The Business Year: Kuwait 2016

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112

His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber AlSabah on international relations and sustainable development.

Dr. Meshaal Jaber Al Ahmed Al Sabah, Director General of KDIPA, on the significance of new investment regulations.

The government seeks to maintain strong growth in the construction sector through the five-year development plan.

KUWAIT

2016

ÂŁ60

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KUWAIT

2016

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8 His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah • Foreword

53 Adel Abdul Wahab Al-Majed, Vice Chairman & CEO of Boubyan Bank • Interview

10 Year in review

54 Local banks • Vox populi

12 Timeline: The Business Year in Kuwait

55 Lending some support • Review: Capital markets

14 DIPLOMACY

56 Othman I. Al-Issa, CEO, Kuwait Clearing Company (KCC) • Column

14 Quietly progressive • Review

58 HE Nayaf Falah Mubarak Al Hajraf, Chairman of the Capital Markets Authority (CMA) • Interview

15 Trish Morris, Baroness Morris of Bolton OBE, UK Prime Minister’s Trade Envoy to Kuwait • Column 17 Stefan M. Stelig, Under Secretary of Commerce and International Trade at the US Department of Commerce • Guest speaker 18 Anabel Gonzalez, Senior Director of the World Bank Group Trade & Competitiveness Global Practice • Guest speaker 19 A new era • Focus: Kuwait’s liberation 20 Abdulwahab A. Al Bader, Director General of the Kuwait Fund for Development • Interview 21 HE Prof. Dr. Hilal Al Sayer, President of the Kuwait Red Crescent Society (KRCS) and Former Minister of Health of Kuwait • Interview 22 Charitable by tradition • Focus: Humanitarian center

51 34 Mona Mukhaizeem, Co-founder & Managing Partner, Sirdab Lab • Column 36 HE Dr. Mohammad M. Al-Zuhair, Executive Chairman of the Kuwait National Fund for Small and Medium Enterprise Development • Interview 37 Omar K. Alghanim, CEO of Alghanim Industries • Interview 38 Jawad Ahmad Bukhamseen, Chairman of Bukhamseen Group Holding Company • Interview 39 Anas J. Meerza, Group CEO of the National Technology Enterprises Company (NTEC) • Interview 40 Tipping the balance • Focus: Employment 42 Why Kuwait? • Forum

23 ECONOMY 23 Do it now • Review 24 Abdulaziz M. Al-Anjeri, CEO, Rosette Group • Column 26 TBY business confidence index 28 Dr. Meshaal Jaber Al Ahmed Al Sabah, Director General of the Kuwait Direct Investment Promotion Authority (KDIPA) • Interview 29 Rabah A. Al Rabah, Director General of the Kuwait Chamber of Commerce & Industry (KCCI) • Interview 30 Go with the flow • Focus: Attracting FDI

45 FINANCE 45 Diamond in the rough • Review: Banking 48 Dr. Hamad Al-Hasawi, Secretary General of the Kuwait Banking Association (KBA) • Interview 49 Christine Lagarde, Managing Director of the International Monetary Fund (IMF) • Guest speaker 50 Billed for success • Focus: Dinar’s strength

32 Knowledge sharing • Forum

51 Mazin Saad Al-Nahedh, Group CEO of Kuwait Finance House (KFH) • Interview

34 Have no fear, SMEs are here • Focus: Role of SMEs

52 Eduardo Eguren, CEO of Burgan Bank • Interview

59 Khaled Abdulrazzaq Al Khaled, Chairman of the Board & CEO of Boursa Kuwait Securities Company (BKSC) • Interview 60 Work in progress • Focus: Kuwait stock exchange 62 Raed Jawad Bukhamseen, Chairman of the Arab Investment Company (AIC) • Interview 63 Faisal M. Sarkhou, CEO of KAMCO • Interview 64 Manaf Abdulaziz Alhajeri, CEO of Kuwait Financial Centre (Markaz) • Interview 65 Investment abroad • Forum 66 Fahed Faisal Boodai, Cofounder and Executive Chairman of Gatehouse Financial Group • Interview 67 Issam Z. Al Tawari, Former Chairman & Managing Director of Rasameel Structured Finance Company • Interview 68 Maha K. Al-Ghunaim, Vice Chairman & Group CEO of Global Investment House (Global) • Interview 69 Strong hand needed • Review: Insurance 70 Tareq A. Wahab Al Sahhaf, Chairman of the Kuwait Insurance Federation (KIF) • Interview 71 Raising the bar • Focus: Insurance regulator 72 Ahmad SH. A. Al-Bahar, Deputy CEO of Kuwait Insurance Co. (KIC) • Interview 73 Takaful • B2B

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KUWAIT 2016

91 TELECOMS 91 OK computer • Review

CONSTRUCTION & REAL ESTATE

92 Fahad M. Al Falah, Managing Partner, MENAFILE • Column

112 Keep on moving • Review: Construction

93 Sheikha Intisar Salem al-Ali al-Sabah, Founder & CEO of Lulua Publishing • Interview

114 Dr. Sulaiman T. Al-Abduljader, Founding Chairman, Kuwait Green Building Council (KGBC) • Column

94 Online • Focus: E-commerce

115 Supply and demand • B2B

95 Partnering globally • Forum

116 Amiri Diwan Cultural Centers • Focus: Creative control

& IT

88

75 ENERGY

96 Quick, easy solutions • Communiqué 98 Innovation • B2B

75 Well, well, well • Review 76 Brian Dawes, Regional Manager, Middle East, Applus Velosi • Column 78 Hashem S. Al Hashem, Former CEO of Kuwait Oil Company (KOC) • Interview 79 Sheikh Nawaf Saud Al-Nasir Al-Sabah, CEO of Kuwait Foreign Petroleum Exploration Company (KUFPEC) • Interview 80 Sara Akbar, CEO of Kuwait Energy • Interview 81 Don’t get mad, get even • Focus: Break-even 81 Assaf Al Salem, Managing Director, Tharwa Trading & Contracting Co. • Column 82 Bakheet Al-Rashidi, President of Kuwait Petroleum International (KPI) & CEO of KPC Holdings Aruba • Interview

99 TRANSPORT

& LOGISTICS 99 Only connect • Review

104 Fawaz A. Al-Farah, President of the Directorate General of Civil Aviation (DGCA) • Interview 105 Rasha A. Al-Roumi, Chairperson & Managing Director of Kuwait Airways • Interview

116 George Abi-Hanna, Resident Director, Kuwait, Senior Partner & Resident Director, Kuwait, SSH Design • Column 117 Hello, house • Review: Real Estate 118 Muhannad Al-Sane, Founder, Chairman & CEO, Al Riyada Finance & Investment Co. • Column 119 Eng. Khaled K. Al Mashaan, Vice Chairman & CEO of ALARGAN International Real Estate • Interview 120 Local RE investors • B2B

106 Proceed to gate • Focus: Kuwait International Airport 108 Hassan El-Houry, CEO of National Aviation Services (NAS) • Interview 109 Regional airlines • B2B 110 Fares Barqawi, Chairman & CEO of Posta Plus • Interview 111 One rail to link them all • Focus: National rail road system

83 Solutions in hydrocarbons • B2B

85 INDUSTRY 85 Production line • Review 86 Riyadh I. A. Al-Saleh, Chairman and CEO, Petroleum Coke Industries Company (PCIC) • Column 87 Nader H. Sultan, Chairman, Ikarus Petroleum Industries • Column 88 Asaad Ahmad E. Al-Saad, CEO of Petrochemical Industries Company (PIC) K.S.C. • Interview 89 In-house solution • Focus: Al-Zour refinery project 90 Mohammad Husain, President & CEO of EQUATE Petrochemical Company • Interview

112

114

75

121 FOOD

& AGRICULTURE 121 The need to plow • Review 124 Mutlaq Al-Zayed, CEO of Kuwait Flour Mills & Bakeries Co. (KFMB) • Interview 125 Azzam Al-Fulaij, Managing Director of Bubiyan Fisheries Co. • Interview 126 Karim Chouman, General Business Manager of Nestlé in Kuwait • Interview 127 Appetite for success • Focus: Restaurants 127 Basil Alsalem, Managing Director & CEO, Gastronomica ME • Column

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Editor-in-Chief Leland Rice Managing Director - Middle East Betül Çakaloğlu Country Managers Burcu Sapmaz, Charlène Ancion Country Editor Grace Cameron Assistant Country Editors Matteo Transtevere, Timothy Sanders Project Assistant Sofia Minebaieva Chief Executive Officer Ayşe Hazır Valentin Chief Operating Officer Laila Bastati Editorial Director Christopher Copper-Ind Digital Editor Peter Howson Senior Editor Lewis King Associate Editor Terry Whitlam Sub-Editors Aidan McMahon, Lily Leach, Jared Kimball Editorial Assistant Aleksandra Fabia Tugal Assistant Web Editor Ece Çolak Transcribers Attila Pelit, Claire Livesay, Deanne de Vries, Gillian Docherty, Heather Conover, Jason Shaw, Nikolai Davis, Pronto Publishing Services, Susan Barrett Art Director Berin Cansu Zafer Jr Art Director Bahar Kara Graphic Designers Ceren Bettemir, Dan Le, Sérgio Caldeira Cover Artist Kürşat Ünsal HR Manager Inés Delgado Events Coordinator Maria Giulia Di Loreto PR Assistant Merve Donat Operations Manager Semiha Elkıran Operations Executive Öznur Yıldız Operations Assistants Gamze Zorlu, Şölen Cenberoğlu Financial Operations Manager Serpil Yaltalıer Finance Manager Ana Mari Finance Assistant Janine Escobar Circulation & Marketing Director Amy Burtin Publisher Peggy Rosiak The Business Year is published by The Business Year International, Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands. Printed by Apa Uniprint, Hadımköy Mahallesi 434 Street No:6, 34555, Arnavutköy, İstanbul, Türkiye. The Business Year is a registered trademark of The Business Year International, Copyright The Business Year International Inc. 2016. All rights reserved. No part of this publication may be reproduced, stored in a retrievable system, or transmitted in any form or by any means, electronic, mechanical, photocopied, recorded, or otherwise without prior permission of The Business Year International Inc. The Business Year International Inc. has made every effort to ensure that the content of this publication is accurate at the time of printing. The Business Year International Inc. makes no warranty, representation, or undertaking, whether expressed or implied, nor does it assume any legal liability, direct or indirect, or responsibility for the accuracy, completeness, or usefulness of any information contained in this publication.

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128 HEALTH

& EDUCATION 128 Healthy & wealthy • Review: Health 130 Abdullah Al Askari, Managing Director, C Club • Column 132 Dharar Abdullah Al Dakhil, Chairman of YIACO • Interview 133 Ghassan M. Mamlouk, CEO of Advanced Technology Company (ATC) • Interview 134 Care package • Focus: Building local capacity 135 Health services • B2B 136 Dr. Mussaad M. Al-Razouki, Chief Business Development Officer of Kuwait Life Sciences Company (KLSC) • Interview 137 Game changers • Review: Education

145

148 TOURISM

& RETAIL

148 A place in the sun • Review 154 HE Sheikha Hussah Sabah AlSalem Al-Sabah, Director General of Dar al-Athar al-Islamiyyah (DAI) • Interview

148

155 Abdul Mohsen Behbehani, Director of the Behbehani Group • Interview

159 EXECUTIVE

156 Merchant’s paradise • Photo essay: Failaka Island

159 Seize the opportunity • Review: Doing business

158 Hotel management • Forum

160 When in Kuwait...

GUIDE

138 Issam Taleb, Director, Institut Français (French Institute) • Column 139 Dr. Hanan Al-Mutawa, Co-Founder & Chair, Education Consortium, Executive Committee Member Supreme Education Council • Interview 140 Higher education expansion • Vox populi 141 Learning to fly • Focus: Entrepreneurship 141 Saud Al-Tawash, CEO, Gulf Telecom • Column 142 Education reform • Forum 144 Russell Byrne, Co-founder & CEO of Education Consortium • Interview 145 HE Sheikha Al-Zain Al Sabah, Under-Secretary at the Ministry of State for Youth Affairs • Interview 146 Coming of age • Focus: Youth empowerment 147 Young talent • Vox populi

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MANY OF THE INTERVIEWS PUBLISHED HERE HAVE BEEN ABRIDGED. THE ORIGINAL, FULL-LENGTH INTERVIEWS CAN BE READ AT THEBUSINESSYEAR.COM

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KUWAIT 2016

THEBUSINESSYEAR

FOREWORD

FOREWORD TO THE BUSINESS YEAR: KUWAIT 2016 His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah Kuwait is a State of stability, vision, and sustainability. With increasing regional instability, Kuwait remains a secure and stable country, where its people enjoy freedom and compassion.

While its neighbors have become embroiled in civil wars, sectarian and ethnic conflicts waged by armed groups and organizations that spread fear and terror, Kuwait continues to remain strong and resists these heinous people thanks to the hard work of our security authorities who have maintained the safety of Kuwaiti citizens.

Our constitution is based on the founding principles of security, stability, and the rule of law.

These are the rules upon which we all depend to maintain public life and continuing the services and facilities that make up all aspects of life. We must protect our national unity.

Regionally, as an integral part and founding member of the GCC, Kuwait sees any threat targeting one member state as a threat to all. We will reject any attack on the GCC and cooperate to defeat it. The GCC is a great example of

THEBUSINESSYEAR

Total aid donated by Kuwait in 2014 accounted for 0.24% of our GDP, the highest among any of the donor countries globally. We are set to continue on this path and are keen to maintain our role as a humanitarian leader.

what can be achieved through cooperation and dialog. Beyond defense and security issues, the GCC has helped its member states realize remarkable achievements on the regional and international level through the common values of kinship and brotherhood. Kuwait will continue to adhere to the founding principles of the GCC and to work hard to strengthen the bloc and its member states with dignity and pride.

Internationally, our support of the 17 sustainable development goals adopted by the UN in New York in September 2015, with their three economic, social, and environmental dimensions is evidence of Kuwait’s commitment to supporting global development and the eradication of poverty. Still, the targeted sustainable development goals do face challenges, due to human behavioral patterns, the impact of natural disasters, and climate change, which only increases our responsibility to act. In order to implement our aspirations, we must work effectively through teamwork and global partnerships in accordance with the principle of shared responsibility, while taking into account the differing burdens faced by our partners beyond the development goals of 2015 and in their efforts to eradicate poverty by 2030. In this regard, Kuwait maintains and emphasizes the need for countries to fulfill their commitment to allocate 0.7% of GNP to securing access of developing countries to sustainable funding.

Kuwait is keen to assume its regional and international role in this regard and take up its responsibilities toward achieving the development goals set out by the UN, while working to strengthen and address these issues in a positive and more effective manner.

It is a source of pride for all Kuwaitis that even as a developing country itself, it is Kuwait that assumed the top position in the provision of humanitarian assistance in 2014 according to the Global Humanitarian Aid report issued by the Development Initiative Organization. Total aid donated by Kuwait in 2014 accounted for 0.24% of our GDP, the highest among any of the donor countries globally. We are set to continue on this path and are keen to maintain our role as a humanitarian leader. Kuwait will spare no effort when it comes to helping and providing assistance to developing countries, as well as those that have been afflicted and ravaged by war and terrorism. One of the main vehicles for achieving this goal is the Kuwait Fund for De-

velopment, which provides loans and grants to establish infrastructure projects for these countries. We are proud to say that over the past few years, Kuwait has continued in its efforts to provide developmental assistance, which has amounted to 2.1% of GDP, more than double the agreed international rate.

In order to maintain Kuwait’s good fortune, stability, and economic security, there are certain factors that have to be addressed locally.

Primarily, the country’s reliance on oil and oil revenues is something that we must reverse to ensure the long-term sustainability of Kuwait and its citizens. In relation to this, the consumption pattern of our society is something we have warned of in the past and still believe needs to be examined. Continued increases in government spending with no added revenues will only have a negative effect on the country’s real value, and its citizens, who are the main pillar of stability, progress, and development.

Oil prices have made headlines globally in 2015, and have led to a dramatic decline in state revenues; however, public spending has continued at the same rate without any decline, which in turn has created a state budget deficit. This is a burden and could potentially limit development and our ambitions if it were to continue without any action. Hence, urgent economic reform to reduce public expenditure while at the same time not harming the quality of services is necessary. The need to address economic imbalances is immediate to ensure the deficit remains in control and also allows for the creation of a sustainable Kuwait for generations to come. Still, this will require a great effort on the part of the private and public sector as well as higher costs. However, the benefits from a diversified economy will be reaped by all. The government will rule by example and embody the discipline and commitment to the reforms necessary and set forth programs that will take advantage of the opportunity to correct the economic course of Kuwait through seeking alternative sources of income that reinforce the capability and potential of this great State. In doing this, we hope every citizen will realize the importance of these reforms. Through responsible management, we hope everyone will work toward meeting the requirements for success, while emphasizing the constant desire not to affect the living standards of any of the citizens of Kuwait, the needy, or our future generations.

The goal of sustainable development and a diversified economy require us to act with innovative methods. To ensure the long-term development of Kuwait, we must work in partnership on both a regional and international level.

The commitment of Kuwait’s government to economic reform and diversification will help protect living standards of citizens for generations to come. Still, we will not lose sight of our global role and responsibility to help, support, and aid developing countries, which will ensure the economic growth of Kuwait’s neighbors, and in turn, Kuwait. ✖

BIO Born in Kuwait on June 16th, 1929, His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah was educated in Kuwait’s schools, completing his studies with private tutors. Over the course of his career he has held positions including being Head of the Department of Press and Publications (1955) and Minister of Guidance and Information of the State of Kuwait (1962).

In 1963, HH became the Foreign Minister of the State of Kuwait, a position he continued to hold throughout each Kuwaiti cabinet that was formed following Kuwait’s independence until April 20, 1991. In addition to his post as Foreign Minister, HH held the position of Acting Minister of Information (1971–75), and took on the role as Deputy Prime Minister in 1978. While maintaining his positions as Deputy Prime Minister and Minister of Foreign Affairs, HH became Minister of Information in 1982. In 1985, HH held the posts of Deputy Prime Minister and Minister of Foreign Affairs, and became First Deputy Prime Minister and Minister of Foreign Affairs in 1992. HH is a Member of the Organizational Body of the Higher Council and Member of the Building and Construction Council. A widower and father to three sons and one daughter, his leisure interests include fishing.

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KUWAIT 2016

Kuwait is set to undergo another transformation, with preparations underway for a post-oil future as it becomes clear that the country cannot rely on the petrodollar forever.

Year in Review THE IMPORTANCE

of Kuwait’s sovereign wealth fund, the Kuwait Investment Authority (KIA), has become even more apparent over the last year as oil prices remain in the doldrums and investment in a diversified future becomes more urgent than ever. Kuwait is by no means running low on cash, however. Investors are cognizant of its strong fiscal position and sizable assets, and in October 2015, Moody’s reiterated its AA rating and stable outlook. The country’s debt level stood at 6.5% of GDP at end-2014, and this is expected to rise to 8.5% in 2015-16, according to Moody’s, with the IMF also highlighting how much the Gulf nation has come to depend on hydrocarbons; IMF estimates suggest that the black stuff accounts for 95% of export revenues and government income. While the situation may at first appear disconcerting, nothing breeds innovation better than a challenge, and with the non-oil economy waiting in the wings, even the hydrocarbon sector is getting ready to benefit from improved corporate governance and better efficiency that the government is calling for.

That government is also keen to attract foreign investors, who have been notably absent from big-bill deals in the Gulf region over the last year.

Convinced the tap hasn’t run dry, however, authorities are offering up incentives including 100% ownership in local firms, up from 49%, and the option to operate through a 100% foreign-owned branch, not to mention income tax and customs duty exemptions. Kuwait’s ascending role in the region, as well as its democratic credentials, will also serve to convince investors that its economy is the best bet in an otherwise volatile region. On the international stage, Kuwait, under the leadership of His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, has fostered a tradition of regional and international cooperation, and is now regarded as a key diplomatic player. It maintains solid ties with its fellow GCC members, and holds a permanent seat at the OPEC table.

Kuwait has also played host to a number of significant international events, including the Third International Humanitarian Pledging Conference for Syria and the Kuwait Oil and Gas Show and Conference (KOGS), the latter reflecting the nation’s influence in the global energy industry.

Sitting atop the sixth largest proven oil reserves in the world—a cool 104 billion barrels— Kuwait has grown rich from the world’s thirst for hydrocarbons. Despite the devastation that was wrought on Kuwait and its oil fields by the in-

vading Iraqi army during the 1990-91 Gulf War, Kuwait is today the world’s 11th largest producer, accounting for 7% of global production, and the seventh largest exporter. Oil represents 43% of GDP, with the industry firmly in public hands.

The Kuwait Petroleum Corporation (KPC) is the parent of the so-called K-Companies, responsible for international marketing. The Kuwait Oil Company (KOC) covers crude oil exploration and development, and the Kuwait National Petroleum Company (KNPC) is responsible for refining. In 2014, oil production slipped to 2.88 million bpd, continuing a trend that began in 2012. But it isn’t all oil; Kuwait also sits on 63 trillion cubic feet of proven natural gas reserves.

Despite significant attention, however, vast discoveries in the north remain untapped due to legislative indecisiveness over whether foreign partners should be involved. In August 2015, the government did sign off on a deal that will see the construction of several new power plants that will help to solve chronic summer blackouts. Cranking up the air con in Kuwait is somewhat of a must during the summer months, and the new plants will take some pressure off the country’s current five power stations, which struggle to accommodate increasing demand. The plants are set to run on gas and oil. Currently a net importer of gas, Kuwait is also keen to break the deadlock and ramp up natural gas production to 2 bcf per day by 2030 in order to reduce dependence on foreign exports.

Moving forward, though, diversification is the name of the game. To achieve that, the government must boost the role of the private sector, currently representing just 24.6% of GDP and 5% of the workforce. And this isn’t a new idea, with a 2035 plan to turn Kuwait into a regional trade center launched in 2010. Targeting mainly the industrial and manufacturing sectors, the scheme is a $108 billion venture that will go a long way to putting the country on the map for more than just oil. And while progress is slow, the results are clear in the details. In 2014, the manufacturing sector grew 0.9%, while overall industrial production, including refining, was higher.

In 2016, while the government will rightly be hoping to see an increase in oil prices, Kuwait could benefit from the added impetus a longterm lull could bring. With the private sector ready to bounce into action, Kuwait need only make up its mind to what extent it is willing to let go of the reins as its economy transforms in a way it hasn’t since oil was first struck decades ago. ✖

GDP PER CAPITA

$31,131 INFLATION

2.9% CURRENT ACCOUNT

32.5%

of GDP

SOURCE: CENTRAL STATISTICAL BUREAU, WORLD BANK (2014)

GDP GROWTH (%) SOURCE: WORLD BANK 9.6%

6.6%

1.1%

0 -1.6 -2.4%

2010

2011

2012

2013

2014

Year in Review

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IRAN About twothirds of the population are non-Kuwaiti

I R AQ Average daily summer temperatures range from 42-48ËšC

BUBIYAN ISLAND

In 2015, legislation was passed to allow an IPO of the Kuwait Stock Exchange, allowing 50% ownership by Kuwaiti citizens

K U WA I T

FAILAKA ISLAND KUWAIT CITY SHUWAYKH

JAHRA

The country first started to export crude oil in 1946, and the sector accounts for 60% of GDP

Kuwait exports primarily to South Korea, India, Japan, China, and the US

AHMADI

ARABIAN GULF

AZ ZOHUR NORTH

AL KHIRAN

S AU D I A R A B I A AL WAFRA

CITY

PORT

AIRPORT

OIL FIELD

POWER PLANT

50 KM SOURCES: WORLD BANK, EIA, KUWAIT CENTRAL STATISTICAL BUREAU

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KUWAIT 2016

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TIMELINE

THE BUSINESS YEAR IN KUWAIT

MAR 2015

Jun

Apr

Mar

Feb

Jan

The National Assembly approves Kuwait’s second development plan, 2015-16 to 2019-20, as part of the country’s long-term goal of becoming a regional financial and trade hub. The plan addresses structural imbalances in housing development, economic policy, and demographic integration. The 2015/2016-19/2020 document outlines investments in projects of $112.5 billion (KWD34.15 billion) over the next five years and targets non-oil sector growth from 41.5% to 64% by the end of 2020.

May

FEB 2015

The Kuwait Oil Company (KOC) hosts the 7th annual Global Oil & Gas Conference and Exhibition (GOGCE), an event that plays a critical role in strengthening business partnerships with KOC and its contractors. KOC’s then CEO, Hashem S. Al Hashem, speaks at the event, highlighting the importance of KOC’s long-term relationship with its partners and their importance in the advancement of the country’s oil sector. Presentations made at GOGCE highlight specific projects and knowledge sharing as well as details of KOC’s 2030 Strategy.

APR 2015

MAY 2015

MAY 2015

Following the updates to Kuwait’s public-private partnership (PPP) legislation, Law No. 116 of 2014, the new PPP law comes into full effect in April 2015, a positive step forward in addressing several challenges present in previous PPP regulations by enabling a more investor-friendly and streamlined PPP environment in Kuwait. The new law raises the legal framework of PPP projects in Kuwait to international standards and is designed to attract more private sector investment into the country.

It is intended as an updated guide for managing investment into upcoming megaprojects in Kuwait in the future and allows for foreign companies to compete with Kuwaiti companies fairly.

A new legal amendment officially privatizes the Kuwait Stock Exchange (KSE) by establishing the ownership distribution structure for the upcoming IPO of the KSE. Under the new ownership guidelines, 50% of the bourse’s shares will be offered to Kuwaiti citizens, 26-44% will be allocated to international operators, and 6-24% will be split between government entities. The privatization of the KSE is overseen by the Boursa Kuwait Securities Company, a private company established by the Capital Markets Authority Commissioners’ Council in April 2014 with an authorized capital of nearly $200 million (KWD60 million) and charged with assuming administrative control of the KSE.

A Ministerial decision is passed reducing the minimum capital requirements for all companies in accordance with legal forms.

Minimum capital requirements are reduced to $3,300 (KWD1,000) for commercial entities that are General Partnerships, Limited Partnerships, Partnerships Limited by Shares, Single Person Companies, Limited Liability Companies, and sole proprietorship, while the minimum capital requirement is reduced to $33,000 (KWD10,000) for private shareholding companies and $82,500 for public shareholding companies.

Year in Review

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13

The key events across the economy in 2015: a year defined by megaprojects, capital market restructuring, and new economic strategies.

Kuwait continues its move towards reducing subsidies of 17 commodities, including fuel, power, and water. The Ministry of Finance declares that the decision to reduce subsidies will be implemented in the 2015-16 fiscal year in order to increase non-oil revenues and stimulate growth in the non-oil sector. It is announced that the specific subsidy reforms for gasoline are intended to be implemented in early 2016.

Jul

Dec

Kuwait’s 2015 public state budget brings urgent attention to the status of the national economy in light of the country’s long history of double-digit budget surpluses since 1999. The decline in state oil revenues leads to Kuwait approving its state budget for the 2015 fiscal year with a foreseen deficit of $27 billion. The budget includes spending of $63.2 billion despite projected revenues of just $40.2 billion assuming an average oil price of $45 a barrel during 2015. Plans are announced to issue local currency bonds by the end of 2015 to partially finance the projected budget deficit.

Nov

Riding the momentum of newly discovered reserves, Kuwait’s oil minister, HE Dr. Ali Al Omair, confirms plans to increase hydrocarbon production to 4 million bpd by 2020—nearly 40% higher than the current levels. The announcement comes just days prior to a highly anticipated meeting by OPEC in Vienna.

The call by the Kuwait’s oil minister to boost oil output comes amid continued decisions by OPEC not to bolster prices by reducing output and instead pursue its targeted production of 30 million bpd in order to preserve market share.

Oct

DEC 2015

Sep

JUL 2015

Aug

JUN 2015

AUG 2015

OCT 2015

Kuwait’s projects market receives a $17.1 billion boost with the awarding of a new refinery and an airport terminal, bringing the total value of contracts awarded in 2015 to $28 billion. The total value of Kuwait’s projects market grows to more than $235 billion by early August according to the National Bank of Kuwait.

In an address, His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah calls on Parliament to undertake urgent economic reforms, reduce public spending, and address corruption in the country. HH the Amir points out that state revenues dropped by around 60% as a result of declining global oil prices while spending did not undergo any significant reduction, leading to the country’s current deficit.

HH the Amir closes the address by praising Kuwait’s ability to maintain peace in the face of regional instability.

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Stefan M. Stelig, Under Secretary of Commerce and International Trade at the US Department of Commerce, on bilateral relations.

Anabel Gonzalez, Senior Director of the World Bank Group Trade & Competitiveness Global Practice, on SME development in Kuwait.

Kuwait has pledged to retain its position as a leader in providing humanitarian aid around the world.

Diplomacy REVIEW

Kuwait’s leaders have put in place one of the most democratic and open systems of parliament anywhere in the Middle East. Their reform-minded instincts are paying dividends, not least in the realm of international diplomacy.

O

f the six countries that make up the Gulf Cooperation Council (GCC), Kuwait is arguably the most democratic. HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah is the head of state, and ruler of the country. The Prime Minister, since 2011, is HH Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah. Kuwait, a small country with a wealth of oil reserves, is today continuing a quiet yet assiduous and not to say vital diplomatic effort across the region. In terms of diplomacy, Kuwait’s time has come.

The country puts diplomacy and foreign policy at the heart of its agenda—stemming from the Amir’s unrivaled experience of over 40 years as Foreign Minister before becoming Amir in 2006.

GOVERNMENT STRUCTURE Kuwait is a constitutional emirate on the Arabian Gulf, with a semi-democratic political system. The constitution was ratified in 1962, and signed into law in November

QUIETLY PROGRESSIVE

Image: Philip Lange

In a region beset with conflict and instability, Kuwait offers something rare: a semi-democratic government that is actively engaging with regional governments to bring peace. In addition, the country’s vast oil reserves give it a permanent seat on OPEC and on international economic forums.

of that year by HH the Amir Abdullah Al-Salim Al-Sabah.

The constitution brings together aspects of both presidential and parliamentary systems, and comprises 183 articles that together form five chapters. These are the State and System of Government; Fundamental Constituents of Kuwaiti Society; Public Rights and Duties; Powers; and General and Transitional Provisions. The National Assembly provides the elected legislature, with 50 seats. The assembly is re-elected every four years and incorporates elements from both a presidential and parliamentary system of government. The Parliament is bound by the constitution to have an elected legislature (the National Assembly parliament). The Amir, as head of state, can select and appoint the Prime Minister. Only the Amir can execute decrees and issue pardons. All laws voted for by the Assembly are only entered onto the statute once signed by the Amir within a month of the Assembly’s recommendation.

Diplomacy

REGIONAL RELATIONS The State of Kuwait has long fostered a tradition of regional and international cooperation, and is regarded throughout the Middle East as a key diplomatic player. Kuwait joined the Arab League in 1961, just 31 days after its independence, and 16 years after the League’s founding in 1945. Kuwait is a founding member of the six-nation GCC, which was set up in 1981 to encourage better regulation and deeper integration between the countries of the Arabian Gulf. As such, Kuwait’s foreign relations—and its sphere of influence—are strongest with neighboring or regional counties, especially Saudi Arabia, Oman, the UAE, Qatar, and Bahrain.

Kuwait’s huge oil reserves ensure a permanent seat at OPEC, where its voice is influential, particularly when it comes to regional Middle Eastern policy. Kuwait has a population of 4.2 million, of which 1.12 million are Kuwaitis. With an area of around 18,000 sqkm, Kuwait is one of the most densely populated countries in the Middle East.

On August 2, 1990, Iraqi forces invaded Kuwait. 2016 marks the 25th anniversary of Kuwait’s liberation from Iraq’s occupation. In some ways, the occupation has shaped Kuwait’s foreign policy, and influences its regional relations to this day. In others, the past has been forgotten and states such as Jordan enjoy close relations with Kuwait.

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Turkey and Kuwait have particularly strong bilateral relations, with trade estimated to be worth around $275 million a year. And in recent years Kuwait has chosen Turkey as one of its priority investment countries.

In 2013, Kuwait pledged $4 billion in aid to the newly formed administration in Cairo.

Egyptian-Kuwaiti ties have long been close, and both countries are founding members of the Arab League (itself founded in Cairo in 1945).

In January 2016—and in the run-up to the eventual lifting of sanctions on Iran—Kuwait severed all diplomatic ties with Iran, following Saudi Arabia’s move to close its embassy in Tehran. Relations with Iran were already strained—Kuwait has offered support to the Saudi-led coalition currently fighting in Yemen against what are seen as Iran-supported rebels, the Shia Zaydi Houthis who seized control of the Yemeni capital, Sana’a, in 2014.

Perhaps the legacy of 1990 that stands out above all is Kuwait’s first-rate relations with America, for whom the Emirate is a staunch supporter in a region where there are perhaps fewer such dependable friends than there were five years ago.

“THE DEAN OF ARAB DIPLOMACY” At the heart of Kuwait’s diplomatic efforts is His Highness the Amir Sheikh Sabah Al-Ahmad AlJaber Al-Sabah himself, who spent four decades

TRISH MORRIS

*Read the full interview at thebusinessyear.com

Baroness Morris of Bolton OBE, UK Prime Minister’s Trade Envoy to Kuwait How valuable is Kuwait as a market for the UK, and what priority is placed on Kuwait, as a key trade partner for the UK in the Gulf region?

The UK and Kuwait enjoy a long and valued friendship and have been natural trading allies for many years.

The value of UK trade to Kuwait is in the region of £1.5 billion and includes the export of both goods and services. Our target for the next five years, which coincides with the Kuwait National Development Plan, is to increase our overall exports to £2billion per year.

Early indications are positive and our trade is growing year on year, but we have now entered an era of low oil prices so our target will be ambitious, but we hope achievable. There are over 100 UK companies and brands present in Kuwait in various sectors such as oil and gas, transport, healthcare, education, retail, financial services, food and drink and defense. With the establishment of KDIPA and the liberalization of investment laws passed by the Kuwait Parliament, allowing for 100% foreign ownership of a company, Kuwait is now emerging as a more business-friendly market and I look forward to the first UK company taking advantage of the new regulations.

