Kuwait Economic Development Plans

Economic Reforms and a National Vision Herald a
New Era of Opportunity in Kuwait

There is little doubt that 2009–2010 will be remembered as a turning point in the history of Kuwait, a country rich in natural resources and entrepreneurial talent located on the Arabian Gulf.

Over the past two years, Kuwait has passed a series of economic reform measures, including new capital markets, as well as labor and privatization laws, and has created a $115 billion investment to be undertaken by the public and private sectors in the four-year development program. These measures will contribute to the “Kuwait Vision 2035,” a sweeping plan to transform the country into a regional finance and trade hub.

The development program’s price tag may seem daunting, but Kuwait, whose oil revenue is expected to average $50 billion annually, has enormous reserves with which to fund it. Key elements of this development include a major new port on Boubyan Island and the first phase of City of Silk—a $77 billion real estate development—as well as projects in construction, real estate, healthcare, warehousing and power generation. Parliament also approved the Partnerships Technical Bureau, which facilitates public private partnerships across industries.

It is a great honor to have the Deputy Prime Minister for Economic Affairs, Minister of State for Development Affairs and Minister of State for Housing Affairs, His Excellency Sheikh Ahmad Fahad Al-Ahmad Al-Jaber Al-Sabah, introduce this year’s special section on the State of Kuwait:

I am extremely pleased to outline the bold and sweeping dimensions of the Kuwait Vision 2035 and the many developments that will help us achieve an annual average GDP growth of 5.1% over the next several years.

Achieving the Goal

The many steps taken over the past two years and the tangible results we’ve already achieved have created a mood of great optimism across Kuwait’s business, political and government communities. This is fueled in part by cooperation between the executive and legislative branches, most clearly seen in Parliament’s nearly unanimous approval of the development plan, which is itself a reflection of popular support for these steps.

Some of the key goals of this development vision include achieving sustainable development, increasing national GDP and the standard of living, and restoring Kuwait’s role as a regional center of finance and commerce through hard work to carry on commercial activity both at home and abroad, similar to what our forefathers have achieved. As recent reform measures demonstrate, we are also looking to make our business environment more attractive through legislation and infrastructure, as well as the elimination of corruption, establishment of a competition authority and provision of a platform that is welcoming for large multinationals.

The success of this development plan recognizes that foreign and domestic investors and businesses are equally important. To that end, restrictions on foreign investors have been abolished to encourage their participation in our development projects.

Transport Strategies

Perhaps the most important way we seek to unlock the entrepreneurial wealth of Kuwait and our international partners is to gradually reduce the public sector’s large share of the national economy. Accordingly, our development model relies significantly on assigning new projects to the private sector, enabling the gradual privatization of government facilities with the mandate of the law and encouraging various forms of partnerships between the public and private sectors.

Our open and transparent communication efforts allowed us to move in a substantially innovative new direction. For the bureau, this includes our Web site, which has updates on our activities and cutting-edge social networking tools. We can now be followed on Twitter, and the “Al Fahad Fans” page on Facebook provides an open platform for dialogue where I can engage with citizens and share our accomplishments. By using the latest communication technologies to facilitate interaction, we have created a positive impression of our mission and goals, and demonstrated a clear break from business as usual.

I invite you to join us in this national project that offers numerous opportunities for Kuwaiti and international companies to take advantage of a world-class business environment.

 

Family Values and an Eye to the Future Give The M. A. Al-Kharafi Group a Foundation for Successful Global Partnerships

Family firms are the bedrock of the economy in the Middle East, and the Mohammed Abdulmohsin
Al-Kharafi and Sons Group— which was founded as a trading company more than a century ago—is one of the oldest, largest and most successful privately held companies in the Arab world.

The group has annual sales of $5.1 billion, operates more than 100 business units and subsidiaries in 25 countries, employs 125,000 people, and is owned by the Kharafi family and managed by its president, Nasser Al-Kharafi.

Al-Kharafi attributes the company’s success to an ethic that has been with the group since it began: “While we initially set up over 100 years ago as a trading company, the group has developed into one of the largest fully integrated multinational companies in the region. However, we still operate as a family business, just as we did then.

“By bringing the family ethic into all areas of business, we instill a loyalty and continuity with employees, along with a trust and respect—not just from our existing customers, suppliers and partners, but also from potential partners, which gives us a competitive edge when looking to future opportunities.”

