Our comprehensive assessment of Kuwait's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Kuwait, as well as the latest industry developments that could impact Kuwait's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Kuwait before your competitors.

Country Risk

Kuwait Country Risk

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Core Views

  • We expect the Kuwaiti economy to perform relatively well over 2015 and 2016, and retain our forecast for real GDP growth of 2.7% and 2.5%, respectively, from an estimated 2.9% in 2014. After a long period of stagnation, the Kuwaiti investment outlook appears to be improving, while the prospects for consumption remain bright. However, we again highlight Kuwait's ever-volatile political situation as the key downside risk to economic activity.

  • Kuwait has seen a flurry of populist legislation recently, including several measures specifically targeting expatriate workers. This runs the risk of increasing uncertainty within the private sector, as well as cementing perceptions of the country as a hub of policy instability.

  • We expect tensions to remain between the government and the legislative branch, even with the election of a...

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Kuwait Operational Risk Coverage (9)

Kuwait Operational Risk

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Investors entering the Kuwaiti market will encounter moderate levels of operational risk. Currently we see low energy costs, low taxation, free movement of goods and capital and low crime rates as the key drivers for international investment. The key downside risks are inefficiencies in the transport system, high levels of government bureaucracy, the slow pace of legal reforms, and restrictions on foreign ownership and participation in key sectors.

The outlook for the labour market and logistics sector is good, as government spending programmes seek to address key structural weaknesses over the medium term. Meanwhile, crime and security present little risk to international companies. The greatest area of concern lies in the trade and investment framework, which limits foreign ownership and prohibit foreign participation in key sectors of the economy. This significantly undermines competitiveness and negatively affects Kuwait's performance in...

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Kuwait Crime & Security

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Despite significant levels of regional instability, investors and businesses working in Kuwait benefit from a moderately secure operational environment. Firms face the lowest degree of risk in terms of crime owing to the absence of a notable organised criminal presence, an effective police force and low levels of crime. Although Kuwait has had a tumultuous history with neighbouring Iraq, which culminated in the latter's 1990 invasion of Kuwait, the current likelihood of interstate conflict also poses a limited threat to firms, with Kuwait's military investment, and its military and diplomatic alliances, presenting a notable deterrent to future invasion. The highest degree of risk stems from terrorism, though Kuwait possesses an effective counterterrorism force that is reinforced by numerous security partnerships.

As such, Kuwait scores 60.0 out of 100 in  BMI's Crime and Security Risk Index, ranking as the third most...

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Kuwait Labour Market

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Owing to structural weaknesses in the national education system and a net inflow of uneducated migrant workers from South Asia, we see fundamental risks that undermine labour market competitiveness and threaten investment performance in Kuwait. While migration acts to lower basic skills levels in the labour market, it is also the backbone of competitiveness, providing two-thirds of the workforce and helping to lower the cost of labour. Overall, Kuwait performs moderately well in our Labour Market Risk Index with a score of 52.3 out of 100. This puts Kuwait in eighth place among 18 Middle East and North Africa (MENA) countries.

Kuwait faces the challenge of limited tertiary education levels, which contributes to its score of 43.4 out of 100 for Education in the Labour Market Risk Index. This is a consequence of low government expenditure on education as a percentage of GDP, and underinvestment in tertiary education in particular. We see...

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Kuwait Logistics

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Driven by considerable oil reserves, Kuwait's economy is expected to enjoy sustained growth over the coming years, which will likely translate into an increasing appetite for consumer imports. Resource wealth also enables firms to benefit from cheap electricity and fuel prices, though a possible removal of subsidies could significantly increase energy and gasoline costs in the coming months. Although Kuwait's transport network is relatively efficient, particularly in the aviation sector, the absence of railways and a limited road network drive up transport costs, while a lengthy and cumbersome trade bureaucracy increases the risk of delays and uncompetitive lead times. Kuwait ranks 10th out of 18 Middle East and North Africa states in  BMI's  Logistics Risk Index with a score of 54.4 out of 100, a long way behind regional outperformer the UAE, which scores 73.0. 

The importance of oil and gas...

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Kuwait Trade & Investment

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Low levels of foreign direct investment (FDI) flowing into Kuwait reflect poor economic openness and an unfavourable business environment for foreign investors. The Kuwaiti government still has a strong involvement in the economy, and privatisation has been very slow. Meanwhile, limited reforms have failed to yield vital improvements in foreign investment law, patent protection and public administration, which create fundamental stumbling blocks to business. We also expect to see increased taxation, which will undermine Kuwait's primary investment incentive. In the short term, therefore, we do not expect to see FDI increase significantly, and portfolio investment into the Kuwaiti Stock Exchange will present the most attractive channel for investors to capitalise on strong economic growth.

Kuwait has low levels of economic openness, moderate legal risks and a moderate degree of government intervention. Taking these three pillars under...

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Kuwait Industry Coverage (18)

Autos

Kuwait Autos

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Media reports suggest that Kuwaiti new car sales grew by 7% year-on-year over H114. Consequently, BMI is happy to maintain its forecast of 8% growth for the full year this quarter. We continue to believe that the local market offers opportunities in both the high-end and the volume segments.