What is being done to increase the overseas roles of UK business and investment in Kuwait?

The newly established Kuwait British Business Centre (KBBC) is part of the new Overseas Business Network Initiative (OBNI) developed by UKTI in London to support UK exporters. There are similar organisations in Doha and Dubai and in some 30 other overseas markets. The KBBC is UKTI’s authorised delivery partner in Kuwait and will work closely with UKTI to provide UK business with the best possible service and market entry opportunities. The KBBC will be able to provide a number of innovative services for UK companies looking to visit and work in Kuwait, including hot desk and business center facilities.

Their offices are adjacent to the British Embassy and are therefore close to the UKTI team who will now have the opportunity to concentrate on higher value work, VIP visits, reporting of export opportunities and reducing barriers to business.*

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as Foreign Minister (essentially the country’s chief diplomat) before becoming Amir. HH the Amir, who became ruler in 2006, has been dubbed the “Dean of Arab Diplomacy” for his efforts to strengthen Kuwait’s relations with its neighbors. HH the Amir has worked tirelessly, even to restore ties with Baghdad—a gesture that would have been unthinkable only five years ago. A Kuwait-based diplomat described HH the Amir as a “visionary.” His Highness the Amir visited Iraq in 2012, a landmark visit and one that marked the beginning of a new, closer friendship between the two countries, despite widespread discomfort at the idea of a rapprochement.

Kuwaiti-Omani relations are forged on a mutual inclination toward diplomacy, both countries frequently offering to mediate in regional or local disputes, and exhibiting a knack for getting all sides around the negotiating table.

Diplomatic efforts continue unabated.

In November 2015, the Amir paid a visit to Moscow, at the request of Russian President Vladimir Putin. The meeting was designed to strengthen bilateral ties in trade, commerce, and the wider economic sphere. The president is said to view Kuwait as central to solving some of the conflicts currently plaguing the Middle East.

At the heart of Kuwait’s diplomatic efforts is His Highness the Amir Sheikh Sabah Al-Sabah himself, who spent four decades as Foreign Minister before becoming Amir. The Amir, who became ruler in 2006, has been dubbed the “Dean of Arab Diplomacy” for his efforts to strengthen Kuwait’s relations.

It is indeed in the immediate region that Kuwait’s diplomatic efforts are most valuable. In 2015, Kuwait played host to numerous conferences and events, including the Third International Humanitarian Pledging Conference for Syria. Many of the events, such as the Kuwait Oil and Gas Show and Conference (KOGS), reflect Kuwait’s status as an energy giant. In this, too, Kuwait wields considerable influence in energy policy and nudging OPEC to take the best direction for the Middle East as a whole. ✖

Kuwait City’s Al Shamiya district is home to several ministries and government offices

Image: Philip Lange

Diplomacy

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GUEST SPEAKER

SPREAD YOUR wings TBY talks to Stefan M. Stelig, Under Secretary of Commerce and International Trade at the US Department of Commerce, on relations between the two countries and how companies can take advantage of new opportunities.

The US and Kuwait have long been strong ally nations both politically and economically.

What is your assessment of US-Kuwaiti bilateral relations currently?

BIO Stefan M. Selig was confirmed on June 4th, 2014, by the US Senate to serve as President Obama’s Under Secretary of Commerce for International Trade at the US Department of Commerce. As one of the nation’s most senior commercial diplomats, he heads the International Trade Administration, which assists in the development of US trade policy in the global economy; creates jobs and economic growth by promoting US companies abroad, strengthens American competitiveness across all industries, addresses market access and compliance issues, administers US trade laws, and undertakes a range of trade promotion and trade advocacy efforts. Previously, he served as Executive Vice Chairman of Global Corporate & Investment Banking at Bank of America Merrill Lynch. Before then, he was Vice Chairman of Global Investment Banking and Global Head of Mergers and Acquisitions at Bank of America Securities.

The US and Kuwait have a long-standing relationship that pre-dates the US’ role in Kuwait’s liberation from Iraq 25 years ago. Five generations of Kuwaitis have studied at the university level in the US. The US and Kuwaiti militaries have worked closely for decades, while our automobiles have been sold here for over 70 years. Currently, Kuwait is a strong ally in supporting efforts to stabilize the region and fight against terror organizations such as ISIL. There are hundreds of US restaurants and retail stores throughout Kuwait.

There is great interest in procuring the latest technologies from US companies. All this means that the bilateral relationship is as strong as it has ever been.

Bilateral trade volumes between the two nations exceeded $15 billion in 2014, up 188% from $5.2 billion in 2009. To what do you attribute this growing interest in the Kuwait market?

Kuwaiti citizens have a high level of disposable income.

There has always been an interest in US vehicles and that continues to grow, with US fashion and food also of high interest to Kuwaitis. The US

exports a lot in the oil and gas sector as well as in the education sector.

Within the GCC region only, Saudi Arabia sends more students at the university level to the US than any other. With the globalization of the world’s economy and the success US companies have experienced in previous years in Saudi Arabia, the UAE, and Qatar, it is only natural for companies to continue their growth efforts and look to expand to Kuwait as well.

Kuwait is the 37th major foreign investor in the US with $1.3 billion and the US is also the largest market for Kuwaiti imports. Which areas of bilateral trade and investment between the US and Kuwait do you identify having the most potential for growth?

There are several areas of opportunity for US companies in Kuwait. The number of Kuwaitis that pursue higher education opportunities in the US continues to grow.

There are significant projects in the oil and gas sector as well as in alternative energy as Kuwait seeks to increase its production of renewable energy to cover 15% of Kuwait’s electricity needs by 2030. Kuwait’s National Development Plan 2015-20 incorporates a number of large infrastructure projects, including plans for airport expansion and construction of a new terminal, the construction of a

metro rail system and additional rail projects, a new Kuwait University campus and other educational projects, and the expansion of seven hospitals and construction of two additional new hospitals, among other major developments. In all of these areas, there will be contracts for project managers and consultants, architects and designers, engineers, technical experts, and for firms that can provide human capital training and development programs. Additional areas of opportunity abound in the automotive, defense, healthcare, information technology, and environmental technology sectors.

While Kuwait is currently the fifth largest market for American goods among Arab nations, it is the fastest growing in terms of US exports in the GCC, up 41% in 2014. How can US-Kuwait trade relations be enhanced so that investors and companies may trade and invest with greater ease?

While there are many excellent opportunities in Kuwait for US companies, improvement to the regulatory environment would help increase the trade relationship even more. There has been progress with the implementation of a new law allowing up to 100% foreign owned entities, a new public-private partnership law, and the creation of the National Fund for SME Development that supports SMEs and entrepreneurs in an effort to develop the private sector in Kuwait and diversify its economy. But more can always be done.

According to the World Bank, Kuwait ranks 101st in the world, and sixth in the GCC, in ease of doing business. Reducing the number of steps required to do business in Kuwait would improve efficiencies, lower costs, and increase the already excellent trade relationship we have. ✖

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GUEST SPEAKER

let’s get GROWING Anabel Gonzalez, Senior Director of the World Bank Group Trade & Competitiveness Global Practice, on SME development in Kuwait and how the sector can be developed.

There is an increasing recognition of the importance of SMEs in supporting overall economic growth. According to a recent survey of nearly 50,000 firms in 104 countries, SMEs provide as much as twothirds of all employment, with small firms contributing more to employment in low-income countries than high-income countries. Our cross-country research also suggests that small and young SMEs are the net job creators in many countries. At the same time, research shows that growth and productivity among SMEs varies widely from country to country.

In Kuwait, having a healthy, vibrant, barrier-free SME ecosystem is critical to economic development. In fact, the private sector is anticipated to provide employment opportunities for a rapidly growing Kuwaiti labor force and to lead economic activities in various sectors to reduce the country’s heavy reliance on oil resources.

This aligns closely with Kuwait’s vision 2035, which envisages a revival of the entrepreneurial spirit of its people. This revival will allow the private sector to take a leading role in the economy, creating ample jobs for nationals, with the government playing only

a supporting role. Through vision 2035, Kuwait expects to create a business climate that encourages local investment, competition, diversification, and growth.

Within the World Bank Group, our team has analyzed Kuwait’s economic activities, with an aim to assessing SME’s contribution to GDP, value-added employment, and productivity. The analysis reveals that the value added

by SMEs in Kuwait trails far behind peer economies.

In Kuwait, despite 94% of Kuwaiti firms being categorized as SMEs, the share of SMEs in total value added is only 3.1% This share is concentrated in the real estate and retail sub-sectors. SMEs employ 23% of the total workforce in Kuwait. However, SMEs’ contribution to the economy is marginal at 3% of GDP. What are the main challenges faced by SMEs? As a result of in-depth discussions with entrepreneurs and stakeholders from different segments of small businesses (nearly 70 entrepreneurs), the National Fund and World Bank Group have identified a number of challenges.

Among these are excessive regulations, which hinder business activities from start

up through growth to exiting; a lack of access to developed land and commercial and industrial premises; challenges recruiting and retaining skilled Kuwaitis in the private sector due to generous remuneration and benefits offered in the public sector; a small domestic market dominated by government and large corporations; a lack of access to finance for SMEs; and a limited capacity of programs meant to support.

SMEs owners have said that a majority of workers prefer government jobs because of the lower risk and the perceived low social status of entrepreneurs. The World Bank Group has been closely following the Government of Kuwait’s efforts to address some of these constraints by supporting the diversification of the local economy and promoting the growth of an SME ecosystem. These efforts have led to the establishment of the National Fund for SME Development, which aims to help the country make great strides in its efforts to support youth, combat unemployment, and enable the private sector to drive economic growth. The Bank Group is privileged to work with the National Fund in supporting its vision.

Our current engagement with the Fund focuses on supporting its institutional establishment through a two-year technical assistance project, which supports implementation of the National Fund Strategy and takes a holistic approach to the development of an SME Ecosystem. In particular, we are supporting the National Fund in the following thematic areas: SME business environment, SME business development, entrepreneurship culture development, data collection, monitoring and evaluation, and the organizational set up and IT architecture.

Going forward, more work will be needed to advance the specialization and internationalization of SMEs. This will entail improving the effi-

ciency of SMEs in order to link them with local, regional and international value chains.

The National Fund will take on this specialized role, while continuing to serve the wider community of SMEs in Kuwait, and improving the business environment to facilitate entry, retention, and exit of enterprises. I would encourage entrepreneurs to take full advantage of the opportunities offered by the National Fund to help achieve their dream ideas. I also encourage the National Fund to provide more venues for interaction where public and private sector representatives can address common challenges, discuss opportunities for SME growth, and ensure that the voices of entrepreneurs are well-heard. When governments and the private sector work together, they can have a major impact on diversifying economies and promoting inclusive growth. ✖

BIO Anabel Gonzalez has been in her current position since July 2014, having previously served as Costa Rica's Minister of Foreign Trade between 2010 and 2014. During her tenure, Anabel led Costa Rica’s efforts to join the OECD, negotiated, approved, and implemented six major free trade agreements, and implemented investment climate enhancement policies that contributed to attracting over 140 new investment projects. Anabel is the current Chair of the WEF Global Agenda Council on Competitiveness (201416), after serving as Chair of the Council on Trade and Foreign Direct Investment (2012-14). She holds an LLM from Georgetown University and a law degree from the University of Costa Rica.

Diplomacy

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KUWAIT’S LIBERATION FOCUS

A NEW ERA As Kuwait celebrates the 25th anniversary of its liberation, a new era of economic development is taking shape as the Gulf state focuses on educating and empowering its largest demographic, the youth.

REFLECTING ON KUWAIT’S development into a modern commercial center, there are several milestone moments that define the country’s identity, both nationally and economically: the discovery of oil in Burgan, which remains one of the richest and second largest oil fields in the world today, the first export of Kuwaiti crude to the global market, the establishment of the Kuwait Investment Authority— the first sovereign wealth fund in the world— the nationalization of Kuwait’s oil industry, the Iraqi invasion of Kuwait, women winning the right to vote and run in parliamentary elections, the establishment of the KWD2 billion National Fund for SME Development, and the declaration of HH the Amir as a global “Humanitarian Leader” by the United Nations in 2014.

As 2016 marks the 25th anniversary of Kuwait’s liberation from Saddam Hussein’s Iraqi forces in 1991, it is worth taking into account how far the country has come since the invasion devastated the national infrastructure and caused a widespread—albeit temporary—exodus. Kuwait is now looking ahead to the next 25 years with ambitious plans for the future, and a strategic approach to economic empowerment that focuses on human capital development as a driver of growth.

With the second largest oil field in the world, Kuwait prioritized investment into its oil economy following the Gulf War, leveraging its top 10 global oil reserves. From producing 1.5 million bopd prior to the Gulf War, Kuwait’s production ground to a halt when Iraqi forces set hundreds of oil wells ablaze in attempts to destroy the primary source of Kuwait’s wealth— oil—and destabilize the national economy. Kuwait has actively maintained its position in the global energy market with major capital investment programs across the hydrocarbon value chain from infrastructure development, to exploration, production, and the enhancement and optimization of production of its reservoirs since the Iraqi invasion. In the efforts to remain a market leader, Kuwait is implementing some of the largest oil and gas projects in the region, with the goal of boosting production to 4 million bpd by 2020.

Another outcome of the Gulf War was an increase in government spending on the country’s true wealth—its people. Strategically, the Kuwaiti government has focused on investing in the education of its citizens especially its youth, key drivers of economic development in the years ahead.

According to the Institute of International Education’s 2014 Open Doors Report, Ku-

wait ranked 21st of the top 25 origin countries sending international students to study in US universities through government funded scholarships, with 7,288 students from Kuwait studying in the United States during the 2013-14 academic year. Kuwait continues to support the growing number of students looking to study abroad, and this trend shows no sign of slowing down anytime soon.

Domestically, Kuwait University (KU), is undergoing a $3 billion expansion consisting of an 18,000 square meter campus for men and 26,000 square meter campus for women, with technology upgrades to make the campus one of the most advanced in the region. A look at the Kuwait Development Plan, implemented 2010 and running through 2035, has designated $382.51 million for the construction of 100 new public schools. Efforts are also being made to upgrade the National Curriculum Framework, examining ways that public education can be improved by reducing absenteeism, upgrading technology, and raising the bar in public education standards.

Hand in hand with investment in education comes youth development, as more than half of Kuwaitis are under the age of 25. Integrating younger generations into society at large and connecting them to key areas of social development in the private sector, promoting entrepreneurship, and empowering SMEs will ensure that this demographic is tied to the future of the economy. The newly established Ministry of State for Youth Affairs in Kuwait is the government body entrusted with this task.

While Kuwait’s economy remains highly dependent on oil, it is hard to say how the shift in supply and demand will play out over the next decades. What is certain is that the next 25 years represent a major opportunity for growth, advancement, and increasing competitiveness in the regional and global economy for Kuwait.

The decades to come are set to be defined in part by the implementation of Kuwait’s Vision 2035, focusing on supporting the growth of SMEs in the country, enabling the private sector to take on a more dominant role in the economy, creating more job opportunities for Kuwaiti nationals in sustainable careers, and the transitioning of government to take on a more supportive role in the country’s economy. With the implementation of improved regulations in its business environment, reducing barriers for investors in the country, and investing in its people, Kuwait can realize its vision of becoming a financial and economic hub in the region. ✖

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INTERVIEW

LENDING terms TBY talks to Abdulwahab A. Al Bader, Director General of the Kuwait Fund for Development, on how funding is allocated, current projects, and the outlook for 2016.

What is the impact of the Kuwait Fund’s investments and projects internationally?

We target not just specific sectors but rather the desired projects of different countries.

Depending on the country we are investing in, we might have some overall sector preferences that stand out such as social, education, or basic natural resources, such as water. If those sectors are within the preferred consideration of projects, they receive extra attention in terms of lending. The priority of the country comes first, as do the economic benefits of the specific developments in the country. Recent projects have ranged from schools to electricity and drinking water for cities like Havana, Cuba. We have supported a lot of projects in Uzbekistan, Cuba, China, Egypt, and Lebanon. We totaled 13 projects by March 2015, which is typically a busy month for us.

What is the criteria you use when providing grants for a project?

Normally, when we receive a request, we consider it based on available infrastructure taking into account the status of project when we analyze the technical information. We take initial approval from the board in conjunction with the studies provided, and after the appraisal we are then able to give a grant. The process varies depending on the project, and countries will not always come in with studies fully prepared.

Most of the projects require a complete financing plan, and

most countries are still in the middle of this process when they first present to us.

What are some of the challenges the Kuwait Fund faces in financing aid and development projects?

Normally in any project, the biggest challenge is in procurement. Because regulations may differ, we need to prepare for any potential problems.

Agreeing on specific procurement can be a challenge at times, but it is our necessary priority to agree on financing plans. At the moment, we are collaboratively working on what we call parallel financing, in which we work with different partners on the varying aspects of financing one project. Some of the projects have specific regulations and are required to have local financiers or contractors.

What are the Fund’s priorities when it comes to aid allocation?

At the moment, we do not have a specific formula for allocation as much as an occasional commitment to a specific disaster or situation.

In general, our allocations are based in Arab countries by mandate; Arab countries need to be no less than 50% of our commitment. We work to fulfill that as well as allocate funds for countries elsewhere, dividing contracts based on need.

Have any projects been especially successful?

We like to consider every project a success story, though

the rate of success is always evidenced by seeing firsthand the before and after. This is, of course, difficult with some 800 projects. I, however, have seen many projects from start to finish, and it is always rewarding. We were especially encouraged by an irrigation project funded in China due to the people's tremendous reaction upon its completion.

Our tendency is to fund large projects with overall economic impact rather than a focus on an individual group. There is still nothing more rewarding than, for example, seeing a hydroelectric dam provide much needed water to a group of people.

How important is it for others to see Kuwait Fund as a partner in development?

At this point, that is exactly what we were created for, to be a development aid for institutions. Certainly, we should be perceived as a partner in development. We are working in 104 countries around the world and cooperating with even more.

What are your expectations for Kuwait Fund in 2016?

We are working on plans for a specific program, and given that there are currently no obstacles, we hope to make progress on that. By 2016, we hope the conflict in Yemen will have come to an end. We have some programs that we are looking at right now on behalf of the government so that we can help fulfill some of Yemen’s governmental obligations. ✖

IN NUMBERS

25%

of net profit allocated for the Kuwait housing authority

Allocates

50%

of total aid to Arab countries

Present in

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countries worldwide

BIO Abdulwahab A. Al Bader is the Director General of the Kuwait Fund for Development. He joined the Kuwait Fund in 1978 as an Economist, before becoming a Director of Operations in 1983. After this, he was promoted to Deputy Director-General of Operations in 1986 and then Deputy Director-General in 1988 before taking his current position in 2005. He has a BA in Economics.

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INTERVIEW

here TO HELP TBY talks to HE Prof.

Dr. Hilal Al Sayer, President of the Kuwait Red Crescent Society (KRCS) and Former Minister of Health of Kuwait, on both national and international projects as well as working with the private sector.

How would you describe the role that the KRCS has played over the past year in responding to such crises regionally and in Kuwait?

Currently, the KRCS operates through major humanitarian efforts in providing assistance to vulnerable communities with multiple aid operations conducted throughout the year in countries such as Yemen, Iraq, the Philippines, Indonesia, Somalia, Sudan, Bosnia, Serbia, and more.

We also have ongoing major aid operations in Jordan and Lebanon to assist refugees fleeing the difficult situation in Syria, as well as non-stop aid assistance to the people of Palestine in Gaza and the

West Bank. Our aid operations as well as our rehabilitation projects and livelihood programs conducted internationally to assist vulnerable communities are millions of dollars’ worth of budget programs. On the national level, the KRCS has an internal aid program that is in charge of deploying assistance to less privileged families in Kuwait through the provision of food parcels, non-food item, hygienic kits, clothing, stationary and school bags, hot meals during the month of Ramadan and many more programs that label us a key contributor to the charitable work done within Kuwait.

We have earned solid expertise in facilitating assistance during difficult crises such as the one with the Syrian situation. For 2015, our assistance programs to aid the Syrian refugees included many operations in both Jordan and Lebanon. As the Syrian crisis enters its fifth year, we as humanitarians and concerned nations are faced with new challenges for the coming period.

How can the private sector, corporations and institutions, play an even bigger role in supporting humanitarian causes, partnering with the KRCS?

We encourage and welcome any partnerships for the benefit of humanity through our bilateral relationships with similar National Societies, not only in times of crisis but also by expertise exchange through technical workshops and seminar forums throughout the year for capacity building, or through active participation with leading humanitarian agencies and organizations with the IFRC, The ICRC, ARCO, GCC general secretariat and also with any willing organization that can enhance the efficiency of our implementation strategies, whether logistical or operational solutions. Sometimes the magnitude of a crisis obligates us to cooperate

The KRCS internal aid program provides assistance to thousands of under privileged families across all governates in Kuwait

with other entities to ensure our assistance reaches each and every one of our beneficiaries best as possible. We are constantly developing innovative techniques to enhance our assistance programs both nationally and internationally.

The International Federation of Red Crescent Societies (IFRC), the world’s largest humanitarian network, has a collective plan to tackle major challenges facing the world guided by their Strategy 2020 called “Saving Lives, Changing Minds.” What do you believe will be the major humanitarian challenges facing the Arab region during that period?

We are in close and daily interaction with our federation keeping up with the latest pressing matters in the Humanitarian arena. It is no secret that the escalation of the Syrian crisis with its tragic impact on the number of refugee influx to neighboring countries remains a world focus from a humanitarian point of view. Yemen and Iraq are also two major matters that require close attention in terms of the difficulty of the situations and the huge number of innocent souls suffering these circumstances. The KRCS has not stopped its humanitarian assistance to the Syrian refugees both

in Lebanon and Jordan since the beginning of the crisis; we also have conducted an urgent and large scale aid intervention in both Yemen and Iraq since June 2015 and still continue to provide assistance there. We continue our yearly assistance in Gaza and the West bank, where we recently had an aid convoy sent to Gaza in November 2015 with food and non-food relief items. We remain loyal and committed to our ethical and humanitarian obligations anywhere in the world. From what we witness, the refugee crisis is one of the top main challenges in our region especially in this tough winter anticipated to be the strongest to hit the region in 30 years, which brings us to one main and internationally growing concern, which is the increasing global environmental threat not only in the world but on our region. ✖

BIO Prof. Dr. Hilal Al Sayer graduated from the Faculty of Medicine at Cairo University in 1971 and has been awarded numerous medical certificates and diplomas in the field of surgery. Throughout his career, Al Sayer has held many positions, including Chairman of the Board of Directors of the Surgical Department of the Amiri Hospital, Dean of the Faculty of Medicine at Kuwait University, and Founder and Chairman of the Board of Directors of the Kuwait Association for the Care of Children in Hospitals. In 2003, he joined the Kuwait Red Crescent Society as ViceChairman before taking his current position.

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FOCUS HUMANITARIAN CENTER

CHARITABLE

BY TRADITION With global concerns surrounding issues like poverty, disease, and climate change, Kuwait has pledged to retain its position as a leader in providing humanitarian aid around the world as the UN pushes forth its 2030 sustainable development agenda.

IN THE POST-2015 global sustainable de-

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Crescent Society was the leading donor to Syria out of all Red Crescent Societies worldwide.

Notably, Kuwait has gone beyond the designated 0.7% of GDP that the UN encourages countries to set aside for humanitarian efforts across the world, and contributed 1.24% of its GDP in 2014, ranking number one out of all donor countries. That same year, Kuwait was honored by Secretary General of the UN Ban Ki-moon, highlighting the Gulf state as a universal humanitarian center, awarding HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah as a “humanitarian leader,” and a leading global actor in the field of humanitarian work.

As demonstrated by its leading humanitarian organizations and policies, Kuwait has historically been a leading international player in the field of humanitarian aid, being a first responder in many cases providing emergency aid and assistance to conflict areas across the world. It has mobilized both funds and resources to areas hit by natural disasters, and is an active organizer and facilitator of social and economic development projects and initiatives around the world.

At the end of December 2015, the UNDP held the first national workshop on the UN’s Sustainable Development Goals, and met with policymakers from key ministries of government in Kuwait. With the growing urgency and importance placed on the 17 established goals, the event made it clear that Kuwaiti charitable work and aid will continue to be a reliable force at a humanitarian level, and that the country will remain a critical partner in sustainable development in decades to come. ✖

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velopment agenda, the UN has put into action an ambitious plan to tackle some of the most pressing issues facing humanity and the planet over the coming 15 years leading up to 2030.

With social, economic, and environmental dimensions, the UN’s post-2015 agenda entitled “Transforming Our World: the 2030 Agenda for Sustainable Development” calls upon all nations and major stakeholders to take measurable action to realize greater peace and prosperity around the world. The plan envisages a collective partnership for the coming 15 years, during which we are set to witness a dramatic shift in the state of global affairs.

Kuwait has historically placed humanitarian aid as a top priority in its affairs abroad, particularly with the establishment of the Kuwait Fund for Economic Development in 1961. This was recognized as the first institution in the Middle East to take an active role in financing development efforts worldwide. In providing data, technical assistance, and training to locals in over 100 beneficiary countries, the Kuwait Fund is a gateway for support between Kuwait and developing nations around the world. The fund has announced plans to contribute $15 billion alone leading up to 2030 in order to help realize UN Sustainable Development Goals.

To support efforts towards easing major crises in the region, Kuwait has held three donor conferences in 2013, 2014, and 2015 for Syria, the first of which resulted in pledges of $300 million, followed by $500 million in 2014, and $500 million in 2015. Notably, Kuwait’s Red

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International business councils are some of the strongest allies of foreign businesses seeking to expand into Kuwait.

In Kuwait’s export-reliant economy, SME development is touted as an important means for growing its non-oil sector.

HE Dr. Mohammad M. AlZuhair, Executive Chairman of the Kuwait National Fund for SME Development.

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Economy REVIEW

Kuwait’s economy is under immense pressure to diversify as it struggles with low energy-related returns. This reorientation, however, has created the conditions for long-term gains that stand to benefit investors in both established and emerging sectors.

K

uwait can boast the world’s oldest continuously running sovereign wealth fund—the Kuwait Investment Authority (KIA)—that dates back to eight years before the Gulf state achieved independence. Over the subsequent sixty-plus years of its existence, this venerable organization has strategically invested in national economic and social endeavors to provide, “an alternative to oil reserves, which would enable Kuwait's future generations to face the uncertainties ahead with greater confidence.” In 2015, their mission has never been more crucial, as a protracted slump in energy markets has international financiers shying away from investments that would have entertained multiple bidders a decade ago.

Many stimuli are already underway and more in the works as the country ramps up infrastructure investment and the KIA and other state and non-state actors seek to make up for a downturn in FDI and private-sector spending.

Much like its southern neigh-

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Image: Kuwait Foreign Petroleum Exploration Company (KUFPEC)

State-level investments in infrastructure and economic development are maintaining momentum in the $181-billion economy.

bor Saudi Arabia, state-level incentives are maintaining the momentum of the $181 billion economy. Despite the prospects of a delayed oil price recovery, Moody’s announced in October 2015 that Kuwait’s high levels of economic and fiscal strength would, “continue to support the country’s credit profile and its AA rating with a stable outlook” through 2016. The report substantiates this position by pointing out that, “Kuwait’s sizable assets will also provide a buffer allowing its public finances to withstand the impact of lower oil prices for longer.” According to Moody’s, Kuwait’s debt level was 6.5% of GDP at end2014. Considering the projected contraction in nominal GDP, Moody’s now projects that the government debt-toGDP ratio will rise to around 8.5% in 2015-16, still low in the grand scheme of things.

This year, the challenge is to expedite a movement away from oil revenues, estimated by the IMF to account for 95% of export revenues and government income. Facing down decades of inefficien-

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KUWAIT 2016

cy and oil-dependency will force the national economy to undergo a profound reorientation.

However, while the non-oil economy is already revving its engines, even oil-related businesses stand to benefit from improved efficiency and corporate governance.

A recent development plan that ended in 2014 ultimately failed to achieve many of its goals—and missed its spending targets. Moving forward, the government is hoping to prevent a repeat by improving the investment climate, especially for foreign firms. In order to attract companies outside of its core of oil-related industries, legal reforms have been implemented to allow such firms to set up operations. According to PwC, the reforms provide foreign investors with several incentives, such as up to 100% ownership in a Kuwaiti company (up from 49%), operating through a 100% foreign-owned branch, and income tax and customs duty exemptions.

Kuwait trades heavily with Asia, and as of 2014, its largest markets were South Korea, with 16.7% of exports, India at 14.9%, Japan at 12.3%, the US at 11.3%, and China at 9.9%.

With a large share of exports reaching slowing markets, and with the value of its primary export down, incomes from oil trading will remain suppressed for the medium term, placing renewed emphasis on internal consumption and trade.

Barring a noticeable increase in food prices, inflation in overall consumer prices registered only a small increase according to the latest July 2015 numbers, rising from 3.5% YoY in June to 3.6%. For the most part, inflation either slowed or remained unchanged in July 2015.

Factoring in a global decline in food prices and Kuwait’s reliance on food imports, food inflation is expected to subside as well in the nearterm. Core inflation remained steady at 3.5% through 2Q2015, as pressures from most components subsided. With inflation expected to subside across most components and a strong dinar driving the market, upward inflationary pressures will be lifted going forward. This is substantiated by the National Bank of Kuwait (NBK), which expects annual consumer price inflation to average close to 3.5% in 2015.

In 2014, non-oil economic growth was an uninspired 2.1%. This performance reflects the struggles that Kuwait has faced in diversifying its economy, however there are signs that this is happening. Growth is expected to pick up in 2015 according to preliminary data published by the Central Statistical Bureau (CSB). Real growth in overall GDP meanwhile declined by 1.6% for the same time period, slowed down by the oil sector.

Growth in domestic demand also slowed through the first three quarters of 2015, though it declined from a strong position to a still respectable 4.4%. There was a slowdown in investment expenditures, however the NBK considers this to be temporary. Private consumption growth also slowed for two years in a row as the sector moderated.

The oil sector contracted by 1.7% during 2014 and the IMF expects the country to more than halve its current account balance in 2015, dropping from $35.3 billion in 2014 to $15.7 billion in 2015 because of lower oil prices. This slowdown is carrying into 2015, with some analysts wary of low prices through 2017. That said, Oil Minister HE Dr. Ali al-Omair reaffirmed in late 2015 that the country would continue to invest in the oil sector. Similarly, the CEO of the stateowned Kuwait Petroleum Corporation, Nizar al-Adsani, said his firm spent up to $13.2 billion in the 2014-15 fiscal year. Al-Adsani added that KPC has spent $6.6 billion in the current fiscal year on strategic oil projects.

This two-year slowdown was due in part to a drop in crude oil production, which fell to an average of 2.88 million bpd output. Production has been declining gradually since 2012, following a large increase in 2011. In refining activity, a 16% decline took place during 2014. Due to Kuwait’s practice of recording GDP figures in constant 2010 figures, however, this price plunge is not reflected in the real GDP figures.

Oil GDP was thus down by 10.6% in nominal terms during 2014.

A slowdown in the non-oil sector in 2015 has underscored how dependent the economy is on government expenditure, slowing to 2.1% in 2014 from 4.2% the year before. The government-dominated public administration and defense sector posted the largest decline, slowing to 3.2%, down from double-digit growth the year before. This absence of capital reverberated throughout the economy, affecting transport, storage and communication, education, wholesale and retail trade, and even health and social work, all of which slowed notably over the year.

The bright side was in financial institutions, insurance, and real estate and business services, where growth picked up, especially in finance, where growth accelerated to 5.3%.

Domestic demand, while moderate, is still at a healthy pace according to data from NBK. This includes final consumption by households and the government as well as investment. Projected demand grew by 4.4%, compared to 6.4% the year before. Slower growth in investment spending was primarily responsible for this trend. In real terms, gross investment grew by 2.1% over 2014, compared to growth of 8.9% for 2013. Consumer spending also registered a deceleration in growth, easing to 2.8% from 4.9% in 2013.

According to NBK, this slowdown in investment spending growth over 2014 appears to be temporary and should turn around in late 2015-early 2016. Preliminary data obtained by the bank contradicts assessments that the government’s Development Plan project is picking up pace, and reflects a lull in capital spending during late 2013 and early 2014. The assumption is that this is changing over the year. This previous slowing is particularly visible in quarterly capital goods imports, which saw growth slow to 2.3% YoY in 1Q2014 from 23% YoY growth a year before. Already in 1Q2015, the rate picked up pace, rising to 20% YoY.

ABDULAZIZ M. AL-ANJERI CEO, Rosette Group Where do you see opportunity for more investment in Kuwait?

There is immense potential in recycling. We need to improve the way we dispose of waste and wherever possible, turn it into sustainable energy. With the current and projected prices of oil, we need to think seriously of ways to reduce our dependency on fossil fuels. Recycling is vital to the health of our country.

What trends are you seeing in the GCC market that you would like to capitalize on?

We have been looking at a lot of environmental projects, whether it is in the manufacturing sector or simply the conservation of natural beauty. The solar power industry—which is big in Saudi Arabia—might be an industry that Kuwait could be interested in; we have an interest in seeing Kuwait succeed with such projects that provide renewable energy for our new residential communities.

What is your outlook on Kuwait’s economic growth and where do you see the country heading over the coming years?

There is a strong movement of young entrepreneurs corresponding with a decline in the number of people who are looking for jobs in the government sector, which is promising.

There is an increase in the dependency on new technology as opposed to traditional methods, and this is a cause for optimism, because where there is innovation, there is growth.*

*Read the full interview at thebusinessyear.com

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TBY BUSINESS CONFIDENCE INDEX Kuwait’s GDP is forecast to grow by 1.8% in 2016, yet many sectors are expected to grow even faster. Through interviews with leading firms and analysis of market trends, the TBY Business Confidence Index gives Kuwait’s economy an overall confidence ranking of 3.5* and rates levels of optimism to highlight the strongest-performing sectors for 2015-16.

