Kuwait

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Area: 17,818 sq. km

Population: 4,110,000 (2014, est.)

Capital: Kuwait City

GDP: USD 172.6bn (2014, est.)

Exports: USD 109.9bn (2013, est.)

Imports: USD 26.06bn (2014, est.)

Currency: Kuwait Dinar (KWD)

Exchange rate: 1 USD = 0.30 KWD (01/2016)

 

Economic Structure:

Kuwait has the world’s sixth largest oil reserves, which, at production levels of about 3m bpd, would last for more than 100 years. Oil reserves of 104bn barrels represent the second largest in the GCC and the sixth largest in the world (about 10% of the global total). This includes a 2.5bn barrels share of reserves in the Saudi-Kuwait Neutral Zone. Most of Kuwait’s reserves are in Burgan. This feels south of Kuwait City is the second largest in the world. It contains high-quality light crude oil, which is comparatively inexpensive to exploit and still accounts for half of cool its production. At Burgan, Production amounts to around 1.5bn bpd, a level which of the Kuwait Oil Company (KOC) hopes to maintain for several decades. Most of Kuwait’s other reserves are in the north, where much of the crude oil is heavy oil, which, together with the local geology, makes extraction difficult and expensive. Kuwait wants to raise production to 4m bpd by 2030. The total gas reserves amount 63trn cubic feet (cu ft), about 4% of the GCC total. Production was about 1.5bn cu ft/day (equivalent to around 270k bpd of oil) in 2013. Most of this associated gas comes from oilfields, which less than 200m cu ft/day from non-associated gas fields. KOC Aims to produce4bn cu ft/day by 2020.

Kuwait has significant downstream refining and petrochemicals capacity, which it plans to expand. Nearly a third of the produced oil is refined through three refineries, with a capacity of 936,000 bpd. Two major refining projects are planned: the Clean Fuel Project, awarded in February 2014, aims to modernise two of the ageing refineries, Mina Abdulla and Mina Al-Ahmadi, and raise their capacity; and a 615,000 bpd refinery is also planned at Al Zour to process the heavy crude expected from the Ratga and Wafra fields. Kuwait also owns three small refineries in Europe and an international retail network. It sounds about 400,000 bpd through its network of around 5,000 Q8-branded petrol stations in Europe.

Kuwait wants to use its hydrocarbon revenues to diversify its economy and create a leading infrastructure, a plan that was laid down in Vision 2035, announced by the Supreme Council for Planning Development in 2010. In order to implement Vision 2035, the first in a series of medium-term national development plans was approved in 2010. It was to run for four years until the current fiscal year 2013/14, planning USD 110bn of investments. Major projects in the plan include a metro, an airport expansion, power stations and an oil refinery. Initial steps were also expected on megaprojects, such as a massive deep water report on Bouyan Island and the causeway across Kuwait Bay leading to a new city at Subiya.

Implementation of the plan, however, it has been delayed by disagreements between the government and the Parliament because the capital spending in the first years of the plan was below the figures of the development plan. Private sector investment as I wasn’t been limited due to bureaucratic hurdles, and it received less than 1% of the foreign direct investment that flowed into the GCC over the last decade. The new company’s law was passed in November 2012 and is intended to facilitate doing business in the private sector.

There are, however, signs that the number of important projects in the present five-year National Development Plan is moving forward. The state signed an agreement with a consortium for the financing of the Al-Zour North Independent Water and Power Project, a 1,500-MW gas-fuelled power plant and an associated water distillation facility. In February 2014, the USD 12bn Clean Fuel Project was awarded. It aims to upgrade the two refineries in order to increase the output to around 800,000 BPT into close the refinery of Shuaiba. Expansion of Kuwait International Airport is also moving ahead. The airport investment plan will include the construction of the new terminal for USD 3bn, while a further USD 3bn is earmarked for the runway expansion, enhanced control tower operations and the construction of a new cargo facility. German companies will doubtlessly be very interested in being part of these efforts.

While Kuwait’s fiscal balance is in good shape with a solid surplus, the IMF has warned that it could deteriorate within the next few years because of the rising rate of state spending, especially on subsidies and social support. This would push the budget into deficits by 2017/18, with the gap between expenditure and revenue widening over the subsequent years. The Kuwait economy is facing uncertainty, it’s issues beyond Its control, such as global oil prices, will have very direct impact on the growth and revenue rates.

Kuwait has achieved a huge account surplus in recent decades. The current account balance was at USD 81bn in 2012. Kuwait’s exports are overwhelmingly dominated by crude and refined oil. Non-oil exports, most of which are petrochemicals, make only 5% of exports, well below the GCC average of 17%. Two thirds of the exports go to just five countries: Japan, Korea and the US have long been the major markets, yet India in China have rapidly risen in importance, together buying 25% of Kuwait’s exports.

Kuwait’s current expenditure – the bulk of which is budgeted is spending – consisted mainly of salaries, electricity subsidies, and the purchase of goods and services. The ball for salaries has risen rapidly to a rate of more than 10% in the last six years, driven by high raises for nationals. The electricity subsidies have also been rising rapidly, given the growth in demand and the high fuel prices. Kuwait is among the highest per capita consumers in the world due to its subsidies and hot climate. Capital expenditure, meanwhile, is low by GCC standards, at less than 5% of GDP in the last five years.

Outlook:

It will be important to follow developments in Kuwait, including some critical fields in an otherwise stable national environment: How will Kuwait’s future state budget be managed? How will the expenses for subsidies be upheld? What could the shale revolution mean for Kuwait? How will Kuwait manage to create more qualified employment opportunities for its young and future generations, and what will this mean for foreign workers? Will the projects associated with the incoming national development plans be implemented as planned?

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