Backing up our upbeat stance is a fairly propitious macroeconomic backdrop. This quarter, BMI retains its GDP growth forecast of 2.9% for 2014, with growth set to remain solid in 2015, at 2.7%. The non-oil sector will be the main growth driver on the back of strong domestic demand and a modest pick-up in government capital spending. While we remain fundamentally cautious about the country's medium-term investment outlook, we note that higher growth in bank lending over the last few months of 2013 and signs of progress on some of Kuwait's development projects have improved the growth prospects for gross...

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Commercial Banking

Kuwait Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Kuwait Consumer Electronics

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BMI View:   T he Kuwait i consumer electronics market is highly lucrative in per capita terms, but the total value of the market is limited by the small size of the population. Kuwaiti nationals enjoy among the highest incomes in the world, and have demonstrated a propensity to spend on luxury items in the consumer electronics market , a trend we expect to remain in place over the medium term . High-status and fashionable products, for instance Apple's iPad and iPhone, have fared particularly well. There is also a smaller low-income migrant worker market, providing demand for low-end products, primarily in the handset market. We expect the overall market will continue to develop, with the strongest growth forecast...

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Defence & Security

Kuwait Defence & Security

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BMI View: Kuwait continues to have a close defence relationship with the US, although Kuwait's role in facilitating terrorism in the region is creating tensions within the relationship. BMI does not believe that Kuwait faces any immediate serious threats to its security. H owever, rapidly changing regional dynamics, and particularly the instability in Iraq, could potentially pose a threat to Kuwait in the long term .

Kuwait is one of the more stable countries in the Middle East, and integrated under the US defence security umbrella, it is generally perceived as a Western ally. However, we believe that its failure to stamp out financing activities on its territory in support of terrorism is creating tensions in its relations with the US. In this sense,...

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Food & Drink

Kuwait Food & Drink

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BMI View: Kuwait's food and drink sector will benefit from robust private consumption growth over the coming quarters, supported by recurrent salary hikes and handouts, as well as low interest rates and abundant liquidity conditions. That said, the limited market size and already high per capita consumer spending on food and drink items will limit sales growth to relatively moderate figures.

Headline Industry Data

  • Total food consumption (local currency) growth (year-on-year, y-o-y) in 2014: +2.3%; compound annual growth rate (CAGR) 2013-2018: +2.9%

  • Per capita food consumption (local currency) growth (y-o-y) in 2014: -0.9%; CAGR 2013-2018: +0.2%

  • Bottled water volume (litres) sales growth (year-on-...

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Freight Transport

Kuwait Freight Transport

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BMI expects robust growth at Kuwaiti ports over the medium term, though the upcoming launch of the new Mubarak al-Kabir facility offers risk to our outlook. If there are continued instances of industrial unrest and strikes, however, as Kuwait's ports have struggled with since the Arab Spring of 2011, then we may have to revise our forecasts down. The air freight sector was also hit in 2011, with volumes falling. We forecast slow but steady growth in Kuwaiti air freight over the medium term.

What continues to bode well for Kuwait's freight transport is our macroeconomic outlook for the country. Although oil prices are forecast to fall in the coming years they will remain high and this is translating into spending by the Kuwaiti government and greater wealth among the populous. This is attracting logistics companies to add services to the country. Kuwaiti logistics company Agility continues to...

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Information Technology

Kuwait Information Technology

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BMI View: T he regional security situation, particularly the deterioration in neighbouring Iraq, presents downside risk to our core outlook for the IT market in Kuwait to continue expanding each year over our medium - term forecast to 2018 . Nonetheless , we expect it to remain one of the most lucrative markets in the region in per - capita terms. Kuwait had one of the highest GDP per capita levels in the world at the end of 2014...

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Infrastructure

Kuwait Infrastructure

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BMI View:   O ur view for modest positive growth within Kuwait's construction sector is playing out driven largely by the housing sector , with our 2015 forecast for year-on-year growth standing at 3.8%. Despite plenty of infrastructure project opportunities in Kuwait, the country's business environment has limited i nvestor interest. In comparison to its GCC neighbours, Kuwait's industry size is small and will experience more moderate growth rates. B etween 201 4 and 201 8...

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Insurance

Kuwait Insurance

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BMI View: We are seeing positive double digit growth across a range of sub sectors in Kuwait's insurance market, including substantial growth in health insurance and relatively solid increases in terms of motor and property insurance. The appetite for life insurance products remains restricted; however , healthy domestic economic growth and rising rates of private financial consumption will result in overall growth in the life sector. The insurance market in Kuwait remains small, however, with very limited market penetration and density.

Kuwait offers substantial potential in terms of future growth in the insurance sector; GDP is increasing steadily, despite falling global oil prices, and household consumption is also increasing. Market penetration remains very low, however, and there appears to be very little demand for traditional insurance...

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Oil & Gas

Kuwait Oil & Gas

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BMI View:   The Kuwaiti government's dominant role in the oil and gas sectors   is   still the main challenge   to private investment , and by extension, greater efficiency in th e sectors . Kuwait's overwhelming dependence on oil and natural gas exports, which consistently   invites government intervention, has and will continue to create a less competitive investment climate within the country. The government has managed to make measured strides in increasing production...