SECTORS TO WATCH

HEALTH & EDUCATION

VERY CONFIDENT

IT & TELECOMS

CONFIDENT

HEALTH & EDUCATION 4 • Expanding domestically with new infrastructure • Boosting training for national employees • Policy reform to direct investment inward • International partnerships to improve standards

TOURISM & LIFESTYLE 3.8 • Expanding domestically • Tapping new markets and customers abroad • Oversupply depressing hotel rates

INDUSTRY 3.7

TOURISM & LIFESTYLE

ENERGY

NEUTRAL

NEGATIVE

IT & TELECOMS 3.9 • Increasing competition • Boost in data services and subscriptions • Growth in hardware and software sales • New regulatory authority—Communication and Information Technology Regulatory Authority

ENERGY 3.8 • R&D investment • Expanding local capabilities • Low oil prices pushing fuel subsidy reform

TRANSPORT 3.5

• Introducing new products and services • National development plan targets increase in industrial sector • Major petrochemical refinery activity

FINANCE 3.2

• Introducing new products and services • Focus on SMEs • Government plans to increase capital expenditure • Major infrastructural projects underway

AGRICULTURE 3.1

• Tapping new markets/customers abroad • Regulatory reforms • Enhancing cyber-security systems and technical capabilities • Emphasis on enhancing human resources

• Growing foodservice sector • Domestic development of agriculture, hydroponic farming, and fishing • Local R&D targets sustainable farming systems

AT A BCI OF 3.8 GOVERNMENT INVESTMENT IN THE ECONOMY EXCEEDS THE NATIONAL AVERAGE, AND WILL DRIVE ECONOMIC GROWTH AND DEVELOPMENT. *Pegged to the IMF’s projections of 1.8%, on a scale of 1 (negative) to 5 (very confident).

Economy

Slower non-oil growth in 2014 also coincided with a slowdown in credit. After ending 2013 with growth rates of 8.1%, this rate slipped to 6.1% by the close of 2014. Growth has subsequently shown signs of recovery as 2015 draws to a close, with annualized growth in 2Q2015 rising to 8.9% over the previous quarter, following almost a year of disappointing numbers.

Non-oil activity growth is expected to pick up once again to 5% growth in 2015 and 2016.

Banking sector specialists anticipate that growth will receive a boost from an increase in investment spending, with the government’s Development Plan implementation continuing to improve. Capital investment activity has been picking up pace as well, reflected in a slew of new government project awards. Kuwait’s government is expected to push ahead with projects worth upwards of $98.5 billion over five years, though oil prices are not expected to rise significantly in the coming two years. This is possible thanks to comfortable fiscal buffers and the efforts of organizations like the KIA that have decades of strong gains to fall back on.

September 2015 saw a decrease in overall volatility, but oil prices remain depressed due to emerging markets' slowdown and continued crude over supply. Over the month, benchmark crudes, Brent, and West Texas Intermediate (WTI), traded within the $46-49 per barrel and $44-46 per barrel ranges respectively—near seven-year lows. September also saw the mar-

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Growth in domestic demand also slowed through the first three quarters of 2015, though it declined from a strong position to a respectable 4.4%. There was a slowdown in investment expenditures; however, the National Bank of Kuwait (NBK) considered this to be temporary. Private consumption growth also slowed for two years in a row as the sector moderated.

kets blink at China’s latest economic data and the persistence of the crude oil glut. Meanwhile, the US Federal Reserve’s decision to hold interest rates steady seemed to confirm analyst’s fears about emerging markets, while the supply overhang dynamic was substantiated by record OECD commercial oil stocks and continued price discounting by regional oil producers in Kuwait. According to IEA data, the September 2015 discount of Kuwaiti export crude (KEC) against Saudi Arabia’s benchmark Arab Light for Asian customers was the largest in ten years, as competition for market share manifests itself with the OPEC market.

With short-term hopes riding on the nonoil sector, it is easy to gloss over developments taking place in Kuwait’s oil sector. And while current conditions are pushing many operators into the red, there are encouraging signals and in the longer-term, strategic investments in bear markets often pay the largest dividends; Kuwait is betting on that. ✖

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INTERVIEW

How has Kuwait’s FDI landscape evolved in recent years, and how have recent changes in FDI law incentivized foreign investment in Kuwait?

wide OPEN spaces TBY talks to Dr. Meshaal Jaber Al Ahmed Al Sabah, Director General of the Kuwait Direct Investment Promotion Authority (KDIPA), on new investment conditions, sectors that stand to benefit, and the importance of bringing in know-how.

Kuwait has recently witnessed several favorable developments in its regulatory and legal framework that enhance its attractiveness as an investment destination. The issuance of new Law No. 116 of 2013 for promoting direct investment in the State of Kuwait, which replaced the previous FDI Law No. 8 of 2001, stipulated several additions that accommodated international best practices pertaining to FDI. The main additional features included establishing a public authority, the Kuwait Direct Investment Promotion Authority (KDIPA), which is mandated with the tasks of encouraging both local and foreign investors, promoting Kuwait as an attractive investment location, and streamlining the business environment to enhance the country’s competitiveness.

It also adopted the “negative list approach” for sectors that are excluded from licensing.

This speeds up the licensing process to a maximum of 30 days by establishing a one stop shop, allowing 100% foreign ownership by selecting one of several forms of legal entities, introducing the licensing of representative offices solely to conduct marketing studies for interested investors, and extending incentives and exemptions to both privatization projects and Public Private Partnership (PPP) projects. On the other hand, the new investment law maintained incentives like tax and customs duties exemptions, and guarantees against expropriation, transfer of capital and profits, and protecting project proprietary-information.

What economic sectors are open to foreign investors in Kuwait?

The adoption of the negative list approach signaled to foreign investors that most economic sectors are open for in-

vestment, in accordance with the Council of Ministers decision issued February 2015, whereby very few sectors were excluded for sovereignty purposes, such as upstream oil and gas, or for other considerations. Furthermore, we did not place a threshold on the size of investments eligible for licensing, nor did we simply target FDI as a source of capital per se, as our objective is to attract added value and quality investments that anchor competitive advantage in the country, enhance productivity, and foster national capabilities.

What role can FDI play in promoting Kuwaitization as well as attracting know-how and innovation to add value to the domestic economy?

We are currently undertaking the necessary steps to develop our business strategy and formulate the ensuing promotional and communications strategies, with the relevant roadmap and action plan to assist us in achieving the tasks we are mandated with under our establishing law, in view of the National Vision 2035, and the strategic objectives identified in the medium-term economic development plans. In this regard, we target efficiency seeking FDI through investors who bring know-how and modern technology to Kuwait, support economic diversification efforts, and build national R&D competencies as well as innovative capabilities, in addition to creating jobs for Kuwaiti youth and providing quality training opportunities.

What upcoming government and infrastructure development projects are expected to have a significant impact on the local economy?

Kuwait offers a host of lucrative investment opportunities, including strategic projects under the current development plan in sectors pertaining to oil and gas, the North Zone development, electricity and water, urban development and housing, trans-

port and communications, health, education, tourism and media, and the environment. There are also other opportunities under the PPP projects and the privatization program. We are looking forward to attracting FDI that will create needed linkages with our thriving SME sector and local start-ups. We have updated an investment guide that can also assist interested investors in considering various potential opportunities found on our website. We are developing three economic zones in the north, west and south of the country that offer an attractive opportunity for various competitive industries to operate in Kuwait. ✖

BIO Dr. Meshaal Jaber Al Ahmed Al Sabah assumed his current position in July 2013. Previously, he served as Assistant Undersecretary/Chief of the Kuwait Foreign Investment Bureau (KFIB) Division under the Ministry of Commerce & Industry from 2008 until 2013. He worked in the Council of Ministers from 2003 to 2008. He served as Vice Chairman of the Board of Directors of the State-owned National Offset Company, and was a member of the Board of Directors for the Central Bank of Kuwait. He obtained a doctorate degree from the University of Portsmouth (UK) in HR & Marketing Management, with a focus on resource curse reduction through innovation in Kuwait, an MBA from Maastricht School of Management, and a BA in Political Science and Public Administration from Kuwait University.

Economy

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INTERVIEW

the new deal TBY talks to Rabah A. Al Rabah, Director General of the Kuwait Chamber of Commerce & Industry (KCCI), on decades of development, growing the private sector, and lowering barriers to investment.

2016 marks the 25th anniversary year of the liberation of Kuwait from Saddam Hussein’s Iraq. What efforts have been made to develop Kuwait's economy over the years?

BIO Rabah A. Al Rabah is the Director General of Kuwait Chamber of Commerce and Industry (KCCI); he received his BS in Business Administration from Kuwait University and earned his MBA from Claremont University, USA. During his education, he gained experience in educational supervision in the Kuwait Ministry of Education & Ministry of Labours and Social Affairs.

After a 12-year career as a Manager in the Banking Transaction Department with KIC he joined KCCI and eventually became the Director General of KCCI. He is a member in the WTO Agreement Follow-up Committee, a member of the Advisory Committee for Commercial Policies, and has a leadership role in other important committees and organizations.

Our growth has been continuous and has been supported by oil revenues, but this has proven to be insufficient, and we as the private sector wish to see more sustainable growth.

The government has started to spend on development projects with an ambitious program over the next five years to rebuild ports, build a new airport, a metro station, a railway system, and so forth.

It has been positive, but we are behind. The challenge we face today is to continue to diversify our economy, as the private sector’s share of GDP represents only 24.6% of GDP; this needs to change.

What role do you see diversification and privatization playing in Kuwait’s economic future?

We want to increase awareness among all citizens of Kuwait—not just our members—about the risk of trying to manage an economy that is not diverse. For years, the fear has been that by giving a greater role to the private sector, employment will suffer, because Kuwait’s largest employer is the government.

But looking at the three largest telecom operators in Kuwait as examples, we have seen how privatization has led to both growth and employment. In the early 1970s, the

IN NUMBERS Established in

1959 32,000 active members

4,000+ people trained

mobile segment in Kuwait was managed by the Ministry of Communication. In 1983, the Mobile Telecommunications Company (MTC) was set up in Kuwait as the first mobile operator in the region. MTC, known as Zain today, now employs 3,600 Kuwaitis and the price of a mobile line is minimal. Zain is the 10th largest company by assets in Kuwait, and in 2008, it became the fourth largest mobile operator in the world in terms of physical presence. Their growth led them beyond Kuwait, and they are now operating in Iraq, Saudi Arabia, Sudan, Bahrain, Algeria, and others.

What are some other sectors that are moving in the direction of privatization?

The government should consider the privatization of almost all sectors of the economy (except upstream operations for oil and gas exploration and extraction), notably electricity, water, health and education services, and downstream petroleum industry. We need the private sector to become more established, and employment will follow. The number of Kuwaitis working in the private sector amounts to only 5% of the total national Kuwaiti workforce, while the remainder are employed by the government. It is simple to see the implications of this, economically speaking.

How can international cooperation and foreign direct investment (FDI) play a bigger role in Kuwait’s economic development, and what is the Chamber doing to attract foreign interest to Kuwait?

One positive change in FDI law has been that the Offset Program has been suspended, which has been a disincentive for foreign investors in Kuwait. The program mandates that any company doing anything for the Kuwaiti government for over $164.2 million has to reinvest the equivalent of 35% back into Kuwait over the next ten years. We thought this was illogical and a disincentive for FDI, as it was making projects around 6% more expensive. Based on the feedback we received from international investors—especially those coming into oil— we requested that the Offset Program be suspended. With the program stopped, we will see lower costs and we expect an increase in foreign interest as a result. ✖

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FOCUS ATTRACTING FDI

go with the FLOW In recent years, Kuwait has been ranked first in the GCC in terms of outward investment. Shifts in Kuwait’s business and investment environment indicate the country’s desire to turn some of that investment inward, and also attract more targeted FDI into the country.

ACCORDING TO A DECADE’S WORTH of UNCTAD World Investment Reports, Kuwait has consistently been the GCC region’s largest international investor—an impressive distinction for a country that is itself characterized as a developing, transition economy. Kuwaiti capital moves through the Kuwait Investment Authority (KIA)—the first sovereign wealth fund in the world—and through Kuwaiti investment companies and individual investors that underpin investments, whether through acquiring prime commercial real estate in cosmopolitan cities like London or New York, or funding infrastructure projects in developing economies across the world.

As a result of Kuwait’s relatively small economy and high levels of foreign exchange reserves, Kuwait is expected to increase its direct investments abroad, but what of the investment potential that exists at home?

Kuwait is characterized as an economy in transition. However, its transitioning can be better understood by analyzing the shifts that have occurred recently in local legislation over the past few years. International investors, corporations, SMEs, and entrepreneurs alike, can take advantage of opportunities in the country, due in part to shifts in regulations in the local business and investment environment, which are opening up new channels for commercial participation in Kuwait’s economy.

To compliment the already favorable tax environment in Kuwait, which stands as one of the most attractive in the world, Kuwait has taken major pro-business steps toward attracting and facilitating investment inflows.

The establishment of the Kuwait Direct Investment Promotion Authority (KDIPA) is one such step, acting as a one-stop-shop for international investors in Kuwait. Dr. Meshaal Jaber Al Ahmed Al Sabah, Director General of KDIPA, explained the implications of Kuwait’s revamped FDI regulations, stating that, “The new investment law has allowed for various legal entry points for foreign investors to establish a Kuwaiti company in accordance with the new commercial companies’ law in Kuwait, allowing for 100% foreign ownership for Limited Liability Companies, Shareholding Companies, and One Person Companies. Furthermore, Law No. 116 of 2013 allows for opening foreign branches and representative offices as other available alternatives, based on the needs of foreign companies.”

Kuwait is beginning to listen to international investors and working to balance the needs of foreign companies with its own. When asked how FDI can play a bigger role in Kuwait’s

One positive change in FDI law has been the suspension of the Offset Program, which has been a disincentive for foreign investors in Kuwait. The program mandated that any company doing anything for the Kuwaiti government for over $164.2 million had to reinvest the equivalent of 35% back into Kuwait over the next ten years.

economic development, Director General of the Kuwait Chamber of Commerce & Industry (KCCI), Rabah A. Al Rabah, explained that, “One positive change in FDI law has been the suspension of the Offset Program, which has been a disincentive for foreign investors in Kuwait. The program mandated that any company doing anything for the Kuwait government for over $164.2 million had to reinvest the equivalent of 35% back into Kuwait over the next ten years. We thought this was a disincentive for FDI, as it was making projects around 6% more expensive. Based on the feedback we received from international investors—especially those coming into oil—we requested that the Offset Program be suspended. With the program stopped, we will see lower costs and we expect an increase in foreign interest as a result.”

The past few years have seen a huge legislative shift in attempts to make Kuwait more business and investor friendly. KDIPA is now positioned to issue licenses to foreign investors, allowing companies to be 100% foreign owned and receive a tax-free holiday for up to ten years. There have been significant improvements in the new PPP law in advance of the pipeline of government projects to come out of the five-year Kuwait Development Plan (201520). These improvements have opened up Kuwait, as companies no longer require a Kuwaiti agent or partner to operate in the country.

Other positive improvements towards attracting investor interest in Kuwait abound.

While the general consensus seems to be that the bureaucracy and barriers to doing business still outweigh the improvements, Kuwait is moving in the right direction on the path toward becoming a more attractive investment destination on the global stage. The balancing act between foreign and local investment and the role each is set to play in Kuwait’s economic growth remains to be seen, but the stage is being set, with many taking advantage of the opportunities present in Kuwait. ✖

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FORUM

International business councils are some of the strongest allies of foreign businesses seeking to expand into Kuwait, where there is a premium on knowledge of the local market.

SCOTT BEVERLY

GRAHAM KENNY

HANNELORE GRAF

Chairman, American Business Council Kuwait

Chairman, British Business Forum

Chairman, German Business Council Kuwait

K

uwait-US trade relations have never been better. There is strong demand for American products and services in Kuwait, and the retail sector and some of the food franchises that operate here are indicative of the fact that American products and services do appeal to this part of the world. Most of those businesses are flourishing, and we are pleased with their progress and proud of our part in helping bring that about, as many of those companies are members of our organization. Dairy Queen is one of the most recent American businesses to open a branch here, and we look forward to more brands following in their footsteps. There is also interest in US healthcare and travel services, and American education and visitation is popular among Kuwaitis studying abroad. In fact, due to the large number of US graduates in Kuwait, the American Business Council Kuwait has expanded its membership to include individuals who have attended and graduated from US universities or accredited US-affiliated universities anywhere in the world.

K

uwait is a hard area to get into because it is not well known. Many companies, particularly SMEs, are wary of the Middle East because they do not understand it and are not familiar with the different regulations. At the moment, with oil prices subdued, we are getting a lot of North American, British, and European companies looking to market their services elsewhere, because there are fewer options at home. Kuwait and the Middle East are still quite buoyant. A number of organizations have on retainer a person or persons in Kuwait, or an office, that serves them and two or three other companies. Opportunities do exist here across many market sectors, but companies cannot make the most of them from afar. Companies have to come to Kuwait, make an entry, and create an affinity with customers. The opportunities may arise through the engagement and affiliate of somebody who will support their cause.

T

he trade relations with Germany have been growing over more than 50 years in various important industries, like oil and gas, construction, heavy industries, technologies, healthcare, and education. Consumer goods like cars, medical, and household appliances are taken care of by major companies in Kuwait. Business ties are constantly improving because of efforts made by of our embassies and the Arab German Chamber of Commerce (GHURFA), which is located in Abu Dhabi, and which assists our friends, our members, and the GBCK by providing information and connections. Kuwait has always been tax-free in terms of foreign investment, and there is now talk of possible implementation of taxation on foreign businesses, since oil prices are not as stable as they were in the past. We cannot compare the situation to Europe, but it would definitely bring about change. Kuwaiti investors and Kuwaiti businesspeople are savvy and well informed. That is partially because of their education abroad, as the government has made it possible for every Kuwaiti student to go and study finance in the US, the UK, and so on. They are advanced and knowledgeable, and it is making it much easier to do business in Kuwait.

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

knowledge SHARING

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FOCUS ROLE OF SMEs

In Kuwait’s mono-commodity, export-reliant economy, SME development is touted as an important means for growing its non-oil sector.

IN KUWAIT, the government and large corporations dominate employment and the overall economy. However, nations can no longer afford to ignore SMEs. In terms of their overall influence on employment and flexibility in adjusting to changes in the marketplace, SMEs trump large corporations. Furthermore, World Bank cross-country research has concluded that SMEs contribute nearly two thirds of jobs across 50,000 firms in 104 countries surveyed.

SMEs have been largely left out of Kuwait’s economic growth story, but that seems to be changing. This previously unattended-to segment of Kuwait’s domestic economy is gaining momentum, and it appears that SMEs can start to look forward to a new phase of increasing attention being paid to their needs.

The establishment of the Kuwait National Fund for SMEs is a promising development taken by the government to support SME growth. Funded by the government, this organization is seeking to provide not just finance for SMEs, but also training and know-how in getting start-ups off the ground. They also aim to take an objective look at the business environment and identify ways in which it can be improved in order to reduce barriers that exist for these businesses.

While Kuwait is by no means a poster child in terms of SMEs, the path it is on is promising. The establishment of the Kuwait National Fund has given credence to the budding start-up scene that is emerging, as entrepreneurs gain the knowledge and the courage to build, innovate, and drive change from the ground up.

Great potential and opportunity exists for SMEs to be the force of economic progress in the country, given the large youth population and access to financial, educational, and social capital. Yet there is a lot more to do to strengthen the entrepreneurial ecosystem in Kuwait, explains Mona Mukhaizeem, Co-Founder and Managing Partner of Sirdab Lab, Kuwait’s first

Great potential and opportunity exists for SMEs to be the force of economic progress in the country, given the large youth population and access to financial, educational, and social capital.

start-up hub and creative lab. “Kuwait should focus on its unique strengths and lower the barriers to entry for entrepreneurs in order to attract new talent. The cultural aspect is important as well, and that involves addressing the issue of dependency on government jobs, the fear of failure, and creating an openness and willingness of entrepreneurs to talk to others about their ideas. We always tell founders that if they can Google their startup idea and find results that match it, then it is not unique and they do not need to hide it from others.

The value is not in the idea, but how well they execute it.” She added that, “The legal infrastructure in Kuwait needs a lot of improvement, both specifically for startups and in attracting foreign investment. Cultural attitudes, education, and legal regulations are the main areas we need to address.”

At the national level, policy makers often speak of sustainable development and on the importance of diversifying Kuwait's economy, particularly in its Vision 2035. These goals require both public and private sector involvement and a commitment to economic reform.

To ensure the long-term development of the country, SMEs must be a part of the equation.

Although fashionably late to arrive, Kuwait has joined the global SME movement and is keen to boost growth of this segment domestically, and-not to limit or hinder their potential to the Kuwaiti market alone-is slowly giving SMEs the support they need to expand regionally and internationally in line with rapid globalization. ✖

MONA MUKHAIZEEM Co-founder & Managing Partner, Sirdab Lab What type of start-ups are most active in Kuwait?

We have over 150 members at Sirdab Lab. Some of them are fresh startups, and some are existing companies looking to grow. For example, one of our members is a restaurant owner who taps into our community to try out new recipes.

We are seeing a trend toward technology startups, mainly because the cost of setting up a tech startup has fallen considerably. Increasing access to the internet is lowering the cost of customer acquisition for startups. A popular industry in Kuwait is food and beverage. New food businesses are common, and if we focus more on that sector there is a way to develop it further by looking at ways local franchises can expand in the region.

What have been some of the positive developments in the startup scene since you began?

There has been a rise in the number of initiatives geared towards promoting entrepreneurship and serving small businesses. There is growing interest in entrepreneurship and the rewards it has to offer individually, socially, and economically. Compared to other startup hubs around the world, Kuwait needs an ongoing outlet for creatives and entrepreneurs where there are opportunities for networking and awareness around key topics related to entrepreneurship.

There were at least 20 entrepreneurial events per day when I was living in the US. There was one event per month when we started in Kuwait, but now there are at least six in an average week and this is a very positive development.*

*Read the full interview at thebusinessyear.com

HAVE NO FEAR, SMEs ARE HERE

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INTERVIEW

the ALLY TBY talks to HE Dr. Mohammad M. Al-Zuhair, Executive Chairman of the Kuwait National Fund for Small and Medium Enterprise Development, on helping startups succeed and expand their reach beyond Kuwait.

What are the main barriers for SMEs in Kuwait?

We are collecting data about SMEs and will eventually establish an information center that will serve as the central point for all information related to SMEs. In the meantime, we undertook a survey as part of formulating our strategy and five-year plan where we worked with the World Bank, independent international experts, government institutions, and more than 70 entrepreneurs and stakeholders from Kuwait. Most participants highlighted that acquiring commercial licenses is the number-one obstacle, as well as acquiring the relevant permission to operate their businesses here. Therefore, we are reviewing all the legislation, regulations, and policies that govern the market to see which of them need to be revised. One of the positive outcomes was the reduction of the minimum capital requirements in April 2015.

According to our survey, the second obstacle for SMEs is labor, while access to financing came in at number three.

What services does the National Fund provide to entrepreneurs in Kuwait?

Based on gaps we see in the market, we divide our services between financial and non-financial support. The financial support comes in the form of either debt or equity,

ranging from seed capital to later-stage growth financing.

Ideally we should not provide venture capital, but the private sector is not doing this, so we must address this gap.

Debt support comes either directly from us or in collaboration with local banks. These conditions are different, however, because banks are traditionally hesitant to finance a company in its initial years of operation. Banks want financial evidence proving that a company has low risk.

Seed capital comes in smaller amounts, so it is an easier form of finance. In terms of non-financial help, this ranges from someone coming to us without an idea to take general or specific training about how to develop an idea, to a more-advanced idea in a specific sector or industry that needs support to develop, test, pilot, and launch.

Entrepreneurs have to look at the immediate GCC as their primary market, and then beyond that—regionally and globally—for their wider market. And with this comes the importance of greater competitiveness.

How does the National Fund collaborate with regional and international organizations?

We have already signed agreements with various countries that are well known for implementing successful policies and programs to develop

SMEs. Our regional partner is the Khalifa Fund for Enterprise Development (KFED) in Abu Dhabi, which is leading efforts towards a possible federal law for the UAE, adopted from Kuwait's National Fund law in terms of the requirements and structure. We are also working with KFED at the institutional level. We are similar to the Emiratis in our culture and demographics, and we face many common issues in economic development. We have done the same at the global level with the Small and Medium Business Administration (SMBA) from South Korea. Part of that involves exchanging data, information, and learning at the institutional level as well as by individual entrepreneurs.

This relationship is also about opening doors for businesses.

The SMBA can help our businesses access South Korean markets, and vice-versa. At the invitation of the United Kingdom government, I gave a keynote speech in 4Q2015 at the Commonwealth Business Forum in Malta on entrepreneurship development, SME growth, common challenges, and the Kuwait experience.

This forum included 73 countries. Regionally and internationally, other countries are recognizing what we are doing in Kuwait. They recognize that it is a tough job, but it has to be done, and they commend Kuwait for doing it. ✖

IN NUMBERS

$7

billion National Fund for SME Development in Kuwait

BIO Dr. Al-Zuhair is currently the Executive Chairman— Head of the Kuwait National Fund for Small and Medium Enterprise Development. During his tenure in Washington, DC, he worked with George Washington University, held positions as the Vice President for Private Equity at a DC-based boutique investment firm; and served as the Executive Director for Arab Countries at the World Bank. He holds both a PhD in Finance & International Business and an MBA in Finance and Investments from George Washington University, as well as a Bachelor of Science in Petroleum Engineering from the University of Tulsa.

Economy

THEBUSINESSYEAR

37

INTERVIEW

MIND over MATTER In what sectors and markets are you looking to expand Alghanim Industries’ portfolio within the Gulf and abroad?

TBY talks to Omar K. Alghanim, CEO of Alghanim Industries, on unlocking Kuwait’s potential through education and business reform and capitalizing on the opportunities at hand.

BIO Omar K. Alghanim is the CEO of Alghanim Industries, one of the largest companies in the region, with more than 30 businesses in 40 countries.

He is also the Chairman of Gulf Bank, one of the oldest and fastest-growing commercial banks in the GCC. As the chief visionary of Alghanim Industries, Omar is applying his detailed knowledge of the company and unique management skills, which blend Western business expertise with a deep understanding of the ethos and history of Kuwait.

Omar has an undergraduate degree in business administration from Stern School of Business, New York University, and holds an MBA from Harvard Business School.

We are planning to expand strategically in the years ahead, focusing above all on MENA and South-East Asia.

Our best opportunities lie in these emerging and frontier markets, and here in the region where we have long operated at the crossroads of East-West trade. As far as sectors are concerned, consumer electronics, retail, and the food and beverage industries are areas of focus. Then there is our partnership with the Wendy’s Company to expand the Wendy’s brand across the MENA region. This partnership includes all Wendy’s outlets in the UAE, which will serve as a good foundation for growth.

Similarly, we acquired in 2013 the Costa Coffee brand in Kuwait. The brand had not had a ton of success here, but we invested in top-tier locations and revamped the menu and are seeing a turnaround. We are also planning on increasing the range of products for Kirby Building Systems, which is a pre-engineered building manufacturer we acquired in the 1970s.

How do you view the importance of Kuwait’s role on the global stage?

We play an important role on the global stage for several reasons. First, Kuwait is at the crossroads of East and West.

We have a proud history as a nation of merchants, plying our trade across borders, and building lasting, useful enterprises that play a role in the progress of their time and place. This role puts us in a strong position to contribute to regional economic prosper-

IN NUMBERS

14,000 employees

Operations in over

40 countries

Over

30

subsidiary businesses

ity. Second, Kuwait has 10% of the world’s oil reserves. This gives us outsize power and influence relative to other countries of our size. Third—and most importantly—Kuwait is a myth-shattering example to the world of sectarian cooperation and tolerance.

How can Kuwait become more competitive, and what issues will define the country’s economic future?

Kuwait has some noteworthy strengths and weaknesses, and our economic prospects are bright. On the strengths side, we have solid leadership and guidance under the Emir, His Highness, Sheikh Sabah AlAhmed Al-Sabah. We have a world-class banking sector and

governance system that puts us in a strong position to benefit from regional growth. The Central Bank of Kuwait has done a superb job of partnering with the financial services industry to implement the post2008 regulatory framework. I have observed this first-hand in my role as Chairman of Gulf Bank. It is worth noting here, because our banking system is the foundation upon which all our economic activity is built.

I cannot overstate the importance of CBK’s leadership to Kuwait’s economic climate.

On the weaknesses, we face difficulties in engaging Kuwaiti youth in the private sector. It is difficult to persuade people in Kuwait to give up the certainty and security of government employment—where few people, if any lose their jobs—for the greater rewards and risks of the private sector. We can do more to reform public education. In too many instances, education in the Middle East has emphasized memorization over critical thinking.

Generations upon generations have been trained to use their minds to store knowledge rather than to apply knowledge to solving problems. We have to change that emphasis.

There is the question of diversity, especially when it comes to women in the workforce as a key factor in competitiveness.

The MENA gender gap is three times what exists in most developing economies. According to the International Monetary Fund, if this gap were narrowed by just one third, the regional GDP would grow by 6%, or $1 trillion. This is a massive source of potential growth we need to unlock. It is easy for the private sector to stand on the sideline and point out problems. We have a responsibility to be part of the solution, working hand-in-hand with government to encourage this critical transition from past practices. ✖

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THEBUSINESSYEAR

KUWAIT 2016

INTERVIEW

SURVIVE & adapt TBY talks to Jawad Ahmad Bukhamseen, Chairman of Bukhamseen Group Holding Company, on the company’s vision, development of the Kuwaiti economy, and driving external growth.

Founded in 1957, Bukhamseen Group Holding is one of the largest financial and industrial companies in Kuwait. What is your vision for the company?

Our vision is to continue what we are doing in a more diversified way. When we started the family business and entered into a sector, our goal was to establish a business, find the right management, be profitable, then move to another sector and do the same thing. Our diversified model has allowed us to survive all the hiccups in the market. We concentrate on the companies we have in various sectors to make them leaders in their fields.

What are the most profitable investments for Bukhamseen Holding?

We are increasing our shares in several banks around the region. Additionally, consumer industries and industries based on day-to-day demand offer great opportunities: water, juice, and food industries, and on the manufacturing and production side, steel, because it is involved in construction and this region is full of new developments. Ultimately, we evaluate every business and investment carefully. We try

• Established in 1957 • 40 subsidiary companies • Focused on investment growth in Iraq, Egypt, Oman, Turkey, and Saudi Arabia

to only invest in higher-yielding and fast-growing businesses. We avoid attachment to low-yielding investments in order to find more profitable ones, making sure that we are capable of handling rapid change.

How has Kuwait’s economy developed over the years, and what role does it play in the region today?

Kuwait has historically been a center for trade. It is surrounded by big, oil-rich countries—Iran, Iraq, and Saudi Arabia. Business was created in Kuwait based on merchant trade. After the war between

Iraq and Iran and the invasion of Kuwait, families and businesses concentrated on investing in real estate and establishing industries. At the same time, following a phase of legal reform, the banking and insurance sector were supported and businesses and institutions grew stronger. Kuwait has always been very active in ensuring a stable region and is the first to donate toward any crisis. There was an immediate response when Kuwait was invaded. This is a humanitarian country with many charitable institutions, such as the Kuwait Foundation, which finances and builds infrastructure in the region through lending low-interest, long-term loans.

With this background in mind, how do you envision Kuwait's economic future?

The more the countries around us are stabilized, the better the chances for Kuwait to become a future trade center. Regardless of current oil prices, the government will continue backing the private sector, as well as supporting investment going forward. All sectors will do well if the government maintains what it is doing. This will encourage the private sector and oil sectors toward further investment.

What opportunities do you see for growth beyond Kuwait?

Bukhamseen is looking to Iraq—a country rich in people and resources. New laws for direct investment in Iraq are encouraging this. In 20 years’ time, Iraq will be doing well; we see that in trade already.

Considering recent events, Egypt is also doing well. Oman, Turkey, and Saudi Arabia are also key growth areas for us.

Over the past 50 years, Bukhamseen has seen steady expansion of its businesses. Looking to the next three to five years, what does the future of Bukhamseen Holding look like?

Bukhamseen is concentrating on two areas: policies and procedures. We are in the second generation now and entering the third, and we want to continue without any disturbances. We are also developing our product offering. At the same time, from the other side, we want to increase efficiency and make the business stronger and more competitive. We are trying to have fewer loans and decrease our liabilities.

Decreasing debt and increasing profitability in all sectors is our main focus. In preparation for future challenges, we are building our resiliency. We are already diversified. ✖

BIO Jawad Ahmad Bukhamseen holds a diploma in Accounting from the Institute of Commerce and Administrative Studies.

He began his career in economics and business back in 1957, and he then became a successful and renowned businessman in Kuwait, the Arabian Gulf, and Arab and foreign countries in various fields. He has been a member of the Chamber of Commerce and Industry of Kuwait for more than 16 years, and a member of the Hotel Association, Landlords Union, and others.

He is currently a member of the Islamic Chamber of Commerce and Industry in Saudi Arabia and a member of the Trustees of the Arab Thought Foundation.

Economy

THEBUSINESSYEAR

39

INTERVIEW

TECH heads TBY talks to Anas J. Meerza, Group CEO of the National Technology Enterprises Company (NTEC), on its mission to see companies use higher technology.

What are some of the current focal points of NTEC’s attention?

BIO Anas J. Meerza joined NTEC in April 2005 and was promoted to CEO in March 2010. During his 20 years of career experience, Anas served for over 11 years as a Research Associate at the Kuwait Institute for Scientific Research (KISR). He is the Chairman and Vice Chairman for several companies and is also on several boards and committees committed to technology transfer, investments, public services, entrepreneurship, and social development in Kuwait. Anas Meerza holds a BSc in Mechanical Engineering Technology from the University of Dayton, Ohio.

We are instilling the understanding that technology is limitless. NTEC's first objective is to start, develop, and manage technological projects. We have been given the liberty to design business models that best fit the environment by understanding the community’s capabilities.

The second objective is to deliver advisory and consultancy services through research, government collaboration, and non-government institutes to advise on the best technologies and encourage the adoption of new technology. The third objective is to invest in technology for the purpose of transferring knowledge to the country.

This was a significant element of our phase one strategy from 2005 to 2011: learning how to insert certain technologies into sectors and then creating awareness of the benefits of doing so. The last objective is one of the most important, and that is capacity building and training.