In fact, the M. A. Al-Kharafi Group already touches most areas of business activity, including construction, infrastructure, engineering, agribusiness and food, finance and banking, manufacturing and industry, real estate, communications, tourism, and leisure and hospitality.

Weathering the Global Economic Storm

Its tremendous diversification of operating sectors and revenue served the company well in the face of the global recession. But, as Al-Kharafi explains, the firm’s excellent bank relationships have also played a major role in helping it weather the global economic storm: “Throughout our history, we have always honored our obligations and honored them on time.” As a result, the group has had no trouble accessing credit, and has been able to renew its credit facilities and extend the tenure of maturing debt.

During the crisis, the company focused on preserving cash flow, cutting costs “with minimal layoffs” and insisting that each of its companies undergo a complete reconsideration of its operations and future plans, given the new economic realities. Furthermore, the company leaders discussed “future strategic directions of the different businesses, and took an in-depth look at the operations and future strategic value of these assets,” Al-Kharafi says.

These discussions resulted in the headline-making $10.7 billion sale of 15 mobile operators comprising the African assets of Zain telecom to India’s Bharti Airtel. M. A. Al-Kharafi has a large stake in Zain, the Kuwait-listed regional telecom operator, which, prior to the sale, had 72 million mobile subscribers in 23 countries.

Al-Kharafi says that some of its divisions have continued growing, unscathed by the recession. Gulf Cables, whose results were driven by strong sales and a well-regarded product range, did well last year, as did Americana Group and its fast-food chains and products with affordable prices. Americana is the group’s publicly listed consumer foods, restaurant and food-related products company and is the largest of its kind in the Middle East.

Additionally, in November, Americana launched its first luxury-dining establishment—the widely popular U.K.-based Italian restaurant Signor Sassi—marking the company’s entry into the only significant dining sector not already in its portfolio.

A Long-Term View

When discussing the group’s response to the global recession, the company’s history and long-term view come into sharp relief, Al-Kharafi points out. “The main focus for the group during the last year was the same as it has been during the last 50 years. Our priority is not to stagnate and not to rely wholly on our current business activities. We continually look at developing new techniques and services that not only fit into our existing portfolio, but also allow us to move into the future.

“The group has a tried-and-tested philosophy and work ethic, and an established and experienced management team that has withstood critical situations before and will do so in the future,” Al-Kharafi adds.

Crucial International Partnerships

What’s equally clear about the group is that international partnerships— whether in bringing global brands to the region or working with local firms based overseas—are at the heart of M. A. Al-Kharafi ’s business model.

“Being successful in both local markets and on the global stage is important for the growth of any company. Likewise, both regional and global partnerships sustain any company’s growth, since cooperation brings experience and an exchange of knowledge, technologies, ideas and cultures,” Al-Kharafi explains.

Energizing Economic Activity

One current example of a successful international collaboration is the $1.5 billion Port Ghalib project, which M. A. Al-Kharafi is master developing. The project is opening up a previously untouched 11-mile stretch of Red Sea coastline south of Hurghada, Egypt, to tourism and other economic activity. This decade-long project includes building and operating an international airport (construction was completed in 2004). The airport serves not only the Port Ghalib project, but also other tourist destinations on the Red Sea coast of Egypt.

The Port Ghalib resort community and the Port Ghalib International Marina are nearing completion and together encompass world class hotels, a marina and yacht club, golf courses, a conference center, a residential district, schools, a hospital and other essential municipal services and infrastructure. “This venture is bringing much-needed revenue and jobs to this area of Egypt,” Al-Kharafi says. “With the help of the Egyptian government, our dedicated employees in Egypt and our experience in build-operate-transfer projects, we have been able to provide the country with one of the finest international resort communities anywhere in the world.”

Although it’s the group’s largest ongoing development, Port Ghalib is not M. A. Al-Kharafi ’s only major project. Among many others, it is working on a $1 billion joint venture with Hyundai Korea to develop the Boubyan Port in Kuwait, a $370 million project to build a new headquarters for the Kuwait Central Bank, two major sewerage upgrade projects in Kuwait valued at $115 million, and a $35 million road extension project in the Senegalese capital, Dakar.

With an organizational history stretching back more than a century, the M. A. Al-Kharafi Group has a tremendous competitive advantage— although for Al-Kharafi, it is the company’s family values that truly set the group apart. Regardless of what its specific advantages are, as Al-Kharafi puts it, “We are a major player and innovator in shaping business throughout the region.”