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Petrochemicals

Kuwait Petrochemicals

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BMI View: We believe the Kuwait petrochemicals industry's drive towards diversification and adding value to output should help it secure export markets at a time of heightened global competition and tougher demand conditions.

The Kuwaiti petrochemicals industry's main Asian export markets - India and China - are likely to diverge in performance in 2015. While India strengthens with a stimulus to consumption and increasing business confidence, China is facing a downturn in growth, although government intervention should prevent any recessionary problems. In the medium term, both countries will witness increased market self-sufficiency. At the same time the Asian market will be increasingly flooded with cheap shale-based petrochemicals output from the US. However, BMI believes the industry's drive...

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Pharmaceuticals & Healthcare

Kuwait Pharmaceuticals & Healthcare

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BMI View: Notwithstanding a recent escalation in political uncertainty, Kuwait's healthcare sector is forecast to preserve its trajectory of modest growth through out the remainder of 2014. Rising sales are underpinned by an expanding population, whose levels of chronic conditions increasingly call for the supply of long-term treatments and cutting-edge medical equipment. In addition , apprehension towards fake generics and an accompanying government crackdown ha ve further solidified popular demand for branded drugs. However, a confusing bureaucracy and sluggish implementation of key f oreign d irect i...

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Power

Kuwait Power

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BMI View:   Kuwait's first public-private p artnership for the construction of the 1.5GW al-Zour power plant and desalination plant has the potential to set a precedent for greater private sector engagement within Kuwait's infrastructure and power sectors. The country, which relies almost entirely on conventional thermal sourc es for electricity generation, has suffered from power shortages in recent months. With demand for power likely to continue rising rapidly in the years ahead, the government is keen to spur additional investment in the sector. That said, Kuwait's business environment remains challenging for international investors, and we question the timely realisation of the project given the barriers still left to overcome...

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Real Estate

Kuwait Real Estate

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BMI View:   Over the long term the Kuwaiti real estate sector continues to provide enticing opportunities. The country enjoys immense oil wealth and high GDP per capita, while government initiatives are supporting an increasingly dynamic private sector. H owever ,   we believe that forecast growth in the sector will be pushed back several years due to developments in 2014. The drop in the price of oil and political instability in the region surrounding Kuwait has meant that the Kuwaiti economy is not growing as quickly as previously forecast, and thus supply continues to outpace demand in the real estate sector.

Demand for commercial real estate is set to grow in Kuwait, as the country has a stable...

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Retail

Kuwait Retail

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BMI View: Private consumption growth in Kuwait will remain robust over the coming quarters, supported by low interest rates, abundant liquidity conditions and increases in handouts. While the ARA index of consumer confidence has been heading slightly lower in recent months, the increase in the number of point-of-sale transactions (a proxy for retail activity) has remained elevated, standing at 18.4% year-on-year in Q114.

The Kuwait Retail Report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and employment forecasts, demographic forecasts and a detailed breakdown of household and per capita spending across a large number of retail areas including food & drink, clothing & footwear, household goods and a number of other subsectors.

...

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Shipping

Kuwait Shipping

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What bodes well for Kuwait's container ports is our macroeconomic outlook for the country. High oil prices in recent years have translated into increased spending by the Kuwaiti government. This will boost growth at the Gulf state's ports, both through spending on infrastructure projects impacting on total tonnage throughputs and through consumer spending boosting imports of containerised goods.

The dramatic fall in the oil price in the second half of 2014 likely heralds an era of much cheaper oil, which will impact upon Kuwaiti growth - we forecast real GDP growth of 2.9% in 2014 and 2.7% in 2015, from an estimated 3.0% in 2013. Nevertheless, Kuwait has significant fiscal buffers, and could live with oil prices around USD60/bbl for an extended period of time. We currently forecast the price to be within the USD70-75/bbl range over the next several years, and we expect government spending to continue.

...

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Telecommunications

Kuwait Telecommunications

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BMI View: Despite its small size, Kuwait's telecoms market   remains attractive, as high income levels support strong demand for high value mobile and wireline services.   However, intensifying price competition between the country's three mobile operators an d the government's clamp down on expatriate workers pose downside risks to both value and subscriptions growth in the market. We therefore retain our view that Kuwaiti operators must continue to diversify their services and revenue streams away from the traditional voice market. We expect mobile data services to b e the key source of...

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Water

Kuwait Water

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BMI View: The water sector of Kuwait faces a daunting challenge. The country is one of the most arid on the planet and yet its water consumption levels per capita are among the highest in the world. With extremely limited natural resources the government has relied on desalination as its method of choice for providing households and industry with water. This process is expensive however and exploration into other processes has begun. Despite this interest in new technology and techniques, the environment for foreign investors looks unlikely to become particularly appealing. The country has a poor record for completing infrastructure projects and coupled with a somewhat unstable political landscape leading to frequent alleged cases of corruption, levels of foreign investment are forecast to decline.

Kuwait is susceptible to long periods of drought, as has been the case over recent months. This...

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