What phase is the company currently in, and what is to come?

The first phase of investment has been completed and we have entered phase two, which was the “span-out

mode,” in which we transferred technology. We decided to segregate tech areas into NTEC subsidiaries, as each have their own individual KPIs but have the same mandate as NTEC at a micro level.

We launched companies in life sciences, ICT, and energy, and created an advisory arm alongside an HR management arm. All companies are now operational, and we have entered the third and final phase, the operational phase, which is focused on project development and management. Gaining a solid understanding of the technology we have invested in and then seeing the shift from investment to building user capacity, and implementation, is most exciting. When the penetration of technology reaches people’s everyday business, it is very gratifying.

What technologies do you see as having the most potential to modernize Kuwait’s economy?

ICT certainly has a part in everything by default, but the major change is what will take place in Kuwait once it begins adopting new types of renewable energy. Our approach is to teach people about these technologies through pilot projects and then get them to adapt to it. One of the major projects we have completed was a co-op in Kuwait called Zahra Co-op, where we built all of its parking with solar panels for shade. We have a working relationship with the Kuwait Institute for Scientific Research (KISR) and the Kuwait Foundation for the Advancement of Science (KFAS), and we collaborate on several pilot projects in order to create public awareness.

We have several projects on the way. One that is approved is the building of a self-sustainable home in one of the residential areas of Kuwait, which will minimize the use

• Established in 2002 • Fully owned subsidiary of the Kuwait Investment Authority (KIA) • Capitalized at $350 million

of any of the country’s traditional sources of energy. The home will be a museum for five years, and people can go in and see how it works. The objective is to show people certain technologies that they can use today that could reduce the waste of energy in Kuwait, and energy consumption on MEW, and give them a better and cleaner life with the use of LED lighting and water purification systems, among other technology.

Where do you see the most potential for technological change in Kuwait’s energy sector?

The need today is not for bricks and mortar or designers, it is energy, as the MEW does not have enough energy to supply the new homes being built in Kuwait. The Public Housing Authority in Kuwait has thus far distributed thousands of plots of land, though not enough power is currently available to support homes to be built. They would have to wait until a new power plant was built. We are trying to present solutions to this problem, as there are technologies everywhere that are developing rapidly. There is technology that uses air to produce water, for example, and it has been available for a long time on industrial scales. ✖

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THEBUSINESSYEAR

KUWAIT 2016

FOCUS EMPLOYMENT

TIPPING the balance A series of government policy changes are in the works to address demographic and employment issues facing the Gulf state and its 2035 Development Plan.

AS IS THE CASE IN GCC STATES such as the UAE and Qatar, where non-nationals are in the majority, Kuwait’s economy is reliant upon imported labor from all over the world, with the top-three source countries for these expatriate workers being India, Egypt, and Bangladesh. This fact, coupled with Kuwait’s dependence on a single commodity—oil—has made the government eager to take action to avoid potential problems in the future.

Figures show that non-nationals represent the majority of the population. Out of Kuwait’s total population of 4.3 million, 2.9 million are foreign workers, according to the Arab Times.

The Kuwaiti government sees this as an obstacle to its goal of securing a sustainable economic future for the country. As laid out in the 2035 Development Plan, key aims for the country over the coming decade are to improve the demographic composition of the population, enhance the skill levels of Kuwaiti nationals in the workforce through the Kuwaitization program as well as various education plans, and improve both the quality and productivity of the expatriate workforce.

At the end of 2015, Kuwait set forth a new policy of linking expatriate residency permits with educational qualifications, a plan which will be implemented over the course of 2016 and monitored over the short term to gauge its effectiveness. The Civil Service Commission (CSC) in Kuwait also mandated that expatriates of all nationalities over the age of 50 must leave the country as of March 1st, 2016—a controversial and drastic move, indicating the urgency with which the issue is being addressed.

Another area of concern that affects more than just the expatriate population is the number of Kuwaiti citizens working in the public sector. Kuwaiti employment trends in public sector jobs versus the private sector

As per Kuwait’s economic development plan, the country aims to achieve an increase in the ratio of Kuwaiti locals in the total population to 35% by 2035.

indicate that the majority of Kuwaiti citizens are employed by the government, with many estimating that over 80% are government employees.

One measure of the country’s desire to address this employment imbalance and strengthen the private sector is the Kuwait Government and Manpower Restructuring Program (GMRP), which plans to boost national production and reduce unemployment by 2030 through the transfer of 59,000 Kuwaiti employees from the public to the private sector, amounting to one quarter of all public sector jobs. The program also includes training of the unemployed, targeting 10,000 individuals eligible for training programs that will aid in the transfer of the knowledge and skills necessary for private sector employment.

Developing the skills of Kuwaiti nationals to improve the economy, finding work for the unemployed, shifting the employment balance from the public to the private sector, and ensuring that Kuwaitis can compete with international standards in today’s globalized talent pool are all considerations that are becoming increasingly urgent with each passing year. As per Kuwait’s economic development plan, the country aims to achieve an increase in the ratio of Kuwaiti locals in the total population to 35% by 2035. ✖

Economy

THEBUSINESSYEAR

AS NON-NATIONALS REPRESENT THE MAJORITY OF KUWAIT’S POPULATION, THE GOVERNMENT IS MAKING EFFORTS TO BOOST EMPLOYMENT OF NATIONALS TO ENSURE SUSTAINABLE ECONOMIC DEVELOPMENT.

1 2 3 Top three source countries for rs expatriate worke

1. India 2. Egypt 3. Bangladesh

Total population

Foreign worker population

Kuwaitis under the age of 20

4.3 million

2.9 million

50%

Government and Manpower Restructuring Program To transfer 59,000 Kuwaiti employees from public to private sector by 2030

Targeting 10,000 unemployed Kuwaitis for training programs in private sector

Employment in numbers

2%

3rd

unemployment rate since 2010

place globally for lowest unemployment rates, after Belarus and Thailand

326,271

93,000

citizens employed in public sector

citizens employed in private sector

174,000 male 152,000 female

48,000 male 45,000 female

SOURCES: ARAB TIMES, GLOBAL FINANCE MAGAZINE, PUBLIC AUTHORITY FOR CIVIL INFORMATION

41

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THEBUSINESSYEAR

KUWAIT 2016

FORUM Multinationals are betting on decades of top-down development plans and bottomup growth of Kuwait’s businesses, both of which justify serious investment.

ADRIAN K. WOOD

AMR TANTAWY

KHALED TALAAT

AHMED DUALEH

CEO, Siemens Kuwait

Country Manager, DHL Express Kuwait

Country Manager Kuwait, IBM

Managing Director, Dow Kuwait

K

uwait has large oil and gas fields, as well as upstream, midstream, and downstream industries.

Digital factories and process industries is another area where our automation solutions and process know-how is involved.

Kuwait’s manufacturing industry is growing, and we are active in this sector. In addition to providing equipment and local service and maintenance, we also provide upgrades and optimizations to our customers’ facilities. Process efficiency is an important topic in the industry, and Siemens excels at providing smart solutions for greater productivity in highly complex processes and equipment, connecting hardware, software, and data to bring greater efficiency to our customers. Servicing, maintenance, upgrades, and optimizations are an essential part of what we do at every level of operations, from small factories to power stations. Population and industrial growth in Kuwait will require increasing amounts of energy. This needs to be generated, transmitted, and used with greater efficiency.

In infrastructure development, Siemens is able to implement smart building technology with integrated fire, security, and control management systems.

K

uwait is the third largest country in the Middle East region and is part of the Middle East Exact Route, and there are therefore many opportunities for us to expand and increase our market share. When DHL first opened in 1977, it was the first express logistics company in the country. Since DHL’s inauguration, we have been able to mirror the growth of the economy and our presence has grown steadily.

Our year-on-year double digit growth reflects DHL’s commitment to maximizing and enhancing our existing operations, while expanding our routes and logistics solutions to meet the growing demands of the Kuwait market, due in part to the introduction of B2C online shopping platforms as well as the shorter shelf-life and continuous re-stocking needs of electronic and fashion commodities. In Kuwait, 90% of GDP comes from oil. Imports are a large part of the economy; almost everything is imported. The retail business represents a major part of the economy, which is why when we looked at domestic market dynamics, we wanted to focus on SMEs.

I

BM designed an initiative called Geographical Expansion around ten years ago. We chose several countries to be a part of this program, and we began with Saudi Arabia about seven or eight years ago, and then moved into Qatar three years ago. IBM aims to have 100% ownership in its presence abroad. Due to the new investment law associated with KDIPA, Kuwait was the next natural choice for us to establish a local office. Kuwait has a solid vision for the future, and we want to support that vision. We want to ensure that the 2035 vision is met by following clear directions and providing the newest technology available. IBM has leading capabilities when it comes to creating a smarter planet, smarter cities, smarter houses, and smarter health systems. By partnering with Kuwait, we can achieve its 2035 vision together. Kuwait is an advanced country in terms of technology, and we have clear directions with its 2035 vision.

We are looking for more partnerships, trying to expand our presence, and following IBM’s strategy, while at the same time meeting the needs of the local enterprises in Kuwait.

W

e look to generate value both for the company and the country by creating jobs and because of our successful JVs, Dow is now the largest private employer of Kuwaiti nationals in the petrochemical industry in Kuwait. We have used technology to add value to Kuwait’s basic hydrocarbon products. For example, we utilize our technology when we create a petrochemical product from hydrocarbon feedstock.

Those petrochemical products are being used to produce plastics or road markings and pipe coatings for the construction sector. Our technology allows for the recovery of oil when drilling in mud for exploration by enhancing the characteristics of the drilling models. We also have technology designed for oil refining which remove contaminants in natural gas and trace fuel additives with different dyes and markers. In addition, Dow has solutions for solar and renewable energy. This is particularly important in Kuwait as the country has committed to having 15% of its energy comes from renewables by 2030.

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

WHY KUWAIT?

“When the oil price fell suddenly, Oman was one of the countries described as being overly dependent on oil.

But interestingly, Oman was able to recover quickly because local investors saw value and put money into the stock market, which rebounded quickly.�

LLOYD MADDOCK CEO of Ahli Bank In an exclusive interview with The Business Year

Find out more in The Business Year: Oman 2016

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Dr. Hamad Al-Hasawi, Secretary General of the Kuwait Banking Association (KBA), on meeting Basel III requirements.

Christine Lagarde, Managing Director of the IMF, on priorities for expanding Islamic finance.

The Kuwait Stock Exchange is undergoing measures of privatization guided by newlyintroduced pieces of legislation.

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Finance REVIEW BANKING

The strength of the Kuwaiti banking system continued through 2015, with the real estate and housing markets fueling credit growth.

DIAMOND IN THE ROUGH T

he financial system of Kuwait is predominantly bank based, with banking institutions accounting for approximately 80.6% of the country’s financial sector. According to data from the 2014 Financial Stability Report, prepared by the Central Bank of Kuwait (CBK), traditional instruments of financing form the core of the sector. As of end-2014, loans accounted for as much as 61.5% of consolidate assets across the banking sector. Financial assets, such as fixed income instruments, equity shares, government-issued securities, and real estate investments, accounted for 15.6% of total bank assets through 2014 and constitute the next largest segment of the banking sector. Customer deposits accounted for 59.4% of consolidated liabilities in the banking sector in 2014, an indication of the strong deposit base that enables Kuwaiti banks to so successfully intermediate the country’s financial markets. After a modest slowdown in 2014

Image: Asiya Capital Investment Company (Asiya)

Growth continued in the Kuwaiti banking sector, supported by government spending and developments in the real estate and household markets.

during which the banking sector recorded a consolidated net income of just $1.71 billion, profitability growth in the sector rebounded by 26.5% YoY to reach roughly $2.16 billion in consolidated net income in 2015. Credit growth in Kuwait has maintained a consistent recovery since the 2008-2009 global financial crisis. Consolidated loan portfolios of the banking sector further expanded by 11.5% YoY in 2014 to $13.82 billion, the strongest annual growth of the last five years.

Government revenues as a percentage of total GDP declined from 73.9% in 2013 to 69.8% in 2014, a reflection of declining oil revenues and an increased effort to bolster the role of the private sector in driving economic growth.

Despite the immediate effect of declines in traditional hydrocarbon revenues, total credit from the banking sector was projected to grow between 8-9% during 2015.

This resilience in economic growth in spite of challenging market conditions is aided in part by the fact that Kuwait

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KUWAIT 2016

Household borrowing in 1H2015 grew by 12.5% YoY and accounted for more than half of the gains in total credit growth during the first two quarters of 2015.

has one of the lowest external break-even oil prices in the world, making energy a robust industry for financing public spending. According to the 2015-16 edition of the World Economic Forum’s flagship publication, the Global Competitiveness Report (GCR), Kuwait was ranked as having the THIRD strongest overall macroeconomic environment and the world’s highest government budget balance, at 25.5% of GDP. The GCR also ranked Kuwait second in terms of gross national savings, at 51.9% of GDP, and fourth in terms of general government debt, at 7.1% of GDP. The government’s current account retained a healthy surplus of approximately $50 billion in 2014 (31.7% of GDP), a sovereign net foreign asset total of $529 billion (323% of GDP), and $38.6 billion in external debt (24.5% of GDP).

It is these fiscal buffers that give Kuwait the capacity to sustain the continued increase in the number of government megaproject contracts awarded, a vital catalyst for sustaining credit growth in the banking sector.

The performance of the banking sector is closely tied to trends in the real estate and housing markets, which represent a key segment of institutional investment lending. In the past four to five years, real estate has been one of the main channels for facilitating flows from the capital markets, as most other sectors in Kuwait are underdeveloped and offer few immediate opportunities for investors.

Loans to the household and real estate sectors in 2014 accounted for 45% of total gross loans.

Outstanding credit to borrowers in the household and real estate sectors totaled $29.93 billion and $30.2 billion, respectively, at the beginning of 2015. Real estate loans’ share of banks’ consolidated credit portfolio declined slightly from 23.2% in 2013 to 22.5% in 2014.

Real estate still remained the most significant customer segment for lending activities from both conventional banks and Islamic banks.

Real estate sales rose by 19% to a record $14.51 billion in 2014, with particular surges in the commercial and investment segments. This

booming market, driven largely by growth in investment real estate, led to an 8.4% increase in bank lending to the real estate sector during 2014, making it the strongest year since 2010.

Just 1.1% less than total lending to the real estate sector, the $29.93 billion extended by banks to the household sector marked an 11.8% growth in 2014, a marginal decline compared to the 17.1% growth in household loans in 2013. Despite this decline, 2014 was the fifth consecutive year in which the banking sector registered double-digit growth in loans to the household sector. This positive trend continued into 2015, when household borrowing as of 1H2015 grew by 12.5% YoY and accounted for more than half of the gains in total credit growth during the first two quarters of 2015.

THE WINNERS’ TABLE Although respondents to 2015-16 GCR in Kuwait indicated access to financing as the third most significant impediment to doing business in the country and the report ranked the national financial market development 73rd in the world, the soundness of its banks was ranked 37th. The GCR also ranked Kuwait 27th in terms of its credit rating. The banking sector of Kuwait is comprised of 23 banks, including 11 international banks, five commercial banks, one niche service bank, five traditional Islamic banks, and one specialized Saudi Arabian Islamic bank. Some of the most important banks are Kuwait Finance House, Burgan Bank, Gulf Bank, Commercial Bank of Kuwait, Al Ahli Bank of Kuwait, and National Bank of Kuwait (NBK), by far the largest bank in the country. NBK was established in 1952 as the first local bank in Kuwait, as well as the first company to issue public ownership shares in the GCC. As the dominant leader of market share in Kuwait’s robust banking sector, the performance of NBK serves as an indicator for several key indicators. According to a 2015 report, NBK was the 2014 leader in total assets ($74.4 billion), customer deposits ($38.5 billion), customer loans and advances ($40.7 billion), and net profit ($935 million).

FAITH IN THE SYSTEM Though conventional banks still hold a 60.3% share of the banking system on a consolidated basis, the Islamic banking system’s 38.7% consolidated share of the banking sector represents one of the most significant networks of sharia-compliant banks of any country utilizing a dual banking system. National Bank

Finance

BANKING SYSTEM INDICATORS ($ BILLIONS) SOURCE: CENTRAL BANK OF KUWAIT

179.2

187.7 155.2

162.6

99.0

24.0

TOTAL BANK ASSETS

TOTAL BANK LIABILITIES

104.4

25.2

SHAREHOLDER EQUITY

July 2014

CREDIT FACILITIES

July 2015

of Kuwait became the only banking group to offer both Islamic and conventional banking after its consolidation of Boubyan Bank in 2012. The consistent growth of the Islamic banking sector highlights the effectiveness of efforts by the Central Bank to ensure that conditions in the financial system are conducive for growth for conventional banks and sharia-compliant banks. Following the blow to investor confidence in the fallout from the 2008 financial crisis, many customers find the asset-based collateralization used in sukuk (Islamic banking funds) more attractive than the business model of conventional banks.

According to the 2014 Financial Stability Report by CBK, the decline in the cost to income ratio for banking sector from 45% in 2013 to 42.9% in 2014 was driven largely by the 11.9% reduction in operating costs for Islamic banks during 2014.

RULES OF THE GAME The banking sector is closely regulated by CBK, which replaced the Kuwaiti Currency Board in 1968 as the institution responsible for enacting monetary policy after decades of loose regulation involving serious administrative conflicts of interest. The mandate for the CBK is to maintain stability throughout Kuwait’s financial system by monitoring credit levels of lending institutions, liquidity in the banking

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sector, and implementing prudential regulation. Its board of directors is made up not only of the head of the Central Bank, but also representatives from the Ministry of Finance and the Ministry of Commerce and Industry, as well as several external members. The strength and stability of the Kuwaiti banking system is largely a result of the efficacy of the CBK. After annual inflation of the consumer price index reached 2.9% in 2014, rising domestic pressures pushed that figure all the way up to 3.5% through 3Q2015. By September 2015, however, these pressures were contained an inflation leveled at 3.1%. This success of the CBK in responding to this spike in inflation bodes well for the future of the country’s financial system.

In addition to administering changes in monetary policy, the CBK has been praised for its regulation of the banking sector in accordance with global best practices. The country will have fully adopted the updated the Basel III guidelines by December 2016, well ahead of the internationally agreed upon starting date of January 2019 for countries to comply with the new set of standards. With its changes to definition criteria for asset categorization and stricter stipulations regarding financial controls, the prompt implementation of the Basel III guidelines is further evidence of the commitment to ensuring the strength and stability of the financial system of Kuwait. Minimum capital requirements for Kuwaiti banks are already 2.5% higher than those outlined in the Basel III reform package. The consolidated capital adequacy ratio (CAR) declined to 16.9% YoY in 2014 from 18.9% in 2013. The CBK’s Financial Stability Report indicates that this decline in the CAR was partially due to its calculation under the new Basell III criteria; under the previous Basel II standards, the CAR would have actually increased to 19.3% in 2014.

The largest contributor to non-oil GDP in Kuwait has long been the financial sector.

Financial services and banks accounted for a combined 46% of both the value and volume of all trades on the Kuwait Stock Exchange through 1H2015. The continued strength of the financial system in Kuwait stands to benefit from formalization of corporate governance measures and opening up the banking system to include more foreign banks, which currently accounts for just 3.8% of the consolidated banking system. The momentum of sustained government spending on large-scale projects and continued growth in the real estate and household markets give an optimistic outlook for banks in Kuwait heading into 2016. ✖

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INTERVIEW

help at HAND TBY talks to Dr. Hamad Al-Hasawi, Secretary General of the Kuwait Banking Association (KBA), on meeting Basel III requirements, dealing with lowered oil prices, and the outlook for the future.

One of KBA’s goals is to boost cooperation among local banks.

What does the organization do to achieve synergy among banks in the country?

BIO Dr. Hamad Al-Hasawi served as head of financial services at Rasameel Structured Finance during 2003-11, and has held positions such as commercialization and marketing consultant at the Kuwait Institute for Scientific Research, Chief Operating Officer at Gulf Holding Company in Bahrain, and Senior Vice President at KIPCO Asset Management. Before that, he was Vice President at Gulf Investment Corporation and adviser to the Ministry of Defense.

In addition, he has held the position of Visiting Professor to the American University of Kuwait and the Australian Collage of Kuwait (ACK). He earned a PhD in Management and Organization from the University of Stirling, UK, and received an MSc in Civil and Environmental Engineering from the Kuwait University, and a BSc in Chemical Engineering from the University of Dayton, US.

At present, all banks are members of the KBA. By default, any newly established bank or branch of a foreign bank opens in Kuwait will become a member. To ensure the effective cooperation of banks in discussing and following up issues of interest, KBA has a number of specialized committees in all areas of concern, and all banks are members of these committees. These committees are to meet regularly to address pressing issues and suggest appropriate ways to deal with them. This system has proved to be effective in enhancing cooperation among members of KBA. Global interest in Kuwait continues to rise, driven by the strong performance of Kuwait’s banks in recent years. What have been some of the key, recent developments in Kuwait’s banking sector, in terms of policy, that have improved the operating environment?

The CBK has continued to strengthen regulation and supervision of the banking system to safeguard financial stability. The CBK operates a strict system of monitoring to ensure the viability of banks and shield the banking sector from undesirable shocks. By applying macro-prudential tools,

the CBK is proactively monitoring and mitigating banking sector risks. By approving the implementation of the instructions of Basel III capital adequacy standards in June 2014, the leverage ratio standard in October 2014, and instructions on liquidity coverage ratio in December 2014, the CBK completed the implementation of the financial standards of the Basel III reform package. Kuwait has become one of the leading countries to implement these standards, adopted in the aftermath of the global financial crisis in order to consolidate the pillars of financial stability. The Kuwaiti banking sector has a capital adequacy ratio of 16.9% according to the Basel III definition. Continued efforts to develop money and debt markets will further strengthen liquidity management and improve monetary transmission.

What are some common issues that banks are currently facing in Kuwait, and how is the KBA working to address these issues?

The main issue currently facing banks is the full application of Basil III. KBA is coordinating with banks with the assistance of the CBK to fulfill their obligations according to Basil III by 2018. Kuwait is currently developing the SME sector. As a promising sector for attracting young entrepreneurs and providing jobs for Kuwaiti new comers to the labor market, KBA is coordinating between banks and the National Fund for developing SMEs for effective involvement of banks in co-financing SMEs with the National Fund.

Funding agreements have already been signed between the National Fund and some national banks.

Kuwait’s economy is facing new challenges with the recent drastic drop in oil prices. What are the main challenges and opportunities at this crucial point in the country’s development?

There is no doubt that the most important challenge fac-

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22

banks are members of KBA

16.9%

banking sector capital adequacy rate

ing Kuwait now is the recent drop in oil prices. For the first time since the 1999/2000 fiscal year, the state budget scores a deficit estimated to be KWD8.2 billion (approximately $28 billion). Current scenarios also indicate that oil prices will continue to be low at least for the medium term in the future.

Surely, the declining oil prices are expected to have negative effects on the private sector in Kuwait. This is because public spending is the main driver of economic activity in the state.

The decline in public spending is expected to cause lower rates of economic growth, which has already been expected by international economic institutions like the IMF and the World Bank. From that perspective, we expect the growth of banking services to decline.

What are your expectations for the banking sector in 2016?

Economic conditions in 2016 will be to some extent different from those that prevailed in 2015. We expect oil prices to continue to be lower than their trend. Lower oil prices will also mean lower per capita income and private savings. Of course, all of these factors will have a negative impact on the banking sector. This will be countered by opening the door for banks to provide necessary credit for the government to finance the budget deficit. ✖

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GUEST SPEAKER

promise of ISLAMIC FINANCE

*Speaking on November 11, 2015, at the Islamic Finance Conference in Kuwait City

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), on priorities for expanding Islamic finance and unlocking the segment’s full potential.* We at the IMF are keen to participate, listen, collaborate, innovate, and develop the promise of Islamic finance in a sound and sustainable way, by managing risks appropriately and ensuring financial stability. We should recall what promise Islamic finance holds—to foster inclusive growth and support the livelihood and aspirations of the people in the region and beyond. And we know, inclusion is key to promote invigorating, reinforcing growth and shared prosperity.

While Islamic Finance is not new and has been practiced for centuries around the world, it has gained in popularity of late. Total Islamic finance assets are estimated at around $2 trillion, practically a ten-fold increase from a decade ago, and outperforming the growth of conventional finance in many places. Islamic finance has the potential to contribute to higher and more inclusive economic growth by increasing access of banking services to underserved populations. To this day, a large segment of the Muslim population—who are a primary, but not the only, market for Islamic finance around the world— remain financially underserviced, with only one-quarter of adults having access to bank accounts. In addition, Islamic finance’s risk-sharing features and the strong link of credit to collateral means that it is well-suited for SMEs and startup financing—which we know can promote inclusive growth.

For the same reason, Islamic

finance has shown its value in infrastructure investment, which can spark productivity gains and catalyze high value-added growth.

Secondly, Islamic finance has, in principle, the potential to promote financial stability because its risk-sharing feature reduces leverage and its financing is asset-backed and thus fully collateralized. In addition, besides deposits, Islamic banks offer profit-sharing and loss-bearing accounts that can help mitigate losses and contagion in the event of banking sector distress. This leads, de facto, to higher total loss-absorbing capital, one of the key objectives of the new global regulatory reform.

To unlock the full potential of Islamic finance, the first priority is to level the playing field and create an enabling environment for Islamic finance to develop, while being mindful of risks. This means adapting financial regulations that take into account the defining features of Islamic finance and do not disadvantage Islamic banks. For example, capital requirements for banks should be adapted to account for Islamic finance’s risk-andprofit sharing model—which allows for some loss-bearing by investors and reduces risk weights applied to equity-like financing.

Leveling the playing field also means harmonizing the tax treatment of Islamic finance products with similar conventional contracts. Income tax systems typically recognize interest gains on debt

instruments as a deductible expense. This debt bias puts Islamic finance at a competitive disadvantage and discourages risk-shared financing.

The second priority for policymakers is to further develop the industry and markets.

Many countries could encourage further improvements in Islamic banking to boost financing for small- and medium-sized enterprises.

In addition to strengthening the industry, many countries could further develop Islamic financial markets. Think of the growth potential of sukuk. Over the past decade, total outstanding sukuk assets have seen a ten-fold increase to about $300 billion. Most of these assets remain concentrated in the Gulf states and Malaysia. But interest has been growing in other parts of the world. Luxembourg, Hong Kong, South Africa, and the UK are among a growing number of other countries that have issued sukuk bonds in recent years.

More regular sovereign issuance is needed at different maturities to help establish benchmarks and develop secondary markets. Sovereign sukuk plans need to be embedded in governments’ debt management strategies. And the market needs to be supported by strong legal and regulatory frameworks. The latter would help address persistent uncertainty over investors’ rights.

From the IMF’s perspective, we are also looking to raise our game. As you know, finan-

cial stability lies at the heart of the IMF’s work. We have, over the past year, done a large amount of analytical work to deepen our understanding of Islamic finance’s implications for financial stability and economic growth. We are keen to pursue this agenda and to further strengthen our policy advice by incorporating best practices for Islamic banking and finance Together, we can foster a 21st-century version of Islamic finance that can deliver on all its promises. That is to promote financial inclusion and stability, meet the needs of financially underserved populations, lift potential growth, and create better opportunities of all people. ✖

BIO Christine Lagarde is Managing Director of the IMF. She was appointed in July 2011. A national of France, she was previously French Finance Minister from June 2007, and had also served for two years as France’s Minister for Foreign Trade. She also has had an extensive and noteworthy career as an anti-trust and labor lawyer, serving as a partner with the international law firm of Baker & McKenzie, where the partnership elected her as chairman in October 1999.

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FOCUS DINAR’S STRENGTH

Kuwait’s award-winning currency, the dinar, is the perfect embodiment of the strength and stability for which the country’s financial system has long been revered.

BILLED FOR SUCCESS AS A LEADING OIL-EXPORTING NATION, Kuwait’s income is derived predominantly from hydrocarbon revenues. This reliable revenue stream has enabled the country to both prosper and save approximately 10% of its government budget annually, creating large fiscal reserves that protect it—and, in turn, the Kuwaiti dinar—from the effects of the current downslide in oil prices.

Oil is exclusively bought and sold on the international market in US dollars. However, indicative of the Central Bank of Kuwait’s (CBK) proactive management of local currency, the CBK decided in 2007 to remove the Kuwaiti dinar’s longtime peg to the US dollar. In an effort to curb inflation and secure the value of the Kuwait’s local currency, the CBK instead opted to peg the dinar to a mixed basket of undisclosed international currencies. The CBK periodically reviews developments and advancements in money management, and since the introduction of the Kuwaiti dinar in 1961, there have been six new issuances of Kuwait’s currency. Most recently, the CBK released into circulation the latest issue of Kuwait dinar banknotes on June 29, 2014, the first new issue of Kuwait’s currency since 1994.

Recognized by the International Association of Currency Affairs (IACA) as the "Best Banknote Issue of 2015" for its “security and elegance,” Kuwait’s currency was acknowledged by a vote of central banks and international companies from around the world. The vote declared Kuwait’s 6th currency issue as the "Best Banknote Issue of 2015" in a competition among 18 countries worldwide. In another global recognition, months after its issue, the new Kuwaiti currency also earned the award for "Regional Banknote of the Year 2014 (Asia)" at the High Security Printing Conference in the Philippines. These recognitions come as a result of the CBK’s application of the latest technological advancements in the

banknote printing industry, particularly regarding security features that protect against threats of counterfeiting and forgery. These security features, combined with an aesthetic that symbolizes Kuwait’s culture and its heritage, are a push towards modernity.

Security features of the new Kuwaiti dinars match the top international standards in the banknote printing industry, including hidden demarcations of authenticity that are visible only under UV lighting. Raised print on the banknotes also acts both as an aid to the visually impaired and a security marking. Aesthetically, each note pays homage to several national traditions, cultural symbols, and iconic monuments and milestones throughout Kuwait’s young history. Key landmarks of Kuwait incorporated into the design of each banknote include the Central Bank of Kuwait’s new building, the Kuwait National Assembly Building, Kuwait Towers, the Liberation Tower, Seif Palace, and the Grand Mosque.

The CBK is highly regarded in Kuwait’s financial sector and commended for its efforts in effectively strengthening the foundations of the country’s monetary and financial stability. The award-winning sixth Kuwaiti dinar issuance reflects not only the CBK’s capabilities in managing its money supply, but also the continued strength of Kuwait’s currency, which has reigned supreme as top ranking among the world’s currencies and the highest valued currency in the world since 2013. The adherence to and application of leading innovations in currency design and printing indicate that Kuwait and the CBK are keen to maintain their leading status in the world of global currency and money management. Kuwait’s currency has a longstanding history of strength and stability, and the Kuwaiti dinar enters 2016 as the most valuable currency in the world. ✖ Image: Craitza

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INTERVIEW

ethical TOUCH TBY talks to Mazin Saad Al-Nahedh, Group CEO of Kuwait Finance House (KFH), on Islamic finance and the role of technology in the sector.

As you were appointed Group CEO of KFH in October 2014, what have been some of the key elements of your executive strategy thus far?

BIO Mazin Saad Al-Nahedh received his Bachelor’s degree in Finance from California State University Sacramento in the US, awarded in 1992. His banking experience spans more than 20 years. He completed the General Management Program, and several specialized training courses from Harvard University, in addition to his numerous certifications. He went on to excel in many banking functions related to wholesale banking, finance, retail banking, treasury, and he was successful in managing the assets and liabilities of financial institutions within regulatory and administrative requirements. He joined KFH on October 1, 2014. Before holding his position at KFH, he served as a member of the Management Executive Committee, Group General Manager-Treasury, General Manager-Corporate Banking Group, and Retail Banking General Manager at the National Bank of Kuwait (NBK).

The board of directors would like to see improvements in efficiency, customer service, and achieve a better integration of the group as a whole.

The key focuses were to align all the businesses that KFH owns, making sure that they add value to the KFH bank and provide significant, sustainable revenue to the group. We continue to look at ways of unloading assets that are speculative in nature or not core to our business lines and improve our asset quality by getting rid of heavy risk-weighted assets.

This is one method that we use to give us room for our capital to support future growth. Beside our core competencies of real estate and financing, we are in many businesses in many areas such as energy, healthcare, human resources, and IT. KFH is one of the leaders in Islamic finance worldwide. What is your assessment of the development occurring internationally in the Islamic finance space?

The development in Islamic banking products on the liability side has reached a level that is comparable to conventional banking but we have not yet reached the same level of product diversity on the assets side. The financing vehicles that are available on the Islamic side could see further improvement. We have seen a significant amount of sukuks outstanding because of their acceptability by the issuers and by governments.

We’ve seen the government of South Africa, for example, issue sukuks because it can access the market and get the right type of funding with the

IN NUMBERS Established in

1977

1st

sharia-compliant bank

64% Kuwaiti staff

right price. Investors whose confidence was shaken after the 2008 financial crisis feel more comfortable dealing with sukuks because they are asset based. Borrowers are willing to provide asset-based collateral for the sukuk instruments and thus both the issuer and the investor are happy. We are working to introduce more products on the asset side to a level where we are comparable to conventional bank.

Focusing on Kuwait, how do you view your role in raising the bar of banking technology and improving efficiency in the Kuwaiti banking sector?

We need to invest heavily in technology that provides a positive user experience in order for KFH, and all Kuwaiti banks, to operate more efficiently. If we can automate the transactions that currently go through call centers or

physical branches and make products available in a self-service, user-friendly manner, more people would migrate to those channels and this would significantly decrease our operating cost base. It is a win-win model: better service for the clients and cheaper for the banks. KFH is the leader in online banking across all Kuwaiti banks with an excess of over 250,000 active online banking users. We are looking for payments to be easier with the likes of Apple Pay or Google Wallet, whereby you are replacing your credit card with the mobile phone, or facial recognition technologies whereby you make a payment based on your features or other biometrics such as fingerprint, palm print, voice recognition, or iris recognition. If these potential technologies are developed well enough, we want to be the first to adopt them. We recently rolled out an idea during Ramadan whereby customers could donate to Zakat Al-Fitr at KFH ATMs. We received an amazing amount of appreciation from customers thanking us for making it easy to donate simply with the click of a button. It was very positive and we are continuing to evolve in this manner.