Muthanna’s Innovation Leads Kuwait’s Finance Sector

When the negative effects of the global financial crisis rippled across the globe in 2008, shares in the Kuwait Stock Exchange—the second largest bourse in the Middle East—were temporarily decimated. Many narrowly focused investment firms in Kuwait found themselves at the mercy of the economic cycle; but for others, diversity paid off. Muthanna Investment Company (MIC)—a Shari’acompliant institution that specializes in private equity, portfolio management, trading and funds—had spread itself widely enough to emerge relatively unscathed.

Pursuing Opportunities

Since its activation in 2004, MIC has served its own customers and those of its parent company, local banking giant Kuwait Finance House, which is one of the region’s oldest Islamic financial institutions, having opened its doors in 1977. MIC has served in senior advisory, placement and managerial roles on a number of major capital raising initiatives in Kuwait, with deal sizes in the range of $46-$100 million. It also was the underwriter and joint-venture sponsor of an approximately $440-million mixed-use development in Bristol, England.

Abdulaziz Al Marzooq, MIC’s general manager, says the financial crisis created an opportunity to offer advisory services to ailing firms, “and when we saw this happening, we went after it forcefully.”

Kuwaiti investment, real estate and family-owned companies soon sought help from MIC. Mr. Al Marzooq expects more will come “as companies see the benefits from third-party advice.” This year, MIC won an award from World Finance, a London-based magazine, for the best advisory services in the Gulf Cooperation Council, a loose confederation of six Arab Gulf states.

Innovation and Growth

MIC went through a period of stabilization in 2009 by renegotiating the terms of its foreign investments and repositioning itself in the market. They continued to diversify, and in July of 2009, MIC acquired a brokerage company in the stock exchange. This was another step toward becoming “the leading full-fledged Islamic investment company in the region,” Mr. Al Marzooq says.

“We specifically chose that sector because Islamic banking has been growing phenomenally. The growth rate and profitability are better than that of conventional banks,” he explains.

Islamic finance, which advocates risk sharing and prohibits interest, was at one time only provided by Islamic institutions. But as Shari’a-compliant products have flourished, so has the interest of conventional institutions in serving this fast-growing market. Mr. Al Marzooq says the sector’s success is based on prudence, innovation and growth: “Islamic finance is an asset-based finance, so there is always collateral behind anything you do. There’s no exposure to derivatives or futures, although the industry might evolve into offering something similar.”

A Strategic Global Partnership

Also in 2009, the company launched two “thought initiatives,” demonstrating that its innovative approach is not limited to finance. MIC teamed up with Dun & Bradstreet South Asia Middle East Ltd. to create the Business Optimism Index, a quarterly survey of business sentiment in sectors such as hydrocarbons, financial enterprises, transport and communications. The index measures the pulse of the business community and strives to make up for a dearth of economic indicators in the local market.

Not only do these reports provide fillip to the economy by delivering valuable information to investors and businesses, but they also position the firm as a leading institution and authority on the Kuwaiti economy and marketplace. Plus, as a quarterly report, the index ensures MIC remains top of mind among potential clients, partners, portfolio companies and others.

In the same year, MIC organized The Forum for Listed Companies and Analysts to provide companies with a platform to meet analysts and investors. The event is the first of its kind in Kuwait and will be held every year, Mr. Al Marzooq says. “We’d love to see more companies do forums and offer economic indicators—this is a great source of information for the industry.”

Focus on Moving Forward

Over the past two years, the Kuwaiti government has taken a number of steps to liberalize the economy and open new horizons of opportunity for both domestic companies and international investors. For example, the parliament passed a series of economic reform measures, including new capital markets, labor and privatization laws. This year, the government launched a $107 billion plan to modernize the country’s infrastructure, giving Kuwait’s hard-bitten investment companies a golden opportunity to make up losses incurred during the crunch. The plan covers a wide range of projects, including construction of a national railway, a metro system, a causeway, and various airport schemes and tourism projects. Mr. Al Marzooq says the attention of local and foreign investors has already turned to infrastructure companies such as construction and cement.

“I’d like to reach the international audience and extend our service to anyone who wants to do business in Kuwait, whether it’s mergers and acquisitions, trading, brokerage, advisory or research services,” he says. “We’re here to help and give guidance.”

This project was produced by Intermedia, Dubai.
Project Director: Vivienne Davidson
Project Manager: Amy Boeker