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Kuwait Infrastructure Report Q1 2011
Business Monitor International, Dec 2010, Pages: 78
Kuwait Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Kuwait's infrastructure industry.
While the recent passing of a privatisation law and a government commitment to mobilising a US$108bn infrastructure package certainly does provide cause for optimism; we nonetheless maintain our core view that in the short to medium term (2010-2014) at least, political and bureaucratic hurdles will continue to deter much-needed private investment in Kuwait’s infrastructure sector.
Following the release of new 2008 data, we have upwardly revised our forecast for Kuwait’s construction industry value, pointing to a more favourable outlook for the Persian Gulf country construction sector in 2010. We now expect Kuwait’s construction industry value to grow by 2.47% in 2010 in real terms and to experience stable average real growth of 2.36% over the duration of the 2010-2014 forecast period.
Recent major developments:
- In May 2010, a long-awaited privatisation law was passed, which could lay the foundation for a boost to the country’s much-maligned business environment and long-term foreign direct investment (FDI) prospects. Importantly, the law paves the way for foreign companies to hold a stake in Kuwait’s power sector for the first time, opening up the country’s power sector to crucial private sector capital and expertise. Still, however encouraging this positive step forward, optimism must be tempered given the widespread political opposition to what was already a considerably watered down legislative bill, which we believe will continue to affect foreign investor interest in the short to medium term.
- In February 2010, Kuwait unveiled a US$108bn infrastructure development, which has been supported by the creation of an institutional apparatus in 2009. The new body that sits at the Finance Ministry is the Partnerships Technical Bureau (PTB), which has a mandate to promote build-own-operate transfer (BOT) and public-private partnership (PPP) schemes. The PTB will identify priority projects and boost private sector involvement in infrastructure projects. Through 2010, the PTB has had a catalytic effect on construction activity, providing greater impetus to projects by speeding up the bidding process. The fact that the US$108bn development plan is headed by the widely respected Deputy Prime Minister for Economic Affairs, Sheikh Ahmad al-Fahad al-Ahmad al-Sabah, is also cause for optimism about the PTB’s chances of redressing Kuwait’s reputation for tardy project delivery.
- Clearly, Kuwait has a large number of construction projects awaiting the green light for 2011: the private sector is primed to play the lead role in developing the US$7bn Kuwait urban metro, a slate of electricity generation projects, the US$3bn tourism development at Failaka Island and redevelopment of Kuwait airport.
- There is reason to hope that Kuwait is on the brink of an infrastructure boom. In particular, a slew of planned power projects – including a plan to tender an estimated US$17.4bn worth of power generation and desalination projects with the aim of installing 14,260 megawatts (MW) of new generating capacity by 2017 – provide hope that the industry is on the verge of seeing the implementation of much-needed projects.
- The progress of Kuwait’s first independent power and water project (IWPP), with a tender due to be issued by Q1 2011, will be watched closely by many foreign investors for its potential to act as a bellwether for Kuwait’s future energy strategy. With investors due to submit indications ofinterest (IOIs) in June 2010 for a 40% stake in the 1,500MW Al-Zour power and desalination plant, much significance will be attached to the project’s progress and implementation. Indeed, if successful the project has the potential to pave the way for greater private sector participation in Kuwait’s infrastructure development.
The defining four-year development plan – albeit reduced from US$129bn – leaves few sub-sectors untouched, with rail, power, oil, water, health and education all slated for investment as the government develops new ports and cities. The smooth implementation of the development plans will be paramount in a country where projects have been plagued by disputes between the executive and legislature. The litany of projects – or at least those that come to fruition – will lift growth in Kuwait’s construction sector up from US$2.36bn in 2011 by an average of 2.4% year-on-year (y-o-y) to US$3.19bn in 2015 according to BMI calculations.
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