How have you seen the Basel III regulations impact KFH and the banking sector as a whole in Kuwait?

Basel III had a significant impact on all Kuwaiti banks, specifically on KFH and NBK. Due to our size, regulators could potentially impose a premium for us over and above the thresholds set by Basel III of 15% in order for us to sustain future growth. This puts us at a disadvantage because at every loan, we weigh risks to assess the minimum equity or capital we need to finance it. ✖

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INTERVIEW

How would you assess the performance of Burgan Bank over 2014 and into 2015?

FIRM BASE TBY talks to Eduardo Eguren, CEO of Burgan Bank, on recent performance, facilitating international banking, and implementing Basel III regulations.

The performance of the bank has been consistently solid, like most other banks in Kuwait; however, our model is different as we are the most international Kuwaiti bank.

Firstly, we have the largest relative international presence compared to others, because in terms of our expansion strategy we decided to diversify out of Kuwait into faster growth markets. At the same time, diversification has to do with risk management. The more diversified you are, your ability to endure and keep growing becomes more solid.

Secondly, we have a focus on quality earnings. We are not an organization that is based on one-off large gains or deals.

Thirdly, we are truly customer-centric.

How would you describe the health of Kuwait’s banking sector?

The health of the market, like many other conditions, has several variables. If you think in terms of solvency and the strength of the system, the Kuwaiti banking system is one of the strongest in the world, by the players that are here as well as by the support given by a strong government. This is also backed up by the fact that the Central Bank, by law, backs 100% of the deposits, irrespective of the amounts.

We could benefit from evolution because the market relies on the strength of the government, which could still bail everyone out in extreme conditions. We do not run the bank like this, but strive to be innovative and support our customers in Kuwait and abroad.

What are you doing to facilitate international banking in Kuwait?

In reality, being customer-centric means that we are building around the success of our customers. We are helping customers do things outside of their environments, as well as serving customers in other

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3rd largest lender in Kuwait by assets

jurisdictions. In order to help Kuwait to grow—and this is a country that has unbelievable possibilities due to some competitive advantages—someone has to occupy the space of being the conduit of helping our customers here to be successful elsewhere in the world.

We are not the only ones, but right now we have the largest footprint out of Kuwait. We have a competitive edge to build on, and our code of behavior is also solid.

What growth opportunities are you looking into outside of Kuwait?

There are three markets in the region that are interesting to us as we have publically announced, and we will eventually go there, one way or another, with the right set up. One is Egypt, there is also Saudi Arabia and the UAE. I look at the Emirates with enormous respect. It has been successful and has done a number of things very well.

Our customers are interested in doing business there, and we are helping them do that.

We have recently obtained some licenses to operate in the DIFC. I do not believe we will enter the retail banking sphere in UAE, because it is an over-banked environment; however, you cannot be successful in this part of the world if you don’t have a successful operation there. Also, our customers give indicators of what they want. We don’t always need to have a physical presence to be operational, but if we have a presence in more than 15 other countries, that gives us a platform.

What are your expectations for Burgan Bank in 2016?

The penetration of Basel III has significantly affected the banking system around the world, particularly in Kuwait, which has been conservative.

It has implications in terms of returns, for example, that have to be considered. Basel III was implemented in 2014, and we had to adjust our capital structure to comply with the new requirements. We did so by issuing some of the first instruments in Kuwait and the region. It is now about continuing the buildup that we have, as our core strategy and consolidating the recent acquisitions we have done. We have several projects in the pipeline, and we have to manage our risk profile carefully.

We are profitable because we know how to operate in this environment. We have to preserve our ability to adjust and evolve. That is absolutely critical. In the end, we cannot be successful in environments like this if we are only doing well during expansionary cycles. Our model is agile and resilient. ✖

BIO Eduardo Eguren was appointed as Burgan Bank’s Chief Executive Officer in September 2010, bringing with him over 25 years of experience in corporate, retail, and commercial banking globally. Prior to joining the bank, he was CEO of Global Commercial Banking operations of Barclays Plc, in London.

From 1984 to 2007 he held senior management positions at Citigroup/ Citibank/Citi, including CFO and Chief Operating Officer, covering businesses including corporate and retail banking, asset management, and insurance and pension funds in Latin America, Europe, Asia, North America, and Africa.

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INTERVIEW

the right CHOICE TBY talks to Adel Abdul Wahab Al-Majed, Vice Chairman & CEO of Boubyan Bank, on growth potential, the state of the Islamic banking segment in Kuwait, and opportunities moving forward.

What is your analysis of the growth potential in Islamic banking for Boubyan?

Growth and demand in the Islamic economy is very high— 40% of Kuwaiti banking assets are Islamic—and this is an industry that was just getting started 35 years ago. Looking at Kuwait’s demographics, we estimate that 15-20% of the population are interested in dealing with Islamic banks “exclusively” due to religious reasons, while the remaining customers might consider their bank of choice based on the quality and diversification of the services provided and products offered. As a result, we believe that by providing top-notch services our Islamic bank will present itself as a very attractive option, and that customers are smart enough to choose the option that serves them best. We certainly know that customers will never sacrifice quality of service, products, or innovation only for products to be merely branded as “Islamic,” and this is why we spare no effort in trying to outperform our competition as well. Our strategy is to target Kuwaitis, especially young ones, as well as affluent expatriates, by differentiating ourselves from other banks in terms of services and technology. Islamic banking is a growing segment, but the pie is shrinking, especially in the Kuwaiti market, making it very competitive to operate here.

Awarded “Best Digital Islamic Bank in the World” by Global Finance magazine in 2015

What trends are you seeing in international banking, and do you see the current political climate clashing with the growth of Islamic finance worldwide?

We already have a presence in the UK, where we hold a 25.62% stake in Bank of London, and the Middle East, and similarly we are in East Asia considering that we hold a 22% stake in Bank Muamalat Indonesia. We know that our customers’ aspirations go beyond that, and we are exploring overseas expansion opportunities as a part of our strategy.

This is a longer-term plan, owing to the political uncertainty around the world at present, which has even led some international banks to pull back from certain markets. Meanwhile, I do expect that Islamic banks will be affected, too, but I believe that such an effect will in no way be similar to that suffered by global banks.

This is mainly attributed to the special nature of Islamic banks

and their exclusivity being the one and only destination for a specific segment of Muslims who only seek sharia-compliant banking services. While controlling $2 trillion worth of assets, Islamic banks also have a huge customer-base, but some are looking at taking Islamic banking to Europe while there is still potential growth in Muslim countries. For example, in Kuwait Islamic banking accounts for 39% and in Dubai it is not more than 30%. Also, there are unseized opportunities in Indonesia, a Muslim country with a population of 250 million Muslims where Islamic banking accounts only for 5%, and Egypt, a Muslim country with a population of around 100 million and a lack of Islamic banking. Egypt is one of the Muslim countries subject to our 2020 Strategy that aims at overseas expansion to position the bank and Islamic banking as an attractive and modern option for young people in such markets.

What are your targets for Boubyan Bank moving forward?

We are looking at 20% growth YoY, at least for the next five years. We have been achieving this growth for the past five years and think we can carry it on for five more years.

Our goal for 2020 is to be the third top bank in Kuwait. Six years ago, we planned to place ourselves as one of the best Islamic banks in Kuwait, but

now the sky is the limit for our aspirations, and we are not only planning to be among the top three banks in Kuwait but also to be among the top 20 Islamic banks in the world.

We think Islamic banks should invest more in productive sectors, such as the agricultural or industrial sectors, where investments are secure and not dependent on speculation. It is time now to come up with banking products that chime with the soul of Islamic banking, for example profit sharing instead of lending. We are looking forward to partnering with customers and sharing profits with them and this is quite possible under Islamic banking which is more asset-oriented. Partnerships and profit-sharing are much higher risk because the same logically entails loss-sharing as well, so Islamic banks should have the right tools in place to mitigate such hazards. ✖

BIO Adel Al Majed has been at the helm of Boubyan Bank as Vice Chairman and CEO since 2009, achieving remarkable success in the Islamic banking industry.

He first joined NBK in 1985 and saw his career progress from Executive Manager to AGM in 1992, DGM of Consumer Banking in 1993, GM of Consumer Banking Group in 1998, to Deputy CEO in 2008, before taking the leadership position at Boubyan Bank.

He graduated from the University of Alexandria with a Bachelor’s degree in Accounting, and attended various management training programs at prestigious universities including Harvard, Wharton, and Stanford.

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VOX POPULI

LOCAL BANKS T

ALI A. KHAJAH CEO, Industrial Bank of Kuwait (IBK)

I

BK is a unique institution in the sense that its shareholders are both from the public and private sectors. The government provides us with a long term loan on a subsided basis for financing the fixed assets of industrial clients at a subsidized and fixed rate of interest.

There will be many opportunities for industrial projects in Kuwait due to the country’s long term development plans.

IBK is also in a position to bring the know-how and investments from leading companies from other countries, who can partner with the Kuwaiti companies. The major challenge that

the industrial sector is facing is the scarcity of land. When it is available, it is far too expensive. These elements affect the mere possibility of establishing a factory and also the profitability of any projects that does take place. The sector has registered decent growth over the past three years; however, it has been mostly achieved through expansion of the existing factories. Hopefully, the government will soon remove the obstacles that prevent the sector’s growth so that Kuwait can achieve its ambition of being a more diversified and increase the share of industrial sector in the economy.

he banking system in Kuwait is one of the most developed in the GCC, with Kuwaiti banks faring well in challenging operating conditions, maintaining good financial standing, and growing at satisfactory levels. Despite being the second smallest market in GCC, Kuwait has the third highest banking industry penetration after Bahrain and Qatar. The Central Bank’s move of raising the minimum capital adequacy ratio (CAR) requirement for Kuwaiti banks to 12.5% in 2015 and to 13% by 2016 could be seen as a sign of strength of the Kuwaiti banks. In fact, the minimum CAR maintained by Kuwaiti banks in the past five years has never been lower than 14%. Looking ahead, we believe the prospects for the Islamic banking industry are particularly good. Between 2010 and 2014, the industry grew faster than the conventional equivalent, and this trend is expected

to continue over the medium term. In line with supporting Kuwait’s wider macroeconomic objectives, Warba Bank is fully committed to growing its portfolio of corporate clients across all segments and company sizes.

in Kuwait, the banks have taken large provisions since 2008, with the Central Bank even encouraging banks to take additional precautionary provisions over and above what is normally required. Overall this has served the banking system well—despite the banks’ initial reluctance—and today, the banking sector in Kuwait has become one of the strongest in the region. Indeed, in terms of capitalization, NPL management, and

adequacy of credit provisions, we are better than our regional peers. In terms of market share, we are between 10-12%, depending on the products you look at. In terms of positioning, conventional banks all have quite similar business models, and they are dealing with both corporate and retail business.

Most Kuwaiti banks would want to increase the contribution of their retail segment to re-balance the business.

JASSAR D. AL JASSAR Vice Chairman & CEO, Warba Bank

MICHEL ACCAD Chief General Manager & CEO, Al-Ahli Bank of Kuwait (ABK)

T

he banking sector in Kuwait relies overall on two types of securities: real estate and the stock market. That’s how most financing takes place, and therefore, the sector has been vulnerable to such heavy concentration of collateral. In the past years, that dynamic created crises (in Kuwait, many of the investment companies faced serious trouble; in the UAE, real estate valuations collapsed). However,

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

Kuwait’s banks are known throughout the region as being reliable and secure, and many are spearheading the development of Islamic banking practices.

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The government of Kuwait is placing its faith in the power of sweeping policy reforms and drastic restructuring throughout the financial sector to restore a declining capital market to its former status as a regional leader.

Review

C A P I TA L M A R K E T S

LENDING SOME SUPPORT In the 2015-16 edition of the World Economic Forum’s (WEF) Global Competitiveness Report, Kuwait was ranked the 34th most competitive country in the world, ahead of fellow GCC states Bahrain and Oman. The most comprehensive and authoritative report of its kind, the WEF uses its proprietary Global Competitiveness Index (GCI) to asses the competitive landscape of 140 economies across the globe and give insight into the forces that shape national economies. A key factor in Kuwait’s jump from number 40 in the 2014-15 report is the WEF’s evaluation of its consistently healthy macroeconomic environment (deemed the third best in the world) where the country ranks number one and two in terms of government budget balance to GDP ratio (25.5%) and gross national savings to GDP ratio (51.9%), respectively. Among areas limiting the competitiveness of the country, however, Kuwait was ranked a disappointing 73rd in the measure of its financial market development, shedding light on the fact that despite a history of strong performance, there is still a need for improvement to the country’s now struggling financial sector. The measure of a country’s financial market development in the Global Competitiveness Report takes into account factors of efficiency—availability of financial services, domestic credit provided to the private sector, financing of SMEs, venture capital availability, bank overhead costs, depth of credit information indices, financing through local equity markets, market capitalization of listed companies, money supply, soundness of banks, non-performing loans, bank z-scores, regulation of securities exchanges, and stock price.

The Kuwaiti government’s recent $116 billion 2015-19 five-year strategic development plan is aimed at investing in the country’s infrastructure and using the public-private partnership (PPP) framework to push the role of the private sector toward contributing upwards of

40% annual GDP, compared to its current contribution of 26.4%. The strategy is also aimed at diversifying the economy away from its current dependence on traditional hydrocarbon revenues, which at 56.2% of GDP in 2015 makes Kuwait the most oil-dependent country in the region. Recent downward volatility in the price of oil and decisions by OPEC to maintain current output levels have rendered it necessary for the country’s leaders to architect the fate of its economic future and to do so promptly. National savings and existing petroleum reserves give Kuwait the resources needed to transform its economic structures into a more sustainable productive system moving forward; what remains to be seen is to what extent the necessary ingenuity and access to capital markets will be available to facilitate such a drastic transition.

LAY OF THE LAND The financial sector of Kuwait is noted as being one of the oldest and thus most developed in the region. The National Bank of Kuwait (NBK) was incorporated in 1952 as both the first local bank as well as the first company in the Gulf region to issue public ownership shares.

In the following decades, stock trading was only loosely regulated until the establishment of the Kuwait Stock Exchange (KSE) in 1983.

The market capitalization of the KSE has consistently ranked as one of the largest among securities exchanges in the Arab region, with a total of more than 200 listed companies valued at a total of over $100 billion. With a historical market cap measuring approximately 100% of GDP, the depth of the securities market in Kuwait has led to a reputation for relatively consistent market performance compared to the rest of the MENA region. However, declines in the liquidity of the country’s capital markets in the wake of the 2008 financial crisis have seen Kuwait fall behind its GCC neighbors in the capacity of its capital markets to support new eco-

M2 - TOTAL SYSTEM LIQUIDITY ($ BILLION) SOURCE: CENTRAL BANK OF KUWAIT

CURRENCY IN CIRCULATION

5.0 FOREIGN CURRENCY DEPOSITS

13.6 TIME DEPOSITS & CDS

55.1 SIGHT DEPOSITS

26.4 SAVINGS DEPOSITS

16.0

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nomic growth and many of the most profitable listings on the KSE carry a beta that exceeds the risk tolerance of now-weary investors. The KSE has seen a decline in liquidity in excess of 80% in the last ten years, making Kuwait just the fourth most liquid market for capital in the region where it was at one time ranked second by the same measure.

Many analysts point to market inefficiencies and ineffective regulation in Kuwait’s securities market as the likely culprit for holding back the country’s explosive potential to move from its current place among MSCI’s frontier markets to an emerging market. As a major step toward carrying out necessary reforms of the country’s financial institutions, the National Assembly voted in 2010 to establish the Capital Markets Authority (CMA). The implementation of the CMA as an independent regulator can not be underestimated in its impact on improving financial efficiency and international competitiveness for a capital market that ranked just 85th in the GCI’s measure of the regulations of securities exchanges, 81st in the strength of auditing and reporting standards, and 134th in the efficacy of corporate boards. The CMA is tasked with regulating a KSE that had for the 30 years prior to 2010 been overseen by the Market Committee, which was headed by the Minister of Trade and Commerce. In contrast to the regulatory environment that it inherited—one which clearly did not reflect global best practices in market oversight or governance—the CMA has amended 65 of the original 164 articles dictating policy for Kuwait’s securities markets in an effort to enhance regulatory compli-

ance and is quickly building a case for gaining admission into the International Organization of Securities Commissions (IOSCO).

BOLD MOVES Government attempts to bring the Kuwaiti financial markets more in line with international standards of operation and increase competitiveness are evident in the move towards privatization in many sectors, including the Kuwaiti Stock Exchange itself. The Boursa Kuwait Securities Company (BKSC) was founded in April 2014 by the CMA to act as the future owner and operator of the privatized Kuwait Stock Exchange. With initial authorized capital of KWD60 million ($198.5 million), the BKSC is carrying out a 46-step strategic transformation plan in an effort to improve the exchange’s performance and develop Kuwait into a leading regional capital market. In support of these visionary changes to the capital markets of Kuwait, a legislative decision was reached in 2015 to establish the ownership distribution structure for the upcoming IPO of the KSE. Under the new ownership guidelines, 50% of the bourse’s shares will be offered to Kuwaiti citizens, 6-24% will be split between government entities, and 26-44% will be allocated to international operators. These decisions are not without a substantial historical basis, such as the privatization of the Dubai Financial Market (DFM). After being transformed into a public joint stock company in 2005, liquidity levels increased from 12.69% to 158.5% in 2007, and market capitalization increased from $86.9 billion to $138.2 billion in 2006. Following the evaporations of Kuwait’s li-

OTHMAN I. AL-ISSA CEO, Kuwait Clearing Company (KCC) What are the primary services you provide for both local and foreign investors in Kuwait?

KCC first began in 1982, and is currently the Central Securities Depositary (CSD) for the local securities market. We carry out central clearing and settlement services for market participants by utilizing our state of the art infrastructure facilities.

In addition to that, we are the official registrars for all Kuwaiti companies. Under commercial Kuwaiti law, all companies have to maintain their registrars with KCC. We provide dual market listed companies in regional markets securities transfer facilities as well. We also act as a regional clearing company for foreign investors and their investments. We are always willing to work with them in order to meet their needs. Our unique position and vast experience in the regional market along with our continuous alignment with international partners allows us to understand local and foreign investor requirements and provide the necessary services to meet that.

How is KCC working on improving the efficiency of Kuwait’s stock market for traders?

KCC has always worked effortlessly to stay ahead with regard to its’ current services. We have invested wisely into our infrastructure in order to remain competitive and stay ahead of the quo. Over the past decade we gradually evolved our operations with market participants toward automation and self-services. Our current online facilities are efficient and provide market participants and investors with instant access to a number of unique services.

For example, the transfer of securities between the registrar and depositary happens instantly via the number of online services provided to brokerage firms. We also have agreements with all the local banks to facilitate the credit and debit the traders income and dues from market operations with their personal bank accounts. These well-managed and secure operations allow investors to conduct trading activities efficiently. We also have agreements with regional markets for the transfer of securities of dual listed companies. KCC developed a system that automates the transfers between these markets.

This system is centrally managed by KCC.*

*Read the full interview at thebusinessyear.com

56

Finance

quidity in the wake of the global financial crisis, it is this kind of financial makeover that government officials are hoping will usher in a new era of its economic identity.

DESIGNED FOR SUCCESS New changes in fiscal policy in the money markets are being carried out primarily by the Central Bank of Kuwait (CBK). Established in 1968 as a replacement for the Kuwaiti Currency Board, which had operated since 1960 in the narrow capacity of strictly issuing currency, the CBK is tasked with maintaining financial stability throughout the country’s financial system by monitoring bank liquidity, institutional credit levels, and implementing prudential regulation. The upholding of stipulations regarding the make-up of its board of directors—composed not only of the head of the CBK, but also a representative from the Ministry of Finance, a representative from the Ministry of Commerce and Industry, and four other external members has long been one of the shining lights in Kuwait’s regulatory environment. The new Basel III guidelines will be fully implemented in Kuwait by December 2016 (as opposed to the international January 2019 deadline) and the Central Bank already maintains a stringent minimum capital re-

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The BKSC is carrying out a 46-step strategic transformation plan in an effort to improve the exchange’s performance and develop Kuwait into a leading regional capital market.

quirement 2.5% higher than outlined in the new international standards.

With a total value of just $3.5 million traded on the KSE in 2Q2015, historical data would suggest a conservative short-term outlook for the capital markets of Kuwait. However, in light of restructuring throughout the financial sector, new government action plans, and prudential monetary policy to the tune of a 92.5% Tier 1 capital ratio in the banking sector and a nationwide regulatory liquidity ratio of 34.1, new life for Kuwait’s capital markets seems to be close at hand with renewed economic growth coming along with it. ✖

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Creating Alternative Opportunities Transparency Professionalism Creativity Knowledge Quality Integrity P.O. Box 4915, Safat 13050, Kuwait | Tel: +965 2247 8800 | Fax: +965 2247 6600 | email: info@rasameel.com

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INTERVIEW

bourse of nature TBY talks to HE Nayaf Falah Mubarak Al Hajraf, Chairman of the Capital Markets Authority (CMA), on stock market regulations and sukuk bonds.

How have the activities of the CMA evolved since the inception of the authority in 2010?

The initial four years were challenging for the authority.

The CMA came in to regulate a market that had been in place for at least 30 years since the establishment of Kuwait Stock Exchange. That role was previously given to a Market Committee headed by the Minister of Trade and Commerce, which did not reflect proper governance or match best global market practices. The CMA has separated the regulator from the market itself.

Over the last four years, the CMA has been busy issuing the by-laws, building capacity and organizational structure, and recruiting young talented Kuwaitis to serve within the CMA. It takes time for a regulator to really see the full picture based on what the law has actually asked the market to do. Moving into our second four-year term, we started by amending 65 articles out of the 164 in the original law passed by the national assembly. These amendments have given the CMA the strength the power and the tools to meet international standards.

We have very challenging tasks ahead. One of the most important tasks is joining the International Organization of Securities Commissions (IOSCO). The second is to upgrade the Kuwaiti market to emerging market status. This will be very important for the economy and the market and will reflect the long and deep history of the Kuwait Stock

IN NUMBERS Foreign operators can have stake of up to

44%

Exchange and trading within the country. We are putting all of our efforts and resources forward to make sure that the market will be upgraded; this is our target.

What have been some of the major changes in regulations of the stock market over the past year relative to foreign investors?

With the new amendments to the law published in May 2015, the Kuwait Stock Exchange has been privatized.

The Kuwait Bourse Company has been established—a first for the Kuwaiti economy. This opens the door for foreign international operators to have a stake of up to 44%. This will serve our interests in upgrading the market by bringing the best know-how into Kuwait and inviting partnerships with the most reputable international operators. We want to encourage foreign investors to come and to stay in Kuwait. By offering up to 44%, we hope international operators will have the incentive to run companies here long term.

Second, the new amendment has exempted foreign inves-

tors from any taxes; dividends will have no tax nor will there be a capital gains tax. These two factors are addressing our target to promote the market to international investors.

From a regulatory perspective, what is the difference between a conventional bond and a sukuk bond, and how can a company become eligible to issue a sukuk?

We are working on this issue on two parallel fronts. We are in the final stage of issuing the bonds as well as sukuk regulations. Because they are different products, there is a market for each. Bonds are like any other fixed income product in any other market, while sukuk is subject to sharia principles. However, there are also differences within the sharia principles based on the sharia advisory boards. To come up with a benchmark, we have our own sharia advisory board within the CMA. The proposal for the sukuk has been sent to the board to get their final approval. By the end of 2015 it seems we will be able to issue the bond regulations. Having said that, there will be no effective market for the bonds, nor will there be an effective debt market if we cannot encourage the government to issue sovereign bonds, so we are encouraging them to do so.

What are your expectations for the CMA in 2016?

By 2016 we would like to have the corporate governance code finalized, as well as the bonds and sukuk regulations,

and the market maker regulations. We would like to enter 2016 by upgrading the financial brokerage firms that are working in Kuwait to international standards. They have been asked to raise their capital to 10 million by the end of 2016. We plan to restructure the post trade model as well. We would like to see the newly created Kuwait Bourse Company start taking the lead and running their stock exchange. Lastly, we would like to become members of IOSCO and begin dialogs with international organizations to form strategic partnerships in terms of training and capacity building for the CMA. ✖

BIO HE Nayaf Falah Mubarak Al Hajraf has served as the CMA since September 2014. He holds a PhD in Accounting and Finance and has extensive experience in both the private sector and public service. He previously served in influential positions such as Minister of Education, Minister of Finance, and Commissioner on the first Board of the CMA from 2010-12. He has held numerous directorship and consulting roles such as Director of the Board of the Kuwait Investment Authority and Board Member of the Supreme Council of Petroleum.

Finance

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INTERVIEW

STOCK IN TRADE TBY talks to Khaled Abdulrazzaq Al Khaled, Chairman of the Board & CEO of Boursa Kuwait Securities Company (BKSC), on choosing privatization and its possible effects on the economy at large.

BKSC was established in 2014 as part of the privatization plan for the Kuwait Stock Exchange (KSE). What were the reasons for establishment?

KSE was founded as a self-regulatory entity in 1983 and operated as such until the promulgation of the Capital Markets Law in 2010, which brought about the formal establishment of the Capital Markets Authority (CMA) as the regulatory body for all securities activities in Kuwait. In recent years, KSE has trailed its regional peers and has witnessed a decline in liquidity exceeding 80% in the last 10 years and while the Dubai Financial Market (DFM) index, for example, has recorded growth of nearly 170% in the last five years, the KSE index has increased by only 5.5%. Privatization would also shield the stock exchange from government interference in operations and management and allow for a separation between shareholders, management and traders. This brings us to BKSC. The company was established in April 2014 with an authorized capital of KWD60 million ($198.5 million) by the Capital Markets Authority Commissioners’ Council resolution 37/2013 and the preamble to law 7/2010. Our current

Market Capitalization $96.3 billion

Traded/listed stocks: 86/223

goal is to assume administrative control of the KSE and to begin a 46-step strategic transformation plan that we have devised with input from all stakeholders to improve the exchange’s current performance, turning it into a leading regional market. It is important to note here that law 7/2010 also outlined the ownership structure of the exchange, dictating the sale of 50% of the exchange to Kuwaiti citizens in an IPO, a percentage not less than 6% and not more than 24% to be allocated to government bodies and a percentage not more than 44% and not less than 26% to be auctioned to an international operator.

How will the privatization of the KSE impact the financial market in Kuwait and what does it signify about the transition occurring in Kuwait’s economy?

Where does the KSE stand today, with regards to investor best practice standards, and where would you like it to be in the future?

The privatization of the KSE is pending the enactment of law 22/2015 in November 2015. This law amends certain articles of law 7/2010, including article 156, which grants the CMA the right to appoint BKSC to manage and operate the KSE during the transition period. This will last until the finalization of the privatization process as stipulated by article 33 of the same law. However, the change in legislation signifies that Kuwait is on a path of much-needed economic diversification, which was made all the more obvious by the recent decline in oil prices over the last year. There is value in the non-oil private sector that needs supporting legislature to allow it to reach its full potential, and that is what we are seeing now with the move to privatize the KSE. Additionally, the public sector in Kuwait is quite large, accounting for 70% of GDP and employs nearly 80% of the total Kuwaiti workforce. Public sector salaries in 2014 amounted to nearly 19% of Kuwait’s GDP ($181 billion)—quite a staggering figure. The government is gradually reducing its role as an operator and focusing on being a regulator. The approval of a $116 billion development strategy for 201520 will see an increased role of the private sector from its current 26.4% to more than 40% and the positioning of Kuwait as a financial hub.

A successful example from the region of a privatized exchange is the DFM, which was established in 2000 as a public institution and was transformed into a public joint stock company in 2005. Liquidity on the DFM jumped from 12.69% in 2005 to 158.5% in 2007, two years after its privatization. Market capitalization increased from $86.9 billion in 2005 to $138.2 billion in 2006.

KSE is getting a new lease on life. Although it is one of the oldest stock exchanges in the Gulf, it has been recording gradual declines in liquidity over the last 10 years from a high of KWD33.9 billion ($112 billion) in total value traded in 2007 to a record 10-year low of KWD5.9 billion ($19.52 billion) in 2014.

This has partly been due to the lack of products meeting international standards and outdated infrastructure amidst growing investor requirements. As a result, the KSE today trails behind other stock exchanges in the Gulf in several metrics including value traded as a percentage of market capitalization, which dropped from 37% in 2007 to 19% in 2014 and value traded as a percentage of GDP—a metric that reflects the stock market’s health versus the health of its domestic business environment. Between 2010 and 2014 alone, the KSE’s value traded as a percentage of GDP dropped from 36% to 11% while all other regional markets registered positive growth rates (some as high as 2.5 times). ✖

BIO Khaled Abdulrazzaq Al Khaled’s career is deeply rooted in both Kuwait’s public and private sectors.

In the public arena, he has served on Kuwait’s Municipality Council, the board of the Kuwait Chamber of Commerce and Industry as well as participating in venues of national policy and governance. In the private sector, he was Chairperson of Lulu’at Al Kuwait for Educational Services and Vice Chairperson of Kuwait Dairy Company. He holds a law degree from Kuwait University and a Master’s of Law in International Trade from the American University, Washington DC.

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FOCUS KUWAIT STOCK EXCHANGE

WORK IN PROGRESS In a bid to increase market efficiency and enhance the attractiveness of Kuwait’s financial sector, the Kuwait Stock Exchange (KSE) is undergoing measures of privatization guided by newly-introduced legislation.

THE KUWAIT STOCK EXCHANGE was established in 1983 with the issuance of an Amiri Decree. After a long process of reforms and a large number of laws were passed, the Kuwaiti government reformed the National Bank of Kuwait, which from 1952 up to that moment had been the country’s shareholding company.

As one of the oldest stock exchanges in the Gulf, the KSE has been a leader in introducing innovative solutions and implementing new products and services for traders. In November 1995, KSE put into force its first electronic trading system and in 2003 traders could start trading Futures and the online platform was launched.

Thanks to its ability to anticipate traders’ needs, the KSE has historically been one of the major Arab markets, reaching a market value of over $100 billion with more than 200 companies listed.

During the last decade, the KSE has been losing its appeal to traders, which have been reducing their trading activity in Kuwait. The KSE currently trails behind other stock exchanges in the Gulf. The liquidity of the KSE has in fact dramatically dropped over the last few years. In 2007, the total value traded had hit $112 billion but in 2014, the KSE registered a 10-year record low of $19.52 billion. As a percentage of market capitalization, the value traded dropped from 37% in 2007 to 19% in 2014. Furthermore, the KSE’s traded value as a percentage of GDP shrunk from 36% to 11% between 2010 and 2014 contrarily to other stock markets in the Gulf that witnessed positive growth and expansions rates, some as high as 2.5%. With attractive, neighboring bourses in Saudi Arabia and the UAE leading the region in terms of investor appeal, the Kuwait exchange’s outdated infrastructure along with a lack of certain financial products and services have led to the market’s poor performances as they no longer meet investor requirements nor international best standards in trading. A testament to investor frustration is the worrying

trend of companies delisting from the KSE as it no longer makes sense to them economically due to relative high costs of maintaining the listing and the falling market liquidity. As of September 2015, Kuwait’s stock index showed a decline of 24% since beginning-2014, double Saudi Arabia’s 12% decline, and further widening the competitive gap between Kuwait and the UAE, given Dubai’s 8% rise over the same period.

Legislators have taken notice of all this, enacting policies to begin the privatization process of the KSE in an effort to turn things around. The Capital Markets Authority (CMA) established the Boursa Kuwait Securities Company (BKSC) in April 2014 with an authorized capital of $198.5 million. This newborn entity is set to take over as the operator and owner of the Kuwait Stock Exchange come 2016.

BKSC is already implementing a four-phase program, which aims, in its initial operational stage, at upgrading the exchange’s infrastructure, its trading rules, and its price discovery mechanisms. BKSC will then focus on the preparation and execution of the takeover.

The goal of the last phase is to propel the exchange’s growth, pursued by increasing the depth and breadth of its products and broadening both securities issuers and investors’ bases.

BKSC’s ambition is to transform the KSE so that it may meet the international standards required by Middle East investors and reflect the solidity of Kuwait’s private sector. This result will be achieved by providing securities issuers with efficient access to capital and investors and by developing a sound, liquid, and reliable exchange market in Kuwait.

The privatization of the KSE will benefit both investors and listed companies by enhancing the transparency of the capital market and is a much-needed prerequisite towards upgrading the Kuwaiti market to emerging market status, furthering Kuwait’s ambition to become a leading financial hub in the Gulf region by 2020. ✖

KSE IN NUMBERS

$88

BILLION MARKET CAPITALIZATION OVER

200 COMPANIES LISTED

OVER

$100

BILLION MARKET VALUE

4th

IN THE REGION IN SIZE AND LIQUIDITY ONE OF THE OLDEST STOCK EXCHANGES IN THE GULF

Finance

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THE CAPITAL MARKET AUTHORITY HAS OPENED THE DOOR TO FOREIGN EXCHANGE OPERATORS SUCH AS EUROPE’S EURONEXT AND THE US NASDAQ OMX GROUP TO HAVE A STAKE IN KSE AT A RATE OF BETWEEN 26-44%.

$

¤

£

INCENTIVES FOR INTERNATIONAL INVESTORS 1. Taxes exemption for foreign investors 2. No dividends tax 3. No capital gains tax

1952-2016

1952 National Bank of Kuwait (NBK) is created, the first Kuwaiti shareholding company

1983 KSE established to organize and regulate stock-trading activities

1995 KSE implements its first electronic trading system

1998 Forwards introduced

2003 Online trading and Futures introduced

2005 Options trading introduced

2010 New law shifts regulatory responsibilities of the KSE to the Capital Markets Authority (CMA)

2014 Boursa Kuwait Securities Company (BKSC) established

2015 BKSC begins strategic transformation plan to improve KSE’s performance

2016 BKSC to assume role as official operator of the stock exchange

SOURCES: CAPITAL MARKETS AUTHORITY, BOURSA KUWAIT SECURITIES COMPANY

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INTERVIEW

What were AIC’s main objectives upon its establishment in Kuwait in 2006, and how has the company’s investment strategy evolved over the years?

keen EYE TBY talks to Raed Jawad Bukhamseen, Chairman of the Arab Investment Company (AIC), on the company’s investment strategy and the development of the sector.

