current account position. The former non-residents. On the other hand, the drop in oil prices
item was responsible for 94% of the drop in the current and imports has reduced payments on transportation
account surplus in 2009, while investment income was services by 18.1% to KD 1 billion after rising by 21% in
responsible for the remaining 6%. Meanwhile, the services 2008. Net government outflows for services were also
and the current transfer accounts recorded modest down by 16.6%.
changes from last year.
Investment income suffers for the second consecutive
Sharp deterioration in trade balance triggered by year
lower oil exports Lower returns on Kuwait’s massive foreign assets were
At KD 9.6 billion in 2009, the trade balance surplus was the second major contributor to the drop in the current
down 45% from its peak level in 2008. Falling exports account surplus. Investment income declined for the
drove the deterioration. Oil exports were down 40% in second year in row, dropping by 17.3% to KD 2.4 billion.
2009, compared to a 32% increase in the previous year. Indeed, this outcome was anticipated given the worsening
Indeed, this was the first drop in oil exports since 2002, global economic and financial scene since late 2008, and
and is attributed to two major factors. Firstly, the price of given low interest rates. The government’s income was
Kuwait export crude (KEC) oil averaged USD 60 per barrel responsible for 60% of the drop in investment income, yet
in 2009, 33% lower than its level in the previous year. its share in Kuwait’s total investment income rose to 87%
Secondly, oil production dropped by 11% in 2009 as a from 82% in the prior year.
30
1 - Balance on goods 12,338 17,206 9,555 39.5 -44.5
10
Merchandise exports 17,771 23,373 14,471 31.5 -38.1 8 20
Oil exports 16,780 22,200 13,398 32.3 -39.6 6
4 10
Merchandise imports -5,433 -6,167 -4,916 13.5 -20.3
2
2 - Services (net) -902 -1,026 -961 13.7 -6.3
0 0
3 - Investment income (net) 3,523 2,888 2,387 -18.0 -17.3
2005 2006 2007 2008 2009E 2010F 2011F 2012F
4 - Current transfers (net) -2,971 -2,874 -2,916 -3.3 1.5
Current account balance (LHS) Percentage of GDP (RHS)
20
Local banks were the only sector to see a significant account deficit, recorded their first net inflows in 15 years.
improvement in investment income, from KD 161 million From a net outflow of KD 7.6 billion in 2008, portfolio
in 2008 to a record KD 191 million in 2009, while growth investments saw KD 2.2 billion net inflows in 2009. This
in investment companies’ income was more modest at switch in the portfolio position likely reflects the massive
5.5%. On the other hand, other private sector companies injection of liquidity locally, from government and quasi-
saw a sharp drop in their income for the second year in government entities. Government portfolio investment
row, reaching almost zero in 2009, down from KD 136 abroad was down by KD 1.8 billion in 2009. This new
million achieved in the previous year, and KD 741 million trend may come to an end this year given the ongoing
in 2007. recovery in global financial markets and the ample liquidity
in the Kuwaiti banking system.
Workers’ remittances continues their upward trend
The «current transfers» account - which consists basically Investment companies also showed similar behavior,
of worker remittances and government assistance to other moving from a net outflow of KD 795 million (investments
countries - saw its deficit rising slightly to KD 2.9 billion. abroad) in 2007 to a net inflows of KD 14 million and KD
Worker remittances rose by only 2.8%, and accounted 667 million in 2008 and 2009, respectively. On the other
for 98% of current outflows. This result reflects the weak hand, local banks continued their accumulation of portfolio
growth of 2.6% in the number of expatriates in Kuwait investments abroad, though at a substantially slower pace
in 2009. It is worth mentioning that the CBK changed than in the previous two years. This may be due to the
the methodology used in estimating worker remittances comfortable levels of liquidity at local banks following the
in 2009. As a result, the size of remittances has almost injection of liquidity by the government.
doubled from the previous estimates. To avoid a break
in the series, the CBK revised its previous estimates for Higher FDI outflows while inflows remain minimal
remittances for the years 2007 and 2008. Direct investments saw a net outflow of KD 2.6 billion,
15.2% larger than in the prior year. The government was
Capital and financial account the largest source of this increase, as the government
After peaking in 2008, capital account inflows shrank by sector’s direct investment rose by 18.8% to KD 2.4 billion.
36% in 2009 to KD 298 million on the back of lower flows Investment companies also added a KD 370 million to
to the government by the UN Compensation Commission their foreign direct investment abroad. Meanwhile, flows of
(UNCC). Net capital inflows received by the government foreign direct investment into Kuwait remained insignificant
amounted to KD 311 million, down from KD 475 million in (KD 23 million). This indicates that the reduction in tax rates
the prior year. Meanwhile, private capital flows continued imposed on foreign investments which was introduced in
their downtrend that started in 2006, and recorded a December 2007 had virtually no positive effect. If Kuwait
modest net outflow. intends to attract higher volumes of FDI, it may need to
take further steps to make the investment environment
Net financial outflows dropped by 45% more lucrative and friendlier to foreign investors.
The 2009 financial account reflects the impact of the
financial crisis. At KD 7.5 billion, the financial account Foreign banks reduce their currency and deposits in
deficit was roughly halved on the year. The government’s Kuwait
policy of injecting liquidity in the financial sector caused Outflows associated with other investments, which
a sharp drop in the balance of portfolio investments comprise mainly trade credit, loans, and currency and
abroad, following 15 consecutive annual increases in deposits increased substantially in 2009. The net figure
these assets. was 86% higher than the prior year, reaching KD 7.1
billion. The government was responsible for 97% of the
Net increase in banks’ portfolio investments abroad increase in these outflows; especially in the form of trade
Portfolio investments, the chief contributor to the financial credit which reached KD 592 million in 2009 compared
SUMMARY OF FOREIGN TRADE (KD MILLION) net investment income (kd million)
9000 4000
113 110
7500
89 3000
6000 74
67
59 2000
4500 51
41
3000 1000
1500
0
2005 2006 2007 2008 2009
0
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 -1000
Oil exports Imports Non-oil exports Oil prices in USD General govt. Local banks Central Bank of Kwt Invt. Co’s Other sectors
21
Economic Brief - June 2010
to KD 928 million inflows in the previous year. In addition, account and the capital and financial account - which
the government continued in 2009 the accumulation amounted to KD 1 billion - was reflected in higher outflows
of foreign assets in the form of currency and deposits from the “other (net)” item.
abroad, as well as extending more loans to non-residents.
This reflects the cautious approach adopted by the
government during the global financial crisis by focusing
on lower risk investments.
CBK reserves rose by KD 1.1 billion in 2009 compared 2005 2006 2007 2008 2009
with a KD 172 million increase seen the prior year. Financial Account (Net) -9,567 -14,382 -9,812 -13,602 -7,495
Meanwhile, the “other (net)” item which accounts for errors
General government -6,405 -11,308 -9,704 -12,199 -6,392
and omissions in the balance of payments transactions
recorded a KD 0.2 billion net inflow, the smallest since Local Banks -93 -553 805 -2,060 -1,295
2005. This figure could reflect unregistered private capital
Central Bank of Kwt 76 27 14 -45 -33
inflows.
Investment Co’s -250 -705 -594 101 -63
Appendix: Revisions to balance of payments Other sectors -2,895 -1,845 -334 599 287
accounts
The 2008 current account surplus was revised downward
by KD 1.2 billion due to an increase in workers’ remittances other investment by sector (kd million)
abroad and overseas transportation payments by KD 1.3 5000
22
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