BIO Raed Jawad Bukhamseen is a Kuwaiti businessman born in 1977. He has a degree in business administration from Boston University and began his career in the banking sector in 1999. He currently sits on the board of several prominent banks and companies in Kuwait and founded Arab Investment Company in 2006.

AIC was initially intended as a traditional investment services company, catering for unconnected parties. This purpose was further rethought

by AIC’s President and other members of the Bukhamseen Group Holding; therefore, entrusting the company with the additional principal objective of becoming the investment arm of the Bukhamseen Holding Group. To that end, the Group’s investment activities, then spread across its holdings, became centralized under AIC. Furthermore, members of the family became AIC’s shareholders, as the best way for preserving the Group’s interest. Clearly, our investment strategy changes according to market developments, but is always based on high-efficiency plans and the safeguard of invested principal. We generally avoid speculation, and rather focus on robust assets with strong fundamentals in specific promising sectors. To date, AIC is operating as a knowledge-based, growth-oriented investment company with the main task of securing the integrity of invested assets and achieving profitability of investments.

Currently, it is a boutique investment firm, with sizeable assets under management.

Its clients’ base encompasses a large number of companies representing several sectors and high net worth individuals. Earning clients’ trust was, and still is, AIC’s first priority.

What type of clientele does AIC normally work with, and what type of investor would benefit from your expertise?

Primarily, AIC clients are our family members; investing with us either in their personal capacity or on behalf of the companies they are heading

within the Group. We also service a broad base of corporate entities and high-net-worth individuals. AIC is a boutique investment services company, whose main attributes are to be knowledge based and growth oriented. Its clients are market knowledgeable investors who go by merit-based decisions.

What role do you envisage AIC playing in Kuwait’s economic future?

Since its establishment, it has been imperative for AIC to maintain a strong presence by building up confidence so as to be able to do more for the economy in Kuwait. Looking forward, our role in Kuwait’s economic future will stem from our typical mission as an investment company. Our services encompass advising and assisting companies and individuals in market transactions and corporate development.

Worth noting is that our corporate finance services always represent a substantial part of our core activities. Our services in this regard encompass mergers and acquisitions, divestures, business valuations and feasibility studies, due diligence, investment review and fairness opinion, capital raising, financial restructuring, and so on, therefore resulting in stronger companies in the State of Kuwait. Added to this is AIC’s participation in local and cross-border markets, both at its own corporate level, and on behalf of its clients.

We shall continue strengthening our position in local and international markets in what best serves the Kuwaiti economy. It is through these undertakings that AIC plans a wider participation in Kuwait’s economic future.

What opportunities do you see for growth in the GCC region?

There are some countries that we seek to invest in and believe are poised for a great

future. On the other hand, we seek to divest our positions in other countries where opportunities for gain have eroded.

Between both extremes, there are countries where we decided to hold our investment as we foresee an impending market rebound. There are positives to working in GCC countries. In general, our preferences change depending on the sector and the country. In the UAE, we prefer working as a local investor in sectors such as insurance, hospitality, and real estate. In other places, we prefer to be invested in diversified and well-managed companies. Saudi Arabia is a good country to do business in, because of the size of the population, and the presence of economies of scale. We also favor Oman and are studying investment opportunities there. Expanding outside of the GCC, we are looking at Egypt and Turkey. As for Iraq, it is a big market, but still has many unsolved issues.

What are your expectations for 2016?

We anticipate fewer challenges than in the past few years.

We also tend to believe that it will be a very busy year. We will be engaged in building up liquidity, and bringing growth into effective action, namely expanding our presence by opening new markets at the regional level, and increasing our scope of activities, with particular emphasis on generating innovative collective investment schemes. On the macro level, following the legislative approval earlier in 2015 of the broad investment plan for the coming five years (2015-20), as well as the 201516 capital spending budget rising notably, it is expected that a solid pace of growth will be driven and supported by public spending. This will pave the way for companies such as AIC to profitably apply their capabilities. ✖

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INTERVIEW

POSITIVE INDICATORS TBY talks to Faisal M. Sarkhou, CEO of KAMCO, on the asset management and investment banking scene in Kuwait.

KAMCO’s strategy aims at maintaining its leadership position in the asset management and investment banking sectors. What trends have you seen dominating your investment performance in recent years?

After 2013, KAMCO emerged from a difficult period following the financial crisis. We undertook significant restructuring and focused on building our core business areas: asset management and investment banking. We returned to profitability in 2013 and started achieving several key objectives and set milestones. The markets also supported us in their upwards tends. The key geographical focus areas for our clients were the MENA region including Kuwait, the GCC, as well as other targeted parts of the region. Several of our clients are increasingly observing Europe, North America, and the Far East, but remain cautious and highly selective. The 1H2014 was also positive, while the second was more volatile due to a loss of investor confidence stemming from the drop in oil prices and increasing geopolitical instability, reasons that continue to affect markets to date. Despite numerous positive indicators, especially in the GCC, we note that capital market activity remains volatile, leading to a downward trend. This has affected the investment sector and KAMCO in our capital markets business. However, we successfully launched a new fixed-income fund in March 2015 focused

IN NUMBERS AUM growth of

23% in 2014

on MENA region investment grade bonds and sukuks. KAMCO posted $16.87 million in Fee Income in 2014 compared to $17.53 million in 2013. The company reduced its debts by 17% to $79.4 million in 2014 compared to $95.94 million in 2013. Our AUM registered a significant growth of 23% in 2014 to $12.2 billion in 2014, compared to $10.1 billion in 2013. KAMCO’s results during 2014 reflected the company’s balanced and consistent performance at the operating income level in our main activities. By the end of 2014, we had successfully completed over 82 cumulative investment-banking transactions worth over $12 billion.

Who are your target clients and how are you tailoring your investment products to their needs?

We believe that by creating products that give investors market access at lower costs with proper management and appropriate risk measures, we can benefit from tapping into the significant liquidity that

is already there with medium to high-net worth individuals and corporates, as well as sovereign and semi-sovereign investing entities in the region. The product cycle we launched, and are continually developing, primarily focuses on such clients.

To what extent has the new phase of privatization in Kuwait’s capital markets supported the country’s transition from frontier to emerging market status?

Kuwait has been actively pursuing this strategy through significant upgrades in the regulatory framework and improvements in the laws that allow companies to be established or privatized under a new private-public sector framework. Processes such as these take time and issues related to fine-tuning regulations and making sure people adapt to and abide by the new codes of corporate governance and ethics may delay development. The government is taking the necessary steps to expedite this process. Unfortunately, market conditions are bearish in general, which appear to be affected by the regulations, but in reality they may show some kind of reaction as people adjust, it is more about a lack of investor confidence than anything else. Some of the initiatives taken recently by the CMA were aimed at encouraging investment, building investors trust, increasing the capital and encouraging creativity among investment companies.

In the context of Kuwait’s growing economy and with major government development plans in place, what role do you see KAMCO playing in Kuwait’s future growth?

We believe that the government plans will produce a strong trickle down effect to the private sector and will further allow businesses to focus on efficiency and the enhanced delivery of products and services. To kick-start an economic revival, the government approved a new five-year development plan for Kuwait, which envisages spending $112.9 billion on development projects in the years of 2015/2016-19/2020. The plan is part of Kuwait’s long-term vision of becoming a regional trade and financial hub. It includes projects like the construction of a metro system, a railway network and a large number of mega oil projects, along with a new refinery. ✖

BIO Faisal M. Sarkhou joined KAMCO in 2000 as part of a dedicated team of analysts. He spearheaded the Corporate Finance Department from 2006 to 2010 and was later put in charge of the Financial Services and Investment Division starting in 2010.

Within three years, he was promoted to Acting CEO of KAMCO in 2012 and was later confirmed by the Board of Directors as CEO in early 2014. He started his career at KPMG, and is also the Treasurer & Board Member of the Union of Investment Companies in Kuwait and a member of the advisory board of the College of Business & Economics at the American University of Kuwait. He graduated with honors from the University of Birmingham, UK with a Bachelor’s degree in Economics, and holds an EMBA with distinction from HEC Paris, France.

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the many faces OF SUCCESS TBY talks to Manaf Abdulaziz Alhajeri, CEO of Kuwait Financial Centre (Markaz), on the focus of the institution, trends in GCC markets, and the growth of the private sector.

How would you describe Markaz’s focus today as a leading financial institution in the region?

BIO Manaf Alhajeri has been the CEO of Markaz since 2004. Prior to this he was the Deputy Director in the investment department at Kuwait Fund for Arab and Economic Development (KFAED). He serves as director and trustee at a number of private, governmental, educational, and non-profit boards and committees. He is a Certified Financial Manager (CFM) from The Institute of Management Accountants (US). He also holds a Master’s and BSc in Civil Engineering from Kuwait University. On December 5, 2013, upon a decree of the President of the French Republic, he was named “Knight of the National Order of Merit.” He speaks English, French, Spanish, and Turkish, in addition to Arabic.

We manage investment products in the form of equities or real estate, monitoring opportunities emanating primarily from this region. We also invest for diversification purposes. On the investment banking side, we are active in capital markets, IT, and helping companies ease long-term funding needs in the form of equity, sukuk, or bonds. We believe in the importance of having a healthy asset management industry as a source of alternative funding because it helps intermediation. In this region, there is a high level of deposits, both institutional and private, and it is necessary to find opportunities to help deploy those deposits. The fund management and asset management industry is part of the mechanism that helps manage this objective. Our business model relies on two pillars, the first being investment returns out of our exposure on the stock market. The second pillar is investment fees. We generate fees that have to do with our efforts in terms of preparing opportunities, packaging them, researching them, managing them, and helping them fulfill their objectives. We are one of the top ten GCC mutual fund managers. The stock markets are important to us but, more importantly, they represent the underlying economies of the GCC. What is your analysis of the impact low oil prices has had on Kuwait and regional economies?

Falling oil prices prepare us

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5

GCC mutual fund managers

for an interesting, more diversified economic era. It is an opportunity to bring out the best in Kuwait. Oil was undeniably crucial for the development of Kuwait and allowed the state to live in a regime of strong surpluses for a very long time, but it also led to inefficiencies. Sometimes it has created a sense of complacency, unfortunately, and I think oil prices going down will help eradicate that. It is an opportunity to look more seriously at the private sector’s role in creating jobs.

What role is Markaz playing in the effort to grow the private sector in Kuwait?

Throughout the years, Markaz pioneered the development of investment tools in local and new markets. Markaz has succeeded year after year in developing new concepts and innovations through the creation of new investment channels, each with unique characteristics, in order to widen investors’ horizons by diversify investment channels. And As part of our economic responsibility, we were the first to publish research with the aim of providing in-depth knowledge to the financial sector; in fact,

a whole department was dedicated to research publication.

Furthermore, Markaz cooperates with numerous academics and international research foundations to develop economic policy research in fields such as the energy sector, the labor market, economic structure, and the enhancement of the public institution performance to support a healthy private sector growth. Markaz distributes its public policy reports to decision makers and other stakeholders in Kuwait, and results are discussed with them to reach practical solutions.

Markaz is known to be a socially engaged corporation. What is your approach to CSR?

We believe in being strongly engaged in public welfare as a corporation, which led us to develop our own concept of CSR, which we call Corporate Economic Responsibility, where our engagement strategy focuses on contributing to three areas, namely: human development, ease of doing business, and good governance. We are active members of the Kuwaiti Economic Society, which is massively advocating a wide-scale reform of the public sector in terms of holding people accountable, assuring that when more areas of the economy are privatized, it is going to be a straightforward, transparent, and clean process.

What are your expectations for 2016?

Because we are living in volatile times, especially this year, it is hard to have full clarity on a long-term vision. We aim to achieve a growth in our net earnings of at least 15% in 2015. One of the most pressing trends or reforms we need to have in the near future is to catch up with our neighbors and join the MSCI emerging market index. Kuwait is more than another frontier market and needs to be in the emerging market index. S&P just added the UAE and Qatar, and Kuwait should be officially announced by our CMA soon. ✖

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FORUM

INVESTMENT ABROAD

BASHAR N. ALTUWAIJRI

OSAMA M. AL-RASHEED

CEO, Gulf Investment House (GIH)

Chairman, Al Aman Investment Co.

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

T

he Kuwait economy is generally weak because it depends on oil and real estate. There are few other sectors in which we can actually invest. Manufacturing, agriculture, and industry sectors are weak, unlike Asia and other parts of the world. Since 1998, the core business for GIH has been direct investment. All other activities, such as share trading, are in addition to this.

Direct investment was especially important in establishing companies in the GCC region in many different segments like real estate, insurance, services, education, and industrial holding. Since that time, the GIH has established many companies in the region. In 2000, for example, we started Gulf Financial Housing (GFH) in Bahrain. We were the owner and promoter of GFH in addition to investment from Kuwaiti and GCC investors. Until 2006 we promoted the company listing in the market and the stock exchange, and then we exited. Now it is fully owned by other investors, and the company is now listed in Bahrain, Kuwait, and Dubai. We have engaged in many similar situations over the years, and this is the big picture for GIH.

W

e recently completed our settlements with the banks since the financial crisis of 2008. It has been a tough time for Al Aman Investment and other investment companies up to 2014, when we settled the last portion of the debt with the creditors.

We are focusing on the type of companies and investments we would like to be in, and specific sectors that will help the economy. We are looking at playing a bigger role in helping Kuwait and the GCC on infrastructure projects, whether in Kuwait or Saudi Arabia. We are focusing now on asset management and growing the portfolio of our clients, as well as changing the articles of two funds, shifting from the local market to the GCC market. We are also part of a group that has international exposure, namely Gatehouse Capital and Gatehouse Bank. If they need exposure in the GCC, they go through us, and if we want exposure to the UK or US market, we go through them. Having access to an international arm brings potential opportunities for growth.

We are also looking for opportunities to invest in private equity companies that have solid operations, and are profitable.

Opportunities in markets as diverse as South-East Asia, Turkey, and the UK are being pursued by Kuwaiti investment firms.

DARI A. AL-BADER

FAWAZ AL-ISSA

Chairman, Asiya Capital Investment Company (Asiya)

Vice Chairman and CEO, Turkapital Holding

W

e have successfully positioned ourselves as a specialized asset manager and advisor with offices located in Hong Kong, Dubai, and headquarters in Kuwait. The firm was incorporated with $280 million of permanent capital.

Our strong shareholder base of institutional investors has been highly supportive of our strategy and remains committed to its future. The Kuwait Investment Authority (KIA), the world’s sixth largest sovereign wealth fund, is our largest shareholder and owns approximately 15% of the company. We currently manage approximately $1.1 billion in proprietary and investor capital through public and private strategies, investing in 10 countries and nine exchanges across emerging Asia. As an asset management company, we manage various investment products across the range from public equities, private equities, direct investments—the whole gambit. We have specialists with expertise in these different areas and we also work with a lot of leading service providers and fund managers in Asia.

T

he group Kuwait Finance House (KFH) entered the Turkish market in 1989 at a time when no one favored entry into a closed economy. However, Turkey has been a viable emerging market.

Also, in the beginning it was difficult to establish business due to several challenges like cultural differences, unfamiliar business environment and market trends.

Moreover, Turkey went through several financial crisis while KTPB/KFH group weathered all financial storms and came out much stronger. The result was the KFH Group commitment to stay in Turkey and we were able to establish roots there, and it proved to be a good investment.

This, enabled us to leverage our position and to use Kuwait as a strategic location to grow our business in Turkey. We decided to establish Turkapital, and it is now eight years old. The KFH group and with TK became not only the bridge between Kuwait and Turkey, but rather a connection between Turkey and the other GCC countries. At Turkapital and through our subsidiaries in various sectors like insurance, auto leasing, and real-estate (residential and industrial), we initiate our relations.

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SMART movers TBY talks to Fahed Faisal Boodai, Co-founder and Executive Chairman of Gatehouse Financial Group, on Kuwaiti investment and differences between regulatory regimes.

How would you describe your investment philosophy at Gatehouse?

BIO Fahed Faisal Boodai is the Co-founder and Executive Chairman of Gatehouse Financial Group, the holding company of Gatehouse Bank, an investment bank based in the City of London, and Gatehouse Capital, an investment advisory firm based in Kuwait City. He is also the Vice Chairman and Chief Executive Officer of The Securities House, a Kuwaiti public shareholding company with a history spanning over three decades in trade and investment. He has presided over diverse real estate acquisitions and exits totaling more than $3 billion. He holds an MBA in Finance from Loyola Marymount University in Los Angeles, and a BSc in International Business from the University of San Diego. He also occupies a number of external board and director positions.

We call ourselves a merchant bank, meaning that we are partners with our clients.

Our investment philosophy is focused on the needs of clients in this region. Historically, they have invested with big, well-known investment banks, but these firms have been going through strategic changes. Additionally, the regulatory environment has evolved which has impacted the industry. We realized many Gulf-based firms were employing an ineffective model, namely that having someone in an office who has never known a market, structuring a product, and having relationship managers selling that product without understanding it was not working. I wanted to have people on the ground defining what we and our clients want and need.

What are some of the recent successes you have had at Gatehouse?

Coming out of the financial crisis, we were deploying capital across a range of single tenant, income-producing assets when many were too afraid to invest. We employed this strategy in the US and the UK where we saw increased economic growth and corporate balance sheets improving. This had a positive effect on both the office and industrial real estate markets, among others. Today, our thesis has proved correct as we have successfully exited a number of these investments.

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staff in Kuwait, the US, the UK, and South-East Asia

In student housing, which today is a very popular asset class with institutions, we were among the first to enter the sector in the UK and the US. We then looked at single-family residential assets in the US. Many of these assets were held by banks due to the mortgage crisis. Due to the valuations we were seeing, combined with our view towards economic, job, and rent growth, we became heavily involved the sector during 2013-14 period. Today, we own approximately 1,800 homes across multiple growth markets; these assets are providing strong current income for our investors.

Building upon this, we looked for similar opportunities in the UK. While the private rented market differs in the UK relative to the US, we saw that there was a significant supply-demand imbalance in the UK market.

Kuwait, through its sovereign wealth fund, investment companies, and the investments of private individuals, is known as the leader in the region in

terms of investment outflows.

What do you think is needed in order to bring some of this investment into Kuwait?

What it comes down to is the rule of law. We choose the US and the UK for our investment activities because we can define and understand what our legal rights are in those jurisdictions. Global investors need clear local laws and transparency. An investor does not want to be in a market where they may run into problems if they want to liquidate assets or move money. That being said, Kuwait is a sophisticated market in terms of liquidity and has the potential to be a leading frontier market with global exposure. However, another challenge is that Kuwaitis tend to feel that they should be the ones investing in their country. This is different from the attitude in other GCC states where they are heavily promoting foreign capital investment.

If there is a project in Kuwait that global companies want to fund or be part of, Kuwaiti companies tend to want to do it themselves. This is a cultural mentality, and I do not blame local companies for seizing these opportunities when they have the liquidity. In recent years, Kuwait has been trying to encourage more foreign investment by introducing new foreign capital regulations and tax incentives. Kuwait needs to be more welcoming and clearer from a legal perspective and also refine the bureaucratic process to get things done. ✖

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INTERVIEW portfolios of receivables and leases. We like income generating assets so we acquire them and sell them in the form of investment instruments that give annuity. That is the kind of different approach that we have at Rasameel compared to the rest of the market.

What is your criteria when it comes to targeting the type of clients that you work with?

world of POTENTIAL TBY talks to Issam Z. Al Tawari, Former Chairman & Managing Director of Rasameel Structured Finance Company, on asset structuring, choosing clients, and trends in the sukuk market.

Can you tell us about your investment expertise and the type of investing activities that Rasameel focuses on?

We are licensed both for banking and investment banking.

We do asset securitization, sukuk issuances, structuring, arrangement, placement, capital restructuring, and investment advisory. Our activities are largely focused on the debt-side of things—debt capital markets and debt instruments—rather than equity, and we are the only company in Kuwait that has such a specialization. Most investment companies in Kuwait do asset management and equity trading, but we are unique in our field.

In 2014 and 2015, Rasameel was awarded Best Islamic Structured Finance House in the GCC. What makes the company a leader in its field?

It is our focus and our specialization in being an Asset Structuring House that sets us apart. Banks lend their balance sheets and underwrite according to their lending and credit criteria. Our budget is

Established in 2006

Awarded GCC Best Islamic Finance House in 2014 and 2015

We go after clients that have income generating assets, namely consumer asset companies, auto leasing companies, aviation, and companies that have long-term contracts of supply, such as contracts with the government over a period of three to five years. We can put financing packages around that stream of income because it is predictable. That is what we go after. Our investors on the other side are mainly institutional investors, sometime banks, and those who are looking for income generating assets rather than putting their money away and waiting for it grow. People aspiring to make huge gains would go for private equity, but our side of the business involves more calculated risk with manageable predictable yields in the range of 4-7%. Certain clients like to invest in such products because their capital is relatively secure and they have an identifiable source of income that will generate for a period of three months, six months, or a year.

They like to play it safe.

What trends are you seeing in the sukuk market?

about $330.8 million) which is relatively small when it comes to lending activity. Where we come into play is putting together structuring capability so our clients can respond without burdening their balance sheet. We do off balance sheet funding based on the strength and the quality of their assets and cash flow. Companies are used to going to banks and borrowing to create assets.

We buy the assets off the balance sheets, creating equity for them so they can continue doing their business. We acquire

Mainly for consumer financing companies because they have an ongoing need for funding.

They are willing to do Mudharabah sukuk and Musharakah sukuk. There is a growing trend for Green sukuks, sukuks that go into funding environmental friendly projects, which is basically directing funding towards an ethical part of the economy. It falls under the same structure as either Wadiah, Musharakah, Leasing, or Mudaraba. Our commercial paper program for Alghanim which won an award for in-

novation. We then bought on their behalf on a third party basis, and they deferred all their sales to our account with a yield up to a certain limit. Anything over and above was their profit. They made a huge profit without having to commit their capital. For the investors, they were happy to see the cash coming in and the short-term nature of the transaction for the client. They were happy to see an increase in sales and notwithstanding that, they were getting a substantial amount of profit at the back end, because we only took 7% and the balance was for their account. It is win-win, for the client, for the investors, and for us. ✖

BIO Issam Z. Al Tawari is the Former Chairman and CEO of Rasameel Structured Finance Company, a capital markets-focused investment company, and Chairman of Rasameel Investment Bank, a Dubaibased DIFC-regulated bank. He started his career with the Arab Banking Corporation (ABC), Bahrain, and ABC Islamic Bank. He joined The International Investor (TII), Kuwait in 1998 in the area of structured finance. His last position with TII was COO, and he was also a partner in the structured finance group. He served on the board of directors of a number of companies and funds. He regularly speaks in Islamic Banking industry conferences and seminars.

He is a member of the Young Arab Leaders (YAL) and the Kuwaiti Economics Society. In addition, he is both Harvard University and Henley Management College Alumni and has also received his MBA from the University of Hull England in 1998, as well as a Bachelor’s degree in both economics and business administration from Kuwait University in 1987.

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OVER & above

TBY talks to Maha K. Al-Ghunaim, Vice Chairman & Group CEO of Global Investment House (Global), on what it offers to companies that are looking for a local partner within the GCC and MENA region, new products, and expectations for 2016.

What have been some of the defining events in the evolution of Global since it was established in 1998?

It’s been somewhat of a rollercoaster ride for us. When we were established in 1998, when oil was at around $8. We shot up like a rocket during the first 10 years of our inception.

We understood that the capital markets in Kuwait lacked certain products and services and we capitalized on that. We entered a boom market phase between 2002 and 2007, which gave us the headwind we needed to grow. We started Global with a capital of $50 million in 1998 and, by mid 2008, we were trading at a $5 billion market cap. We expanded our offices to cover Kuwait, Saudi Arabia, Jordan, Egypt, Oman, and even had investments in Palestine. The financial crisis

was the first real challenge for us and, as we witnessed, when the US sneezes, the whole world catches a cold. Asset liability management became a major challenge as well. We were only 1-to-1 leveraged at the time, but in less than 12 months we were leveraged at more than 12-to-1. We chose to be completely transparent with our clients, shareholders, and regulators throughout it all. This approach was unique in a culture that generally conceals problems, but we stuck to our commitment to being honest. I’m proud of what Global has done. With the restructuring agreement we signed in 2012, the company is now well capitalized, totally debt-free, and profitable. Dividends are being distributed and business is growing.

As a leading Kuwait-based investment company, what role do you see Global playing in terms of improving the business environment and contributing to the local society in Kuwait?

Our corporate social responsibility strategy focuses on two major segments; women and young people. Kuwait has always been a pioneer in supporting women and we at Global have a lot of women in senior positions. We have held a lot of seminars on women in investment, training, and promotion of women’s empowerment. In complement to the national vision of Kuwait, we also feel strongly about the need to support the emergence of entrepreneurs and small businesses. We feel the frustration of young people in trying to fulfill their dreams.

There is a lot we need to think about to support small enterprises. We are hoping that we can work with the Kuwait National Fund for SMEs De-

IN NUMBERS Total of

$4

billion in AUM for clients

velopment, the $2 billion fund that has been created by the government to support young people.

Kuwait is well known for its investment outflows, but in terms of attracting investors to Kuwait, what opportunities exist here and how can Kuwait create a more attractive environment for foreign investment?

There are a lot of things we can do, especially with the recent reforms mentioned earlier.

The retail market promises a lot of growth potential considering the demographics on the consumer-side, the strong inflow of expats, and the growing entrepreneurial spirit among SMEs in Kuwait contributing to the consumer goods and retail market in the country. There’s a lot of potential in the healthcare and educational sectors, as well. These sectors still hold a lot of value for investors in Kuwait. Then of course everything related to oil and gas, petrochemicals, and alternative energy.

What are your expectations for 2016?

Everything we talk about economically for 2016 hinges on what happens geopolitically, unfortunately. The developments with Iran may lead to further uncertainty in the

region and markets don’t expect a rise in oil prices to hit the $70-100 range, but will be somewhere between $30-50 a barrel. I hope GCC governments tackle the challenge that a reduction in oil prices will continue to have on their budget surpluses, and moving towards a budget deficit, which could be a potential for the GCC government and corporate debt market in meeting the fiscal spending and the development plans that the government continues to commit to in the coming few years. Over and above that, we will continue to offer ideas in defensive sectors such as health and education, among others. ✖

BIO Maha K. Al-Ghunaim cofounded Global in 1998 and has been managing the company since then. She has over 31 years of experience in the financial sector, mainly in asset management and investment banking. She has served on the board of several regional companies and advisory boards and has held several senior positions. She received several accolades from industry leaders including the "Banker Middle East Industry Award” (BME) for her outstanding contribution to the finance industry. The Wall Street Journal named her on its list of 50 “Women to Watch,” and Forbes ranked her for three consecutive years as one of the World’s 100 Most Influential Women. She holds a BSc in Mathematics from San Francisco State University.

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The lack of a dedicated watchdog and intense competition are holding the insurance sector back, with takaful particularly stunted.

Review

INSURANCE

STRONG hand needed WHILE PREMIUMS HAVE BEEN on an upward trajectory for some years, the insurance market in Kuwait is the third smallest in the region, ahead of Bahrain and Oman. The lack of a proper regulator, and especially targeted takaful directives, are currently holding back development at a time when low oil prices are slowing economic growth in the Gulf nation, hitting consumer confidence and lowering demand for non-compulsory lines.

Looking deeper into the dynamics of the market, the small size of the life insurance sector—the non-life market is roughly three times the size of the life insurance segment in terms of gross premiums written—can be explained by Kuwait’s popular social security system. Happy with the service, Kuwaitis have seen little need for life insurance products, with health insurance products on a far steeper growth curve. The non-life sector also is not without its problems, mainly related to the lack of clear regulations and a fragmented marketplace.

Stepping back from Kuwait provides a clearer perspective. At the GCC level, a process of regulatory change punctuated 2015. Such changes include “a doubling of the minimum capital requirements in Oman, enhanced liquid asset requirements in Kuwait and the UAE, and more stringent solvency measures in Bahrain,” according to Gulf News. And while this is good news in the long term, in the short term it is only increasing short-term pressure on players in more overcrowded markets, including Kuwait, as costs soar.

With 32 insurers in total, some of the biggest losers are Kuwait’s takaful players, which are at a further disadvantage due to their obligation to distribute excess profits to policy holders, instead of accounting for surpluses as profits, like conventional players. This means that when a deficit is run, the firm must fund payments via interest-free loans, leading to losses for shareholders.

The government, keen to put the minds of insurers at rest, is currently working to establish independent regulatory and supervisory bodies in line with its larger plans to transform the country into a financial node. Speaking on the potential benefits that better regulation would bring, Hussain Ali Al-Attal, CEO of First Takaful, told TBY that, “A regulator would help all the companies to better understand industry dynamics and would move the sector to a higher level of operation.” He also lauded the Turkish system, whereby “companies send their data to a regulator and it provides those companies with a database showing the market results on a monthly basis.” He continued that, “In Kuwait, results are collected quarterly and they are only made accessible to companies a year later, representing an out-of-date source of information on which companies cannot rely on neither for market analysis nor for planning strategies in the years ahead.” Al-Attal also drew attention to the fact that Kuwait is yet to adopt Basel II standards,

and suggests that authorities such as the Capital Markets Authority should have a bigger say on companies’ liquidity and solvency.

Spurred by news that better regulation is on its way, however, he also spoke of the opportunities in the sector, both in terms of “the number of policyholders and in the prices of the services.” Al-Attal also has plenty to say on the subject of takaful, highlighting a number of factors holding the sector back. Among them is the reality that conventional insurers enjoy a broader list of products for companies to invest in due to the restrictions that sharia sets out. And thus, for Islamic finance companies the only alternative should they not find projects to invest in is to make large deposits at the Central Bank. This then “reduces the number of possible investments and affects economic growth,” according to Al-Attal, meaning that, “more products and innovation are necessary in order for Islamic insurance to grow.”

Moving forward, and aside from a better regulatory environment, investments of some $100 billion as part of the government’s Vision 2035 plan are also set to be something of a boon for the insurance sector. More specifically, the non-life sector is set to benefit from engineering- and construction-related premiums, while an increasing number of expatriate workers should drive demand for life products, according to a report by Business Monitor International (BMI). General economic growth as a result of the huge public investment program will also promote consumer confidence and an increase in the sale of insurable products, including automobiles. In the short term, however, BMI also has some insights into growth trends. According to the organization, currency fluctuations—the bane of emerging markets of late— mean life and non-life premiums could contract, by 2% and 1.2%, respectively, by end-2015, while maintaining restricted growth in local currency terms. Life premiums are expected to come in at $310 million in 2015, with non-life dwarfing that figure at $820 million. Consolidation is also on the cards, as new regulatory requirements mean some players could be forced to drop out if they can’t meet capitalization demands. There has been a recent expansion on the mandatory insurance front, as the Kuwaiti parliament accepted a proposal in mid 2014 for compulsory health insurance for visitors to the country. According to the proposal, visitors will only be able to seek treatment at private hospitals. At the national level, Kuwait provides free medical service to citizens and expatriates pay a fee of $175 a year for health insurance, as well as other fees depending on the service rendered. And with a population that is two-thirds expatriate, the sector has been a big money maker for the insurance industry.

Overall, and the Kuwaiti insurance sector could look very different once its new regulatory and supervisory bodies are up and running. In desperate need of regulation, the nation’s insurers are adamant that better guidelines could be the boost they have been looking for. Takaful is in special need of better regulation to put it on a level playing field, although players in the sharia-compliant area are at greater risk of being forced to shut up shop as new capitalization requirements come into force as they have in neighboring Oman and the UAE. But beyond these medium-term shakeups, the government’s massive public spending plan running up to 2035 should provide more than enough business to keep the sector growing in the long term. ✖

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safety NET TBY talks to Tareq A. Wahab Al Sahhaf, Chairman of the Kuwait Insurance Federation (KIF), on changes in the sector, regulatory challenges, and the introduction of mandatory insurance.

How is KIF working to raise the bar for the insurance industry in Kuwait?

KIF came about in order to have an organization whereby industry professionals could discuss common issues internally, then present our proposals to government officials to resolve the problems we face.

We were given the approval to form our federation about nine years ago, and we are now entering our third term. Most countries in the GCC region have an insurance federation.

KIF does not necessarily constitute all the insurance companies in Kuwait, though this is something we want to work on.

One of the weaknesses of the Federation is that membership is currently not compulsory, as it is for banks, whereby membership of an industry federation or union is imposed by the Central Bank of Kuwait.

We play an advisory role, so we can not impose compulsory changes in operating procedures, which is another current limitation. We have been trying to mediate between insurance companies in order resolve their problems.

What are the main issues facing the insurance industry in Kuwait?

One of the major problems of the industry is the lack of proper regulation. Professionals in the insurance industry work according to their own professional guidelines. When we look to our neighbors, the insurance industry in Saudi Arabia is regulated by the Saudi Arabian Monetary Agency

IN NUMBERS

3rd year of operation

(SAMA), Bahrain is regulated by the Central Bank, and insurance regulation in Egypt is carried out by an independent regulator with full legal control to set and enforce policy. But in Kuwait, Insurance industry regulated through a department in the Ministry of Commerce and this presents obvious administrative challenges.

A second problem is that we still operate under an obsolete law enacted in 1961 that only regulates licensing procedures and minimum capital requirements. The insurance industry is self regulated to an extent, but there has been a recent increase in the number of licensed insurance companies, which has changed the playing field in the market. This increase in competition in the absence of a structured regulator has revealed many flaws in the legal structure of the sector. We also face the additional problem of a shortage of well qualified human resources in insurance.

What is your opinion of the future of mandatory insurance in Kuwait?

Insurance products are needbased, so interest in insurance

policies generally does not exist where there is not a perceived need. Our government protects housing, education, and health for the entirety of Kuwaiti citizens’ lives, which makes selling life insurance policies difficult in Kuwait.

People here tend not to buy life insurance because there is not a perceived need for it, though companies still try.

Kuwaiti citizens are also reluctant to purchase pensions because they already have such sophisticated pension plans provided by the government.

The government recently tendered a $328 million retirement insurance program that will cover over 100,000 retirees in Kuwait. This will greatly increase the volume of premiums in the market. The government has already signaled that there would be more similar initiatives in the future if this project is successful.

In what specific ways is KIF trying to influence government policy?

We drafted and presented a law to the government proposing that there be an independent supervisory regulator of the insurance industry in Kuwait, as is the case in other GCC countries. If our proposal is accepted, this regulatory body would be run by professionals who can regulate the market in a proper manner. With more players entering the insurance sector, we need to ensure that they operate in a more efficient and professional way. Legislation is an important instrument

of change, and has recently started to recognize the value of the insurance sector, albeit tentatively. The government has started imposing professional liability requirements on certain professions before licensing them. We hope that this generalizing of insurance stipulations continues.

What are your expectations for 2016?

We are big believers in the value of investing in training. We train a lot through KIF and we also sponsor and subsidize additional training. Our focus in 2016 will be on training and education. If our proposed industry legislation is passed, a majority of the current problems will be resolved. If a new independent regulatory body can formally address questions of capital adequacy, reserve and rating requirements, the bar will be raised significantly in a newly reshaped insurance industry. ✖

BIO Tareq A. Wahab Al-Sahhaf is the Chairman of the Kuwait Insurance Federation and the CEO of Gulf Insurance and Reinsurance (GIRI) in Kuwait. He joined GIC in January 1979. He previously held the position of general manager from mid-2007, and held other positions such as DGM of M&A and AGM of Marine & Aviation from the early 1980s on.

He holds a bachelor’s in business administration in insurance from the College of Insurance in New York City, and also holds an Insurance Business Technique Certificate.

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INSURANCE REGULATOR FOCUS

The establishment of an independent regulatory body in Kuwait’s insurance sector would be a major improvement in the local insurance industry and could lead to increased investor interest in this growing segment of the country’s financial sector.

RAISING THE BAR ON THE WHOLE, development of the insurance sector in Kuwait has lagged behind those of neighboring countries in terms of insurance penetration, implementation of international industry standards, and regulation. There are reasons for this. With the exception of motor insurance, laws in Kuwait do not mandate insurance in most areas, limiting the potential of growth in insurance lines such as life, health, and even accident insurance. Furthermore, with the government providing safety nets for its citizens for social services such as housing, health, and education, the need for locals to purchase insurance has been relatively low.

These factors have led to a fragmented insurance industry and a need for improvement.

One area in which industry players do see potential for development is through the establishment of an independent regulatory body to oversee the sector. General consensus from industry professionals is that the lack of adequate regulatory oversight continues to undermine the operating environment and is a deterrent to potential investment. However, this would all change with the establishment of an independent body regulating the insurance industry in Kuwait—something industry players and the market stand to reap the benefits of if put into practice effectively.

Tareq A. Al Sahhaf, Chairman of the Kuwait Insurance Federation, described the lack of proper regulation in the insurance industry in Kuwait as one of the major challenges the industry is facing. He explained to TBY that “the insurance industry in Saudi Arabia is regulated by the Saudi Arabian Monetary Agency (SAMA), Bahrain is regulated by the Central Bank, and insurance regulation in Egypt is carried out by an independent regulator with full legal control to set and enforce policy. But in Kuwait, the insurance industry is regulated through a department in the Ministry of Commerce and this presents obvious administrative challenges.”

Reforms would strengthen the industry, which is expected to grow considerably in the coming years. Though small, there is growth potential in the country’s expanding Islamic insurance or takaful segment. In addition, increasing awareness of the benefits of insurance and the protection it provides to companies and individuals, coupled with a general rise in incomes, could be a driver of and possible boost for increasing total written premiums within the life insurance segment of the industry, which has historically been one of the segments with the lowest penetration, but which has seen growth over the past few years.

As Kuwait continues to increase its expenditure in healthcare, health insurance is expected to remain the second-largest insurance segment leading up to 2017. Non-life insurance will remain the largest with motor insurance the leading category within these areas over the same period to 2017. Reinsurance, both conventional and takaful, also stands to see an increase in demand moving forward. These potential growth areas could each become more attractive if regulation, and thus supervision of their activity, is ramped up.

Kuwait is going through several reforms in the regulation of its financial sector overall, aimed at encouraging capital inflows over outflows, reducing the risks of financial shocks, and raising the overall operating standards to international best practices. Should Kuwait undertake regulatory reform of its insurance industry by means of establishing an independent authority to oversee the sector, the increasing competition could be more closely monitored, and addressing issues such as capital adequacy and other protective measures could lead to an increase in investor interest in Kuwait’s insurance industry. As the sector begins to piece together its fragmented structure, increased insurance penetration may follow suit, leading to greater rewards and ultimately less risk for all. ✖

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KUWAIT 2016

INTERVIEW

&

tried trusted

KIC is the oldest insurance provider in Kuwait. What growth have you seen in the company over the years?

TBY talks to Ahmad SH. A. Al-Bahar, Deputy CEO of Kuwait Insurance Co. (KIC), on segments with growth potential and the company’s reputation in the regional market.

BIO Ahmad SH. A. Al-Bahar has been leading the underwriting and claims team for more than 25 years. He holds a Civil Engineering Degree from the University of Colorado in the US. He has been instrumental in rolling-out the first OCIP (Owner Controlled Insurance Programme) in the Energy Sector for KOC immediately following the liberation of Kuwait.

His excellent planning and management skills have ensured streamlined operations and the growth and maintenance of its market position. He is a member of Board of Directors of AIN Takaful Insurance Company, and has previously served on the Board of Directors of Bahrain Kuwait Insurance Company.

The local insurance industry began in 1960 with the founding of KIC. Over our 55 years in operation, the company grew from an initial INR5 million to our current size of KWD150 million ($492.6 million). There were agencies before 1960, but no local Kuwaiti companies.

KIC was the first company, established by top Kuwaiti merchants of that period. Shortly after founding KIC in Kuwait, the company opened branches throughout the GCC, in countries like Lebanon and Jordan. KIC was the first insurance company in Kuwait with branches throughout the region. At the time of its founding, the risks were significantly different than they are today.

We are now faced with new and difficult challenges, especially in terms of environmental degradation and cyber terrorism, which are both difficult for insurers to address. We have to collaborate with insurers worldwide to devise solutions for protecting individuals in today’s world.

How did KIC achieve its recently upgraded Moody’s rating from Baa1 to A3 with a stable outlook?

This improvement was a result of our stable management.

Stable management sends a strong message to clients that a company is reliable, and we are proud of KCI’s organizational management. This upgraded rating is also a result of our staff, which is behind the growth and success of our company. Our underwriters are of the best caliber in all of Kuwait. We have an excellent team that has driven the company’s growth, strong market position, and upgraded rating.

Our human capital is our most valuable asset.

• Established in 1960 • Largest and oldest insurance company in Kuwait • 2015 Moody’s rating from Baa1 to A3

Do you have plans to expand further in the Gulf?

This is always an option for us, and whether we pursue it depends on the opportunities available. We had plans at one point to open branches in Egypt, which was then engulfed in turmoil shortly thereafter. Instability can be a problem when pursuing regional expansion. We also considered moving into other markets with major potential for growth. However, the conditions are not suitable right now. We will take our expertise to more markets abroad once we identify the right opportunity.

How do you view KIC’s reputation in the region?

KIC offers general, travel, life, marine, and motor insurance.

In which segments are you looking to expand in Kuwait?

We are focusing on the personal lines. When compared to international markets, Kuwait and the rest of the Middle East lack the personal lines of life insurance and personal estate insurance. About 17% of personal spending in the US goes toward insurance.

That figure is just 2% in Kuwait. The reason for this is that the government provides free education, healthcare, and greatly subsidizes housing. There is no perceived need for many kinds of insurance. There is also, however, a lack of insurance knowledge in the country and we are trying to build that up.

We are investing in awareness, directly through KIC as well as through the Kuwait Insurance Federation. Hopefully the market can remedy this internal gap in society so that people can truly understand the value of insurance.

Insurance is not just a way of receiving compensation; more importantly, insurance is a means for feeling safe, secure, and protected from risk.

Many of the key individuals throughout the GCC’s insurance companies are ex-KIC employees. From the 1970s until the 1980s, KIC was considered a school for insurers in the region. Several leaders in the insurance industry began here. Even when we closed some of our branches in the region, we did not need to redistribute our employees; they were sought after by other providers or else went on to start their own companies. Instead of competing with them, we pulled out and gave them support. KIC is proud of having strengthened the insurance sector not only in Kuwait, but also throughout the region.

What are your expectations for 2016?

We hope to continue our record of success. We know that there are projects to develop, opportunities to grow, premiums to write, and insurance to provide. Global markets are still intact and reinsurers are strong. The insurance markets are particularly stable in the region. The main concern is political stability in places like Syria and Iraq. These are difficult to predict, and such external risks of political strife and terrorism could impact our business. ✖

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B2B

TAKAFUL

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

HUSSAIN ALI AL-ATTAL

NASSER SULAIMAN AL-OMAR

The absence of a dedicated regulator for the Kuwaiti insurance sector poses challenges, while the growth of Islamic insurance indicates strongly positive growth potential in the medium term.

CEO, First Takaful

Vice Chairman & CEO, Gulf Takaful Insurance Co. (GTIC)

What is your perspective on the awareness of insurance in Kuwait and in what ways do you feel it can be enhanced?

to increase these sentiments among people, starting with programs tailored to children so that they can grow up with this new mentality and awareness in mind. The public and private sector must work together to overcome the challenges the insurance industry is currently facing so that our people will have their needs cared for.

cepted here. At this time, rather than focusing on expanding GTIC abroad or introducing new products, we are trying to educate the public on the existing insurance products we offer in the local market.

products and innovation are necessary in order for Islamic insurance to grow.

Do you expect Islamic insurance to increase its share of the insurance market in Kuwait?

NASSER SULAIMAN AL-OMAR GTIC is an insurance company that covers all lines of business just as any conventional insurance company does, however takaful companies have more attractive benefits for policyholders, as they will receive a refund on their whole portfolio, pro rata. This is not the case in conventional where policyholders benefit from the protection of risks only. We see Islamic and conventional insurance companies as partners in the market, not as competitors.

Conventional companies were beginning to compete with us by opening Islamic windows because it offers takaful services. Overall, there is a lack of awareness of insurance products in Kuwait, and the concept of insurance is not widely ac-

HAAA There was an event in 2014 attended by many sharia-compliant companies. The companies established a plan as to how their money should be invested and reached a common agreement. In Islam, several possible investments are forbidden by a set of moral laws laid out in the Quran. Conventional finance offers a broad list of products for companies to invest in but that list is considerably shorter for Sharia compliant companies. Islamic banks, for example, do not always find suitable projects to lend their money to, and the only alternative for them is to make huge deposits at the Central Bank.

Obviously, this mechanism reduces the number of possible investments and affects economic growth. Therefore, more

NSAO It cannot be improved without a strict regulator. Only a small unit in the Ministry of Commerce is regulating insurance and this small unit is insufficient to monitor the industry or develop the insurance market in Kuwait. What is needed is an independent body that fully understands insurance, after creating such a body, we can develop the insurance business and awareness in Kuwait.

Currently, competition among small insurance companies is unhealthy for the industry, and from a business point, I believe the small insurance companies should link together. They all have fixed expenditures with a limited share of the market, so we encourage the regulator to set rules and regulations that apply pressure on small companies to merge together. This would benefit the entire insurance industry and, most of all, the policyholders. ✖

HUSSAIN ALI AL-ATTAL The awareness of insurance is growing amongst Kuwaiti people but it is still not as deeply rooted in their mentality as it is in western countries. In Europe, for example, insurance on life, cars, and houses is widely spread because it is part of the culture. In Kuwait, drivers are insured against liability over third parties but very few of them have car insurance for their own cars. We believe that insurance companies are co-responsible, along with the Government, in enhancing awareness, and we at First Takaful, as a major player of the industry in this country, are making a big effort to do this. We reach out to people through the radio, TV and other media outlets, broadcasting our messages about insurance and all the related products we offer. Our slogan is “For all that matters,� and it refers to our strong commitment not just towards our clients but towards all Kuwaitis. At the same time, the government should implement measures

How do you expect the insurance industry to grow in coming years?

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Hashem S. Al Hashem, Former CEO of Kuwait Oil Company (KOC), on major projects the company has undertaken.

Sheikh Nawaf Saud Al-Nasir Al-Sabah, CEO of Kuwait Foreign Petroleum Exploration Company (KUFPEC), on the outlook for 2016.

Bakheet Al-Rashidi, President of KPI & CEO of KPC Holdings Aruba, on its international structure.

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Energy REVIEW

Kuwait is slowly opening up oil development to international oil companies, most recently in a bid to develop Ratqa, the country’s largest oil field.

S

itting on the sixth largest proven oil reserves in the world of 104 billion barrels, Kuwait has enjoyed years of hydrocarbon-saturated wealth since exploration began in the post-Second World War era, bringing a high standard of living to what had been largely an impoverished country. Kuwait became the largest exporter of oil in the Gulf region by 1952, and the most developed country in the region in the 1960s and 1970s. Oil prosperity became a source of political tension when Kuwait increased its oil production by 40%—far in excess of its OPEC output quota—thus weakening oil prices, at the direct expense of Iraq. Iraq accused Kuwait of stealing its oil from the border-adjacent Rumaila field, eventually sparking the invasion of Kuwait by Iraq and the 1990-91 Gulf War. Though the conflict itself was brief, the devastating environmental damage resulting from burning oil fields and deliberate oil spillage is still taking its toll; more than 700

WELL, WELL, WELL

Image: Applus Velosi

Despite vast reserves of natural gas, Kuwait has become a gas importer, as the country suffers from electricity shortages and chronic summer blackouts.

wells were capped, and over a billion gallons of water were used to put out the fires, costing in excess of $1.5 billion. In the nine months it took to extinguish the fires, as much as 5 million bpd were lost, with the resulting oil lakes restricting access to production areas and known reserves. Kuwait Oil Company (KOC) awarded a tender in 2012 to aid in soil remediation, which is expected to result in significant crude oil volumes, estimated to cost the United Nations reparations fund roughly $3.5 billion and take several years.

As a country powered, financially driven, and politically shaped by oil, Kuwait has struggled to cope with falling oil prices, and has failed to increase production capacity to fully take advantage of the potential of its oil resources, especially as other oil-rich states have more successfully diversified their economies away from hydrocarbons. However, along with Qatar and the UAE, Kuwait is among the only Middle Eastern states with strong enough fiscal buffers to last in the long

KUWAIT 2016

THEBUSINESSYEAR

KUWAIT CRUDE OIL EXPORTS (MILLION BPD) SOURCE: OPEC ANNUAL STATISTICAL BULLETIN 2.01

2.05

1.99

1.81 1.43

2010

2011

2012

2013

2014

KUWAIT OIL PRODUCTION (MILLION BPD) SOURCE: OPEC ANNUAL STATISTICAL BULLETIN 2.97

2.92

2.86

2012

2013

2014

2.65 2.31

2010

2011

term, with one of the lowest break even levels of hydrocarbon-dependent countries; the IMF predicts the three countries can hold for over 20 years, compared to less than five for Oman, Algeria, Saudi Arabia, Bahrain, Libya, and Yemen. Still, maturing oil fields and declining basins are making infrastructure overhaul increasingly urgent, as well as requiring more costly, unconventional extraction methods to tap into the more difficult-to-access reserves.

OIL The multi-billion dollar development project known as Project Kuwait aims to raise national oil production to 4 million bpd by 2020, particularly by increasing capacity from the four northern oil fields of Raudhatain, Sabriya, Ratqa, and Abdali. However, Project Kuwait has been met with opposition from the staterun KOC and its supporters, who resist involving international oil companies (IOCs) in the sector. KOC itself recognizes IOC involvement is necessary to meet the goals of Project Kuwait.

The most recent effort to ramp up production came in 2014, when Kuwait Petroleum Corporation (KPC) subsidiary Kuwait Oil announced it would award a $4.3 billion contract to five international oil companies to develop Ratqa

to produce 60,000 bpd by 2018-2019. The government also announced a new law on Public Private Partnerships to launch projects in a variety of sectors, including petrochemicals, refineries, and other downstream infrastructure.

Kuwait’s proven crude oil reserves are estimated to be 9% of the world’s total reserves, with the Burgan Field being the second largest oil field in the world. The country is the eleventh largest producer, accounting for 7% of global production, and the seventh largest exporter. Oil accounts for about 43% of the total national GDP, and development of the industry is owned and controlled by the government. Kuwait Petroleum Company (KPC) is the umbrella organization charged with managing the country’s diversified oil interests, and the parent of the so-called K-Companies. Of these, the Kuwait Oil Company (KOC) is responsible for crude oil exploration and development, and the Kuwait National Petroleum Company (KNPC) runs refineries nationwide.

In 2014, the oil sector contributed $96.15 billion to GDP, declining by 1.7% YoY; crude oil and gas extraction contributed $92.34 billion, dropping 0.9% YoY; and oil refining contributed $3.82 billion, recording a 15.8% YoY decline.

According to the National Bank of Kuwait, the oil sector shrank by 1.7% during 2014 due to falling oil production, which fell to an average of 2.88 million bpd. While production experienced a large increase in 2011, output has been declining gradually since 2012. Refining activity also declined in 2014 by 16%. According to the OPEC Annual Statistical Bulletin, as of 2014, there were 1,760 oil-producing wells, down 34 from 1,794 in 2013 and 1,667 in 2010.

Kuwait’s refining capacity has maintained a level of 936,000 b/cd. In 2014, there was an output of 918,300 bpd of refined petroleum products, down 7.43% from 992,100 in 2013. Of these products, in 2014, gasoline represented 36,800 bpd, kerosene 195,800 bpd, distillates 244,500 bpd, residuals 149,900 bpd, and others 291,300 bpd. Meanwhile, demand for petroleum products is increasing in Kuwait from 379,600 bpd in 2013 to 388,200 bpd in 2014.

Kuwait exported at 750,000 bpd of petroleum products in 2014, compared to 805,000 bpd in 2013; of the 750,000 bpd, 296,000 bpd of petroleum products were exported to Europe, 7,000 bpd to North America, and 447,000 bpd to Asia and the Pacific. In terms of crude oil, Kuwait exported 1.99 million bpd in 2014, down 3.1% YoY compared to 2.05 million bpd in 2013.

GAS & ELECTRICITY Kuwait is also home to 63 trillion cubic feet (1.78 trillion cubic meters) of proven natural gas reserves, having remained at the same level since 2006. While vast discoveries of gas in the northern region have attracted interest from international oil companies, they have

BRIAN DAWES Regional Manager, Middle East, Applus Velosi What has been the company’s strategy to adjust to low oil prices?

We are already a low-cost organization. However, we have found ways of reducing our costs further. One of the consequences of the low oil price is that our customers have come to us asking for reductions in rates. Within our core business of oil and gas, we are making sure that we continue to be competitive, which means we need to manage our costs even more tightly. Strategically, what the oil price crisis meant to us was that the company cannot rely on oil and gas as much as we have in the past. Therefore, we identified other areas in which Kuwait and governments in the GCC are spending capital, such as utilities.

What future opportunities do you see for your company in the oil and gas sector in the coming years?

The audit, inspection, and refurbishment of oil rigs is already an established business for us in a number of markets around the world, and now we are bringing this expertise to the Middle East.

Kuwait has announced a significant increase in drilling activity, which represents a new market opportunity for us. Kuwait’s major investment in construction and infrastructure are also opportunities for the company. The construction phase of the new projects will last for the next three to four years. To support ongoing operations, we can provide asset integrity management services that assess the condition of an operational plant.*

*Read the full interview at thebusinessyear.com

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Energy

largely gone unexploited due to legislative indecisiveness regarding whether to involve foreign partners in the nationalized sector.

Kuwait thus became a net gas importer as of 2009; the country still suffers from electricity shortages and chronic summer blackouts, as a rising populations' increasing demand puts stress on the country’s five power plants.

While natural gas exploration remains in political deadlock, in August 2015, the government approved the construction of several power plants and desalination facilities to boost electricity generation capacity to 3.58MW. The approved plans include a second 1.8GW phase for the gas-fired integrated water and power plant in Az-Zour North, the first 1.5GW phase of the oil and gas-fired Khairan power plant, and the 280MW Al Abdaliyah hybrid power plant, of which 60MW will be from solar and the rest from gas. A timeline for the completion of the plants has yet to be determined by the government. The government has also set a goal to increase dry natural gas production to 2 billion cubic feet per day by 2030 to reduce dependence on foreign imports throughout peak summer months.

The natural gas sector is also owned by the KPC, prohibiting product sharing agreements for joint ventures with international oil companies. However, the government has employed the use of technical service agreements for the development of more difficult natural gas exploration projects. Royal Dutch Shell signed such an agreement in 2010 to develop the Jurassic fields, natural gas discoveries made in 2006 in northern Kuwait that are estimated to contain 35 trillion cubic feet of reserves. In 2014, Kuwait’s marketed natural gas production was 15 billion cubic meters, down 7.9%

from 16.31 billion cubic meters in 2013. In 2013, Kuwait consumed the equivalent of 630 billion cubic feet of natural gas. Kuwait imported 571 million cubic meters of natural gas in 2014, the same amount as in 2013. The majority of natural gas imports originate from Qatar, with small amounts from Nigeria.

As of 2013, Kuwait had an installed generation capacity of 15.7GW, generating at a 44% capacity factor. Demand peaked at 12.1GW in 2013, and the rate of annual growth of generation capacity has been unable to keep up with demand since 2004. In 2011, Kuwait was the world’s fourth-largest electricity consumer per capita, according to the World Bank. As the country struggles to produce and import sufficient gas to produce electricity, the majority of power generation—approximately 70%—is derived from oil, while just 28% comes from gas.

Kuwait’s main incentives to move away from the current energy mix are environmental, but also financial; producing electricity from crude and heavy oil is comparatively more expensive that using natural gas, and as the economy is heavily reliant on its oil export revenues, Kuwait cannot afford to continue burning it for domestic electricity consumption.

To resolve the electricity shortfall, the government has set the goal of increasing installed capacity to 25GW by 2020 to meet anticipated peak demand of 22.5GW, with a reserve margin of over 10%. Most of this planned capacity will be fueled by natural gas or oil. However, Kuwait also aims to generate 15% of its energy from renewable sources by 2020 by installing up to 100 solar facilities. Slated for completion in 2016, a solar project in the Shagaya desert zone west of Kuwait City will generate 70MW of energy. ✖

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KUWAIT PETROLEUM PRODUCTS DEMAND (1,000 BPD) SOURCE: OPEC ANNUAL STATISTICAL BULLETIN 395

385

375

365

355 2010

2011

2012

2013

2014

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THEBUSINESSYEAR

KUWAIT 2016

INTERVIEW

What are the major ongoing projects for KOC currently?

power PLAY TBY talks to Hashem S. Al Hashem, Former CEO of Kuwait Oil Company (KOC), on major projects the company has undertaken, human resources in the country, and future strategies.

BIO Hashem S. Al Hashem was the CEO of KOC from May 2013 to January 2016. He joined KOC in 1987 and has held a variety of posts for the company, including Superintendent, Head of Strategic Planning, Manager of Field Developments, and Deputy Managing Director.

Hashem also serves as the Chairman and Managing Director of the Kuwaiti Oil Tankers Company (TOTC).

He earned his BSc in Chemical Engineering from Kuwait University in 1987.

KOC is implementing a comprehensive capital investment program for the next five years that will allow us to increase our production capacity in line with our 2020 plan. There are several projects that are key to realizing this aim, one being the implementation of an intensive drilling program of an estimated 400-500 wells to be drilled per year for the next five years, including application of the latest drilling technologies to maximize recovery from our reservoirs.

Our drilling rig fleet at KOC has been increased in order to cope with this increase and efficiencies of our drilling operations are being optimized to achieve even more of an increase in the future. We have also embarked on two major field development programs focused on water injection plans in West Kuwait in order to maintain the current 500 mbpd production capacity of the area and increase it beyond current levels to 550 mbpd. In addition to that, there are three major development programs ongoing in the South and East Kuwait area, including a major water injection facility and a new gathering center to assist in S&EK of that area, maintaining its 1.7 billion bpd production capacity target. In the North Kuwait area, we have started three major development programs, including three new gathering centers and another water injection facility to increase the conventional oil production capacity to 1 million bpd. We have begun the development of Phase I of the Heavy Oil program to reach production of 60 million barrels in Lower Fars reservoir, a program that includes the HO production facility and transit pipeline, as well as the associated export facilities. We are moving even closer towards our goal of bringing oil production to more than 350 mbpd and non-associated gas to 1 billion cubic feet per day by 2022 with the development of the second

and third phases of the North Kuwait Jurassic reserves, a major step forward in our long term strategy. In the interim, KOC is developing three Jurassic production facilities to expedite the development of the Jurassic reserves during 2017.

What role does international cooperation play in KOC’s strategy?

International cooperation is important for KOC to achieve its strategic goals. As we move to develop heavy oil and non-associated gas production, and as we enter offshore exploration and development and move towards the tertiary production techniques in our conventional crude oil reservoirs, the participation of IOCs through Enhanced Technical Service Agreements (ETSA) will add significant value that will support KOC in the long term. We already have an ETSA with an IOC to support the development of non-associated gas production in the Jurassic reservoirs located in North Kuwait, and we look forward to starting additional ETSAs with other international companies to support other projects within KOC in the near future.

What are the changing employment demands of the oil and gas business, and where do you see the greatest need for further human capital development in Kuwait’s oil industry?

Future challenges appear in the rising demand for the application of new technologies, additional drilling activities, and increasing well surveillance activities and operations. This demands more employment in the technical fields. The greatest need lies in the demand of experienced employees, such as the ones who have experience in EOR processes. Our need for experienced manpower is directly proportional to the growing capital investments and complexity of our operations, which is becoming more and more demanding in the coming few years.

IN NUMBERS Projected increase in KOC’s production capacity of

3

million bpd of crude oil

2020 production capacity target of

3.65 mbpd

How do you see supply and demand evolving in the oil industry globally in the near future, and what role will Kuwait’s oil play in the global energy mix?

We expect that global oil consumption will continue increasing through the coming years, reaching around 110 mbpd by 2040 from a current consumption of approximately 92 mbpd. The main consumption growth will take place in India, China, and the Middle East; regional OPEC countries will play a significant role in providing the required increment in production capacity to supply this oil demand increase. Our advantage of having one of the lowest oil production and development costs in the world, together with the continued implementation of our strategic plan, will keep placing Kuwait as one of the most important oil producers in the region and worldwide. We will continue building our production capacity as per our 2020 strategy to ensure that we continue maintaining our position as a reliable crude oil supplier to the international market in the short and long term. ✖

Energy

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INTERVIEW

let’s do this TBY talks to Sheikh Nawaf Saud Al-Nasir Al-Sabah, CEO of Kuwait Foreign Petroleum Exploration Company (KUFPEC), on how the company is performing, low oil prices, and the outlook for 2016.

What are some important transactions and acquisitions

by KUFPEC in recent years and how would you describe the company’s current position?

KUFPEC is firmly heading toward its 2030 strategy of reaching 200,000 bpd compared to its current 70,000 bpd production, increasing its reserve base to 650 million barrels, and increasing its operatorship to 20% by 2030. KUFPEC is confident that it is a valuable subsidiary to Kuwait Petroleum Corporation (KPC), providing its sister companies, such as Kuwait Oil Company (KOC) and Kuwait Gulf Oil Company (KGOC), a significant role in upstream technology transfer, best practice initiatives, and exploration and production know-how. KUFPEC entered two promising and large projects in 2014 as part of achieving the 2030 strategy.

The first was doubling our equity stake in the Wheatstone LNG project in Australia. This transaction will further add to our material production that expects to receive its first gas in 2017. Furthermore, the Wheatstone project is a strategic element not only for KUFPEC, but also its parent company, KPC, providing priority to KPC to be supplied with Wheatstone LNG if required, meeting at least 10% of KPC’s energy needs in the long term. KUFPEC’s second large transaction in 2014 was entering a joint venture with Chevron in the Kaybob re-

IN NUMBERS Target to increase reserves base to

650 million barrels

Seeks to have

20%

of production operated by KUFPEC by 2030

gion of the Duvernay shale play in Alberta, Canada. This large transaction provides KUFPEC with substantial material production for decades to come, adding an estimated 25% of our overall production by 2030, thereby securing the future of KUFPEC. How has the drop in oil prices impacted your operations?

The price collapse we witnessed at the end of 2014 caused serious repercussions for KUFPEC’s balance sheet.

Having said that, it is with pride that we achieved a net profit of $40 million, surpassing our entire peer group who had all shown losses for 2014 due to oil prices remain-

ing low. We are seeing the new norm in price terms for the foreseeable future, and a quick snap back to higher prices such as the $100 we saw in 2014 is unexpected for the time being. With the price of oil down, costs have also deflated, creating an opportunity to execute our strategy by entering new acquisitions and core business opportunities in the coming years.

What is your approach to investing in human capital, and particularly to attracting Kuwaiti employees to KUFPEC?

KUFPEC’s most valuable investment is its people and its employees. Our successful investment is due to our competent, qualified, and successful team. KUFPEC invests heavily in developing professional career paths for our younger employees, and encourages its people to spend time working for KUFPEC in our offices and operations. The opportunity to develop and grow our human capital is necessary, since KUFPEC will ultimately be running more and more projects that we will operate in the near future. The Kuwait oil sector has always been an attractive employer and the industry of choice for young Kuwaitis, not only for petroleum related engineers but also for financial and legal backgrounds as well.

Such employees are driven to work internationally and are bilingual.

What are your expectations for 2016?

2016 will be an extremely busy year for KUFPEC, with the final progress for completion of the Wheatstone project leading the way. We expect also to increase our production level, with more operatorship activities. We will do all of this by first developing and empowering our employees to solidify KUFPEC as a partner of choice in the International E&P business. ✖

BIO Sheikh Nawaf Saud Al-Nasir Al-Sabah was officially named the eighth CEO of Kuwait Foreign Petroleum Exploration Company (KUFPEC) in May 2013.

Prior to his appointment at KUFPEC, Sheikh Nawaf spent 14 years at KPC rising through the ranks to the bench of Deputy Managing Director and General Counsel of KPC. He was also a Board member of both KPC’s subsidiary Kuwait Petroleum International and MEGlobal, an olefins joint venture.

From 2002-2004, Sheikh Nawaf was head of KPC’s Washington office. Before joining KPC, Sheikh Nawaf worked as a corporate transactions attorney for Gibson, Dunn & Crutcher LLP, an international law firm based in Los Angeles.

Sheikh Nawaf, a graduate magna cum laude of Princeton University’s Woodrow Wilson School for Public and International Affairs in 1994, received his Doctor of Law (Juris Doctor) degree cum laude from Harvard University in 1997.

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THEBUSINESSYEAR

KUWAIT 2016

INTERVIEW

WE HAVE a plan TBY talks to Sara Akbar, CEO of Kuwait Energy, on the objectives of the company, how it helps develop strategic plans, and opportunities in the region.

What are the primary objectives of Kuwait Energy and how would you describe its investment strategy in the region?

BIO Sara Akbar is CEO and co-founder of Kuwait Energy, one of the few successful independent oil and gas exploration and production companies in the Middle East. With a BSc in Chemical Engineering from Kuwait University, Sara began her career as a petroleum engineer with Kuwait Oil Company in 1991 and moved up to several positions before joining KUFPEC as Business Development Manager in 1999. In 2005, Sara co-established Kuwait Energy. Her distinguished achievements in the oil industry won her the international Charles F. Rand Memorial Gold Medal in 2013. Other awards include 2009’s Leader in Energy, recognizing her as the leading woman in the Middle East’s oil and gas industry. Sara Akbar is the only member from the Middle East in the international C200 committee of women CEOs.

Kuwait Energy aims to become the preeminent Middle East-based independent oil and gas company. It hopes to develop and manage oil and gas assets in the interest of our stakeholders. Our strategy is simple: to leverage our technical expertise, local knowledge, and solid relationships to enhance our operations in the region and always ensuring that we have a win-win relationship with the host government. When it comes to operations, we actively manage and operate our assets while prudently managing financial risk through a conservative capital structure. Our knowledge of the Middle East, and operational experience in the region, enable us to have an advantage in terms of operational planning, project execution and risk management.

Could you talk about the unique access Kuwait Energy has through its strong relations with national oil and gas companies and local governments in the region?

We provide valuable technical expertise, advice, and assistance to the national oil and gas companies and local governments on oil and gas projects that are important to these countries' economic development. In Yemen, we have been working closely

IN NUMBERS In Egypt, works with partners to ensure production of

38,600 bpd and employment for over 400 people

with the Yemen Ministry of Oil and Minerals, studying the potential development of natural gas reserves in Yemen and the optimization of the country’s natural gas resources for the benefit of its people, while developing a long-term Yemen Gas Master Plan. We advise the Ministry on the most suitable uses and applications for the country’s gas resources in order to ensure production sustainability and maximize revenue generation and job creation.

As for Egypt, we acted as the catalyst behind the recent agreement with the Egyptian General Petroleum Corporation (EGPC) from which it gained a 10% participating interest in Block 9, Iraq. This is EGPC’s first international investment and contributed to building an economic relationship between Iraq and Egypt. We go beyond business and operations when it comes to our relationships

with local governments, and become their support in difficult times. For example in Egypt, during the revolution in 2011, we were more understanding of the country’s tough financial circumstances, and ensured that we support the country during those tough times. This was received favorably by the EGPC, as we proved that one of our main goals as a company is to become true partners in the economic development of the countries where we work.

In Iraq, we support the local government by providing relief aid to the internally displaced people (IDP) that have moved to the Basra region.

In December 2014, we provided complete relief aid to the IDPs in Basra and during Ramadan we provided food bags to 2,500 families.

What growth opportunities do you see for oil and gas development in the MENA region?

Currently, we have largescale projects in Iraq: the Siba gas project and Block 9, located in Southern Iraq. In accordance with our plans, we are allocating great effort and finances to fast-track the projects and bring them to existing infrastructure to ramp up and accelerate our production in Iraq in the near term. Once we bring more production on stream, the time will be right to go and target our next growth opportunity to create further value for stakeholders. ✖

Energy

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BREAK-EVEN FOCUS

DON’T GET MAD, GET EVEN With the price of oil reaching record lows, Kuwait’s ability to balance its budget has come under the spotlight, forcing a reexamination of the role that hydrocarbons play in the national economy.

WITH THE US—the world’s largest oil importing economy—adding American-produced oil to the world’s supply, and a concurrent fall in demand from some of the world’s largest consumer nations, the price of oil on the international market has hit record lows over the past year. Between June 2014 and January 2015, global oil prices decreased by a dramatic 57% according to the US Energy Information Administration, and 2016 kicked off with oil at its lowest price point since 2009. Many are now asking who is winning, who is losing, and who can afford to even play the game anymore?

Kuwait is a strong player, estimated to have over 6% of the world’s oil reserves. Adding to that, state oil companies have ramped up exploration, discovering even more reserves in the country in early 2015. Historically, Kuwait’s oil wealth has provided about 60% of its GDP and about 95% of its export revenues. Yet, as a result of cheap oil, for the first time in nearly 20 years, Kuwait could post a state budget deficit, with estimates by the National Bank of Kuwait in January 2016 stating that Kuwait’s deficit would lie at around $12.8 billion, 9.8% of GDP, by the end of FY2015-16.

From Russia, to Saudi Arabia, Venezuela, and Kuwait, oil-producing economies dependent on oil revenues have begun to reassess their dependence, knowing that they must sell their oil at a certain price in order to balance their budgets. To Kuwait’s benefit, its breakeven price per barrel of oil has been estimated as the lowest of all oil producing states worldwide. While this puts Kuwait in a more comfortable position, important dialogue has begun about ways in which the state can raise cash or cut spending to close the budget gap and make up for revenues lost. Introducing corporate taxes, VAT taxes, reducing fuel sub-

sidies, and liquidating state assets that generate returns below 9% are all on the table in order to fund the large infrastructure and construction projects that Kuwait has laid out in its national development plan.

While estimates of Kuwait’s break-even oil price indicate that it may be in the best position to weather the low oil price climate, this measure is subject to several variations and changes over time, and is inadequate in and of itself when determining a country’s fiscal strength.

Nobody can predict what the precise breaking point will be for Kuwait. Kuwait’s ability to see its way through the era of cheap oil does seem sound, thanks to a solid savings account. It appears that, if managed properly, Kuwait’s fiscal position will remain sound for the long term.

If and when the price of oil rises again, Kuwait will benefit in the short-term, but with the geopolitics of oil being as they are, the next oil bust could be right around the corner.

This puts Kuwait at an interesting crossroads. Kuwait can afford to stay in the oil game and is committed to doing so, with a strategy to increase domestic oil production capacity to 3,650 mbopd by 2020. However, a low oil price environment is also the ideal time to spur the non-oil economy, and rethink the role that hydrocarbons play in its economic growth. The stage is set for the importance of economic diversification and growing non-oil revenue sources to be at the forefront of Kuwait’s strategic discussions and policy decisions.

The Kuwaiti dinar is consistently the world’s highest-valued currency, pegged to a diversified basket of currencies. Just as with its currency, now is the time for Kuwait to apply a similar diversification strategy to the state’s domestic economy, and let a low oil price environment be a blessing in disguise. ✖

ASSAF AL SALEM

*Read the full interview at thebusinessyear.com

Managing Director, Tharwa Trading & Contracting Co. In what direction would you like to see the environment for foreign investment in Kuwait’s oil sector moving?

We would like to see a continuation of the current trend that KDIPA has begun. We are not there now, but there are numerous steps that should be taken before we arrive at the place where international companies are viewed as locals, and where KOC and KNPC create an environment that is more welcoming to international companies. That means tenders not being canceled, more transparency in the approval and tendering process, and the Anti-Corruption Bureau playing a more active role.

What opportunities do you see for international companies within Kuwait’s energy sector?

There are many opportunities at the level of subcontractors for the new refinery project. There are many tenders in general, and there is a lot of work to be done; the work that is required is limitless.

There is the Kuwait 2035 plan, and we would like to partner with international companies that want to become fully local and participate in Kuwait’s 2035 goals by bringing in unique technologies for the job through the right partnerships. While transparency in the tendering process needs improvement, the KOC works well with technology transfers, attracting foreign companies and technologies and integrating them in Kuwait.*

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INTERVIEW

greasing the WHEELS TBY talks to Bakheet Al-Rashidi, President of Kuwait Petroleum International (KPI) & CEO of KPC Holdings Aruba, on its international structure, its lube operations, and its global presence and strategy.

What role does KPI play in the international strategy for Kuwait’s oil?

Within the K-companies under the umbrella of the Kuwait Petroleum Corporation (KPC), KPI is classified as the international arm for KPC for downstream business.

KPC’s structure contains both local and international downstream and upstream operations. The downstream business in Kuwait is under the charge of Kuwait National Petroleum Company (KNPC), which takes care of the refining business in Kuwait, as well as gas operations, and also domestic marketing. In the upstream, we have Kuwait Oil Company (KOC) and Kuwait Gulf Oil Company (KGOC).

Outside Kuwait, we have two companies, KPI and Kuwait Foreign Petroleum Exploration Company (KUFPEC).

KUFPEC mainly deals with the upstream production side, gas operations, and production, and KPI deals with the downstream business, mainly refining and marketing operations. We also have Petrochemicals Industries Company (PIC), which deals with petrochemicals inside and outside of Kuwait, but PIC will join KPI to do an integrated project among the refineries.

Historically, we were mainly a European operation, with KPC doing its own business development, but recently all the business development departments joined KPI, and now we are no longer a European company, but a global downstream company.

Present in over 60 countries

2030 Strategy approved by KPC

What investments in R&D are going to be of high impact for the sector, and what are your own R&D investments?

We have Q8Research, our own R&D center in Rotterdam, and we are trying to improve and widen our activities, especially relating to refining fuel and lube operations. Our R&D center in Rotterdam is one of the most important centers in Europe, especially in the lube industry. They handle more than 1,000 specialty products, concentrating more and more in lube. We are now present in more than 60 countries as Q8Oils, and we are trying to reach new markets with support from our R&D center.

The center does not just provide support for KPI but for all K-companies, especially in downstream. We have programs with our sister companies for training and also for collaborative research and other R&D activities.

How can the R&D environment in Kuwait become more prominent and effective?

We would like to create a major R&D center in Kuwait. In addition to the Kuwait Institute for Scientific Research Petroleum Research Center (KPRC), we will have our own, supported by KPI. It will be mainly in downstream, but with complete upstream and downstream petrochemicals activity. We feel that increasing operations here and in the region will need a major research center like this behind it. It is no longer as simple as it used to be. It is time for heavy crude and other difficult types of crude in the upstream side, handling water activities in the upstream, and also about things becoming more complicated in the downstream, especially with the complex refining system we have here in Kuwait, which requires a large R&D and support center to maintain it.

Looking at the next three years, what are the main objectives for Q8 and what would you like to achieve moving forward?

We have a 2030 Strategy that has been approved by KPC, and we are working in accordance with that strategy, which involves strengthening our position in the world.

We have a solid presence throughout the world. In Europe, we have over 5,000 stations and about 70 airports in 20 countries. On the lube side, we are present in almost every part of Europe. Therefore, we seek to ensure that our opera-

tions remain efficient and that we maintain a competitive position in Europe. In Asia, we are growing in refining and petrochemicals, and we are also planning to grow in terms of retail stations, jet fuel supplies, and lube operations, in addition to the megaprojects in refining and petrochemicals. We hope to complete our project in Vietnam and then look into similar projects in other Asian countries. ✖

BIO Bakheet Al-Rashidi is President of Kuwait Petroleum International (KPI) and CEO of KPC Holdings Aruba. A graduate in Chemical Engineering from Alexandria University, Al-Rashidi has more than 30 years of experience in the refining industry and is a leader with thorough knowledge of global refining and petrochemicals. He is an active member of premier international bodies and technical committees on oil and gas and has participated as a keynote speaker at various international forums.

He has also spearheaded several of the Kuwaiti oil sector’s local projects and is currently leading KPI’s major projects, namely the Nghi Son Refinery Project in Vietnam, the acquisition of Shell Retail assets in Italy, and the expansion of Q8 in Europe.

Energy

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B2B

ZIAD JEHA Vice President & General Manager, Schlumberger Oilfield Services

LIONEL LEVHA General Manager & Total Group Representative, Total Kuwait

solutions in hydrocarbons The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

Two IOC executives discuss how oil prices are affecting the market, their partnerships with Kuwait, and the outlook for 2016.

How has the drop in oil prices affected the industry, and how have you adapted to the new price climate?

ZIAD JEHA The industry is experiencing the worst downturn for many years with E&P expenditures down, which has dramatically affected service companies across the board. Kuwait Oil Company (KOC) has a long-term vision for the future of reaching 3.65 mbpd by 2020. We expect that strategic projects will be sustained and the Kingdom will achieve its 2030 plan of 4 mbpd and 1 billion cubic feet of gas.

LIONEL LEVHA Since mid2014, oil companies have seen their revenues halved. Costs have been cut across the board, projects have been delayed or stopped, and investments significantly reduced. We have al-

ready succeeded in reducing our costs by 30%. The contractors in this industry have been suffering and have had to lay off many employees. Kuwait, however, has a different approach. In May 2013, it decided to completely reshuffle the executive level in every oil company, replacing them with younger employees that have enough experience to cope with the challenge and respond quickly. It gave them a clear roadmap, and now they have to execute the projects.

The major challenge Kuwait has faced in the past is the implementation of projects. While most countries in the sector have halted projects, Kuwait continues to invest. The energy sector will grow again. Kuwait is maintaining its development of the oil sector and continuing to deal with production; when the oil price climbs again, it will be in a good position to produce immediately. This will give Kuwait the advantage of selling its oil at a high price, since it invested while prices were low.

What does the future hold for your company in Kuwait, and in what ways are you taking your partnerships to new heights?

ZJ New technologies are our main direction in Kuwait, with KOC's encouragement and endorsement. The focus of KOC and our clients in Kuwait will be on certain untouched reservoirs for which we offer new technologies and expertise that we can help explore and develop. KOC has been active in promoting and encouraging young Kuwaitis to work in the oil and gas sector. Schlumberger’s employment of Kuwaitis has been our commitment to the in-country value for many years. We have been recruiting, training, and developing young Kuwaitis, and we currently have a high number of Kuwaiti nationals in middle and senior managerial positions in Kuwait and internationally.

LL We are willing to participate in the development of the sector. However, we want to be fairly remunerated for that.

We expect that one day in the future, Kuwait will give us the opportunity to enter into more conventional types of contracts, such as those we have in other countries around the world. We could then establish a long-term partnership with Kuwait similar to what we have with Abu Dhabi, Qatar, Iraq, and Kazakhstan. It is interesting to see that Mexico is opening now as well, and at the end of the day, Kuwait will need to adapt to these conventional ways to establish partnerships with the IOC’s.

What are your expectations for 2016?

ZJ We will continue our focus on improving efficiency, reliability, and integration of our services. There are great opportunities in the future for which we are getting ready to engage with our clients. We expect to see greater momentum for exploration and development of offshore oil in Kuwait. Heavy oil and EOR is an area where KOC is focusing, and Schlumberger is present to collaborate with KOC in a partnership spirit. We are proud of our long history and partnership relation with our clients in Kuwait, and we will remain committed to providing the best services for our clients in Kuwait.

LL I believe 2016 will be a significant year for oil in Kuwait, and we are prepared for that.

We have in place a corporate structure, personnel, and relationship targets with KOC so that we can answer positively any challenges that may arise.

We also hope that we will be awarded large contracts on significant development projects mutually beneficial for both KOC and Total. ✖

Growing Value.

Growing Together.

PIC is committed to growth. Growing the value and service we deliver to our customers. Growing globally with our partners. Growing our commitment to sustainability. Growing opportunity for Kuwait.

We have begun the next half-century of our history and we see a bright future, a future of unlimited possibilities.

(‫ﺷﺭﻛﺔ ﺻﻧﺎﻋﺔ ﺍﻟﻛﻳﻣﺎﻭﻳﺎﺕ ﺍﻟﺑﺗﺭﻭﻟﻳﺔ )ﺵ ﻡ ﻙ‬ PETROCHEMICAL INDUSTRIES COMPANY K.S.C.

‫ﺇﺣﺩﻯ ﺷﺭﻛﺎﺕ ﻣﺅﺳﺳﺔ ﺍﻟﺑﺗﺭﻭﻝ ﺍﻟﻛﻭﻳﺗﻳﺔ‬ A Subsidiary of Kuwait Petroleum Corporation

Possibilities without limit

www.pic.com.kw

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Asaad Ahmad E. Al-Saad, CEO of Petrochemical Industries Company (PIC) KSC, on its role in Kuwait’s energy sector.

Kuwait National Petroleum Company (KNPC) awarded contracts for the construction of the world’s fifth biggest refinery.

Mohammad Husain, President of EQUATE Petrochemical Company, on the first international petrochemical JV.

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Industry REVIEW

Like most of its Gulf region neighbors and other economies across the globe dependent on oil production, Kuwait is actively diversifying its economy and boosting its industrial output.

K

uwait, an OPEC founding member, was particularly hit by the six-and-ahalf-year Brent lows, with hydrocarbons contributing over half the GDP. Even Kuwait’s manufacturing industries are either directly or indirectly tied to energy reserves, particularly petrochemicals— one of the country’s most profitable industrial segments. Another challenge to overcome to promote diversification and manufacturing is Kuwait’s disproportionately large public sector, with the private sector representing just 24.6% of the GDP and only 5% of the total national workforce. “For years, the fear has been that by giving a greater role to the private sector, employment will suffer, because Kuwait’s largest employer is the government,” explains Rabah A. Al Rabah, the Director General of the Kuwait Chamber of Commerce and Industry (KCCI).

However, fears have been allayed by positive growth and a rise in employment as a result of telecom operator

PRODUCTION LINE

Image: Petroleum Coke Industries Company (PCIC)

Coke, refined petroleum products, and nuclear fuel industries are by far the most active sub-sectors, contributing 54% to the market value of the manufacturing industry.

privatization, which serves as a model for other industries still dominated by the public sector.

In 2010, the government announced a $108 billion economic development plan to diversify the economy and to achieve the national goal to become a regional trade center by 2035. Of the targets of the 2035 vision, the industrial and manufacturing sectors stand to benefit from reduced red tape for establishing and operating businesses, the development of fair market opportunities, improvements to industrial and logistical infrastructure, and halting the rise in public sector employment and salaries by concurrently tightening working conditions in the private sector. At the 2015 Kuwait Industries Expo, sponsored by EQUATE Petrochemical Company, Mohammad Husain, President and CEO of EQUATE, said, “The growth and development of Kuwait’s industrial sector depends on a number of elements, including cooperation between all relevant government bodies and pri-

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KUWAIT 2016

vate entities, establishing integrated industrial areas and complexes, securing state-of-theart technology, and building the capabilities of qualified human resources, as they are the main element to ensure sustainability-based industrial innovation.”

IN NUMBERS In 2014, the manufacturing sector, excluding the refining sub-sector, contributed $4.7 billion to GDP, marking 0.9% YoY real growth from 2013, a turnaround from the 0.9% decrease the sector recorded between 2012 and 2013. According to the CIA World Factbook, the industrial production growth rate was 4.1% in 2013, compared to stronger figures in 2011 and 2012 of 8.7% and 10.2% respectively, and a low of -9.1% in 2009; Kuwait ranks 70th in terms of industrial production growth rate out of 192 countries surveyed by the CIA World Factbook.

Coke, refined petroleum products, and nuclear fuel industries are by far the most active sub-sectors, contributing 54% to the market value of the manufacturing industry, and charting a CAGR of 9.6% between 2008 and 2012. Chemical products contributed 17% to market value with a CAGR of 3.75%, food and beverages contributed 6%, growing at a CAGR of 0.6%, while textiles and machineries grew at a CAGR of 0.2% and 0.05% respectively during the same period. According to the most recent available statistics from the Kuwait Central Statistical Bureau, total industrial activity in 2013 had a fixed asset consumption of $2.85 billion, a $750 million change in stocks, gross additions to fixed assets of $5.98 billion, gross value added reached $116.8 billion, and consumption of goods and services was valued at $56.13 billion with a gross output of $173 billion, employing a total of 134,583 people across 5,516 establishments.

There are 653 food and beverage manufacturing establishments employing 23,808 people, with an annual gross output of $1.75 billion; a further 2,558 apparel and fur-dying establishments employ 15,320 people, with a gross annual output of $317.2 billion. The 30 paper products manufacturing establishments employ 2,351 people and generate a $302.5 million annual gross output. There are two coke, refined petroleum, and nuclear fuel manufacturers, which employ a total of 6,365 people and contribute $44.8 billion in annual gross output, while coke oven products contribute $152.5 million. The 38 chemicals manufacturing establishments employ 6,266 people and contribute $7.27 billion, while basic chemicals contribute a further $7 billion, with 4,500 employees and 17 establishments.

There are 44 rubber and plastics manufacturing establishments that employ 4,847 people, contributing $450.84 million in annual gross output; other non-metallic mineral products contribute $1.5 billion in gross output and employ 11,790 people. The manufacture of basic metals, from eight establishments, employing 1,412 people, has an annual gross output of $536 million; the country’s four basic iron and steel manufacturers employ 1,108 people, with an annual gross output of $503.5 million. There are 891 manufacturers of fabricated metal products, excluding machinery and equipment, with a combined gross annual output of $727,273; the 729 structural metal products, tank reservoirs, and steam generators manufacturers employ 2,343 people and contribute $544.2 million annual gross output.

There are 13 electrical machinery manufacturers that employ 3,849 people with a gross output of $789.5 million; 12 electricity distribution apparatus manufacturers employ 3,288 people and have a combined gross output of $451,928. The annual output of insulated wire and cable manufacturers is $337.5 million, and employs 561 people.

In 2014, some of Kuwait’s main export commodities, excluding fuel products, were fertilizers, which reached a total value of $290 million, jewelry, with a total export value of $163.7 million, iron and steel, at an export value of $113.3 million, and dairy product exports, which were valued at $68.6 million.

RIYADH I. A. AL-SALEH Chairman and CEO, Petroleum Coke Industries Company (PCIC)

PETROCHEMICALS AND PLASTICS

How do you evaluate the demand for your products in the aluminum industry?

The demand in GCC countries requires more than 2.4 million tons of Calcined Petroleum Coke per year. We produce 350,000 metric tons. For the fifth year in a row, we are fully sold out, with no surplus. Kuwait does not have an aluminum industry.

Having an aluminum industry in Kuwait would make it a fully localized ecosystem, and we would end up making more profit because selling aluminum is much more profitable than selling carbon and this sector would employ Kuwaitis.

The country’s petrochemicals industry remains one of the most vibrant in the manufacturing sector. While petrochemicals are directly connected to hydrocarbons and thus sensitive to oil markets, it is a crucial component as feedstock for a wide variety of other industries, from metals, to plastics, agriculture, textiles, paints, transportation, cosmetics, electronics, and more. Kuwait-based Petroleum Coke Industries Company (PCIC) is currently the only company in the region manufacturing calcined coke, though one is being established in the UAE, and another in Saudi Arabia, informs Riyadh I. A. Al-Saleh, Chairman and CEO of PCIC. The country’s petroleum coke is used mainly in the aluminum and steel industries, exporting to smelters throughout the GCC. Al-Saleh points out that Kuwait itself does not yet have a local aluminum industry. “Having an aluminum industry in Kuwait would make it a fully localized ecosystem, and we would end up making more profit because selling aluminum is much more profitable than selling carbon. Of course, we would employ Kuwaitis,” he told TBY, high-

What opportunities would you highlight for international investors in Kuwait?

I hope Kuwait will increase and encourage international investors' participation in the local economy. I encourage international investors to start in the aluminum industry. It is essential both for the local market requirements and the GCC market requirements to produce more aluminum. Kuwait should go into partnership deals with other GCC countries to achieve this, and make long-term deals for supplying the petroleum coke. I am a firm supporter of coordination and unification of strategies within industries in GCC countries. If the economy is opened up with fewer restrictions, this would attract more investment worldwide and also locally.*

*Read the full interview at thebusinessyear.com

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Industry

lighting the investment potential for the production of more aluminum in Kuwait and the GCC region. PCIC is also involved in the Clean Fuel Project in petrochemical refineries, expected to be completed by 2019. The project saw investments from the Kuwait National Petroleum Company (KPNC) of $13.5-13.8 billion, and another $150 million from PCIC. While President and CEO of petrochemicals company EQUATE, Mohammed Hussain, admits the petrochemicals industry has been struggling in recent years and has faced limited growth potential, he expects 2016 to be a year of recovery marked by an increase in production. KNPC has also recently signed contracts valued at $13.2 billion to build a new refinery—the country’s largest development project—that will include a major petrochemicals venture. In addition to petrochemicals manufacturing, EQUATE is also active in the other segments of the industrial sector, particularly through its partnership and support of plastics manufacturing. Since 1998, local manufacturers increased production by more than 400%, and expanded their export presence in other countries through EQUATE’s support. “More and more, we also are seeing petrochemicals play a vital role in achieving sustainability goals,” says Asaad Ahmad E. Al-Saad, CEO of Petrochemical Industries Company, adding, “Plastics are being used to replace components in cars that traditionally were made from steel… We will continue to invest in petrochemical growth, as we also continue to seek ways to make our operations more environmentally sound.”

In 2010, the government announced a $108 billion economic development plan with the aim of diversifying the economy and achieving the national goal of becoming a regional trade center by 2035.

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INDUSTRIAL PRODUCTION GROWTH RATE (%) SOURCE: CIA WORLD FACTBOOK 15

10

KUWAIT FREE TRADE ZONE Inspired by the success of other free zones in the GCC, Kuwait has also sought to develop investment opportunities that free zones have to offer for industrial activity. Located west of Kuwait City in the port city of Shuwaikh, adjacent to a power station and desalination plant, is the Kuwait Free Trade Zone, the country’s only free trade zone. Shuwaikh port is the country’s main commercial shipping facility. Since its inception in 1999 it was operated by the private sector National Real Estate Company until the Kuwait Ports Authority took over operations in 2007 - operations it maintains today.

Its chief industries include import-export, services, packaging, repacking, and assembly. Establishments operating in the free zone stand to benefit from exemption from corporate and personal income tax, no foreign exchange restrictions, the allowance of 100% ownership, warehouses and office units for rent, and land available for development. The free zone has a total area of over 1.95 million sqm. ✖

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2010

2011

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NADER H. SULTAN

*Read the full interview at thebusinessyear.com

Chairman, Ikarus Petroleum Industries How would you characterize Ikarus’ position in the petrochemicals sector today?

Ikarus is striving to be a private player in the energy sector. We began in petrochemicals because the opportunities were there, beginning with becoming founding shareholders of several companies in Saudi Arabia, namely Sipchem and Tasnee. We have since expanded beyond Saudi Arabia along the energy value chain. Since Ikarus was formed, we were hit by the crash of 2008-09 and that dampened investment opportunities. Up until the Arab Spring, Libya, Yemen, and Egypt all looked promising, but these are now difficult locations. We now face an oil price reduction. This year in the Middle East, there have not been many private equity opportunities in energy. One of the current difficulties is the tension

between buyer and seller as oil valuations decline; sellers believe that prices will increase, and buyers speculate that prices will stay low for 4-5 years.

How have low oil prices impacted economies in the GCC, and how have your subsidiaries in Saudi Arabia been impacted?

There was a strong correlation between oil prices and the stock markets of the GCC. The Kuwait and Saudi Arabia indices came down with the oil prices, then the shares of Ikarus came down as well. The strategy of low oil prices impacted everyone, yet major players like Saudi Aramco, ADNOC, KPC, and companies in Iraq are all continuing with oil projects. The value of our investment in the chemical sector in Saudi Arabia came down as well.*

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INTERVIEW

energy BOOST What role does PIC play in Kuwait’s oil and gas sector, and the overall economy?

TBY talks to Asaad Ahmad E. Al-Saad, CEO of Petrochemical Industries Company (PIC) KSC, on its role in Kuwait’s energy sector, investing in success, and the future of petrochemicals.

BIO Mr. Asaad Ahmad E. Al-Saad is CEO of PIC and Chairman of Kuwait National Petroleum Company (KNPC). He previously held leadership roles with KNPC and served as Chairman and Managing Director for Kuwait Aviation Fueling Company (KAFCO).

In 2013, he was a signatory to the UN Global Compact.

Mr. Al-Saad has served as a board member of many organizations, including the Kuwait Environment Public Authority, KAFCO, and Kuwait Petroleum International (Aruba). Mr. Al-Saad began his career at the Mina Abdulla Refinery at KNPC after earning a Bachelor’s degree in Mechanical Engineering from the University of New Haven, USA.

We are the petrochemical industry arm of Kuwait Petroleum Corporation (KPC), one of eight subsidiary companies of the corporation. The subsidiary companies operate both in upstream exploration and the production of oil and gas, as well as further downstream petrochemical refinement all the way to direct sales of gasoline to consumers. PIC makes significant contributions to Kuwait’s economy, through our own operations and through the operations of our nine joint ventures. Currently, 70% of the petrochemical products in the PIC portfolio are produced in Kuwait.

The main chemical products include fertilizers, olefins, and aromatics. As one of KPC’s downstream subsidiaries, we use feedstocks such as ethane and naphtha to make olefins and aromatics. These petrochemical products are used even further downstream in markets as diverse as agriculture, textiles, plastics, paints, cosmetics, transportation, and many other areas. Including our joint ventures, we have operations in five countries, and we are looking to expand to India, China, and the US. These joint ventures are key to our growth strategy, enabling us to diversify our product offers and leading to expansion into global markets. PIC now has a marketing presence in nearly every region of the world. EQUATE is an example of the scale and reach of our joint ventures. EQUATE is a joint venture with PIC, The Dow Chemical Company, Boubyan Petrochemical Company, and Qurain Petrochemical Industries Company. Its world-scale manufacturing facility produces annually almost 5 million tons of petrochemicals such

as polyethylene, ethylene, and ethylene glycol, which are sold throughout the Middle East, Asia, Africa, and Europe.

In what way is PIC investing in Kuwait, and which areas show the highest potential for returns?

PIC primarily engages in R&D through our joint ventures.

When developing a new business or plant, we favor joint ventures with companies that have considerable R&D experience. It is important that when we enter into agreements with companies, we include clauses about possible future collaboration on R&D innovation. We also participate in KPC-sponsored R&D activities. We sit on the KPC Solar Energy committee. We hope to contribute to the Kuwaiti objective of having 15% of domestic energy consumption come from renewable energy. Part of the mission of KPC and PIC is to add value to hydrocarbons in Kuwait. Gas or naphthalene as a feedstock may be worth $800 per ton. If we convert those feedstocks into petrochemicals, their worth can increase nearly threefold. Our Kuwaiti operations specialize in olefins, aromatics, and fertilizer. We are investing in two major projects: Olefins III and Aromatics II. Integrating these facilities with the Al-Zour refinery is in a prefeasibility study stage.

This is a collaborative effort with KNPC. We anticipate this operation will add approximately 2 million tons a year to our output.

What is the outlook for the longterm demand of petrochemical products?

Over the coming decades, petrochemicals will continue to play a significant role in meeting the demand for consumer products among a growing middle class. The majority of

IN NUMBERS

5

million tons annual petrochemicals production

Plans for integrated complex to add

2

million tons to annual production

Starting construction on a Value Park in

2016 this demand growth will be in the developing world, and our location in the Middle East positions us well to serve fast-growing markets in Asia, Africa, and Eastern Europe.

More and more, we are also seeing petrochemicals play a vital role in achieving sustainability goals. Plastics are being used to replace components in cars that traditionally were made from steel. Plastics make cars lighter, and lighter cars tend to require less fuel.

PIC is on a journey to become a global player in petrochemicals. We will continue to invest in petrochemical growth, as we also continue to seek ways to make our operations more environmentally sound. ✖

Industry

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AL-ZOUR REFINERY PROJECT FOCUS

IN-HOUSE SOLUTION State-owned Kuwait National Petroleum Company (KNPC) awarded contracts for the construction of the world’s fifth biggest refinery. The new facility will nearly double the country’s capacity and is expected to partially offset the downward trend in oil price.

KUWAIT, LIKE ALL OTHER COUNTRIES whose GDP depends on revenues from oil, sees its economy currently threatened by a low petroleum price crisis, and this situation has already led the country to register its first budget deficit in 16 years. In order to overcome this situation, the small constitutional emirate is investing $70 billion to revamp its refining capacity. The state-owned refiner Kuwait National Petroleum Company (KNPC) will use nearly half of that money to implement two long-awaited projects that will allow the Emirate to process crude oil at home.

The Clean Fuel Project (CFP) is a $12 billion project awarded by KNPC in 2014. It includes the upgrading and expanding of two existing KNPC refineries at Mina Abdulla and Mina Al-Ahmadi, with the aim of increasing their overall capacity to 800,000 bpd by 2018. Moreover, old units will be retired and the refinery at Al-Shuaiba will be closed.

The second and most important project is the construction of the so-called Fourth Refinery at Al-Zour in the south of the country which, once completed, will be the biggest oil refining plant in the Middle East and one of the largest in the world.

The output of the Al-Zour refinery is expected to serve the increasing demand for oil driven by the petrochemical sector. The new plant will produce a higher-quality fuel containing less than 1% sulfur (compared to 4% currently) to supply local power plants.

Higher-quality fuel is necessary to enhance competitiveness of Kuwaiti petroleum products, as it would allow local production to meet the stringent requirements of Kuwait’s traditional export markets.

The New Refinery Project, as the Al-Zour plant is also known, will process Kuwaiti heavy crude coming from new fields and is hoped to play a strategic role in improving KNPC's downstream process. The new plant will benefit not only the country’s export matrix, but also the environment, as lower levels of sulfur reduce emissions.

The refinery is expected to produce between 700,000 to 800,000 bpd, constituting a 13% increase over the 615,000 bpd that were initially planned, making Al-Zour the fifth largest refinery in the world, after plants in Venezuela, India, and South Korea.

$70

billion investment from KNPC to revamp refining sector The Clean Fuel Project

$12 billion

Al Zour Refinery

$16 billion

To produce

700,000800,000

The mega-construction project has an estimated cost of $16.1 billion, after Kuwait’s Supreme Petroleum Council approved in July an additional $2.88 billion for the completion of the plant.

The project has been divided into five different packages and contracts have been awarded to corporations from China, the US, Spain, Italy, and South Korea, with the latter having won the largest number of contracts KNPC awarded five contract packages to an international consortium to build the 800,000 bpd refinery. Contracts include the construction of the main manufacturing units, support units, and infrastructure services, as well as the construction of a marine export terminal.

Al-Zour refinery was originally planned in 2007, but its execution experienced delays due to internal disputes between the government and parliament. In 2012, a final agreement between the two parties was reached and KNPC retendered the contracts in 2014.

Since 2013, oil-producing countries have suffered from the dramatic drop in the commodity prices. Kuwait’s decision to move downstream is in line with policies enacted by other GCC states in a bid to diversify their output and increase revenues.

Demand for refined products in the GCC is expected to rise, driven by an increasing population and the low cost of fuel. The Fourth Refinery will nearly double Kuwait’s processing capacity, scaling it up from 936,000 bpd to 1.6m bpd. ✖

bpd

Al-Zour Refinery will increase processing capability from 936,000 to 1.6 million bpd

AL-ZOUR

SOURCES: OGJ, FACTS GLOBAL ENERGY, IEA, MEES, MEED

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INTERVIEW

TBY talks to Mohammad Husain, President & CEO of EQUATE Petrochemical Company, on being Kuwait’s first international joint venture in the petrochemical sector and key projects.

How is EQUATE’s “Partners in Success” motto reflected in your business operations?

BIO With over 30 years of extensive professional service, Mohammad Husain has held various leading posts, both administrative and technical, at Kuwait Oil Company (KOC), Petrochemical Industries Company (PIC), and finally at Kuwait National Petroleum Company (KNPC) as Deputy Chairman & Deputy Managing Director for Mina Al-Ahmadi Refinery. Having served in several leadership positions and on different boards, Husain’s overall competencies and areas of expertise include the exploration, development, and production of oil and gas, petrochemicals, and downstream activities, as well as corporate planning and strategy development.

During 2012, he was named as the President & CEO of EQUATE Petrochemical Company, Kuwait’s first international joint venture in this industry.

Our slogan came from the clearly strong belief that the partnership between our shareholders is mutually beneficial, and we would like all parties to profit from the agreements we enter into. Our customers are also a key part of our business model, and we share their success, too. We are trying to create the feeling among our staff that each of us is a partner, and by creating this sense of ownership within the organization we are improving our productivity. We also treat our suppliers and contractors as our partners, because we know that if they do not deliver, then we do not succeed. We work with them, and that sustainable partnership is built into our model.

In addition, our workforce represents the most important “Partners in Success” in all elements relevant to EQUATE. What kind of growth have you seen in the Kuwaiti petrochemicals industry, and what have been some of the major developments in recent years?

Locally, there is limited growth in the petrochemical industry at present, and we are not growing at the same pace as other countries in this region.

In fact, we are falling behind.

This is one of the challenges in Kuwait. We know the field is limited, but that should encourage us to be more innovative in finding ways to create partnerships. At the same time, while growth is limited, there are still opportunities,

IN NUMBERS Kuwait’s

1st

petrochemical joint venture

Over

50% Kuwaitization

and media outlets have been highlighting plans by Kuwait Petroleum Corporation & Subsidiaries for large ventures both locally and globally. These include the integrated refinery-petrochemical projects of Olefins III and Aromatics II in Kuwait. We, as EQUATE, want to and definitely can contribute an overall added value into the whole industry in Kuwait and beyond.

What are some of your key projects that you expect to be of high impact?

We are pursuing the ongoing debottlenecking project at our polyethylene (PE) plant, which hopefully will be completed during 2016. Our current capacity of polyethylene is 825,000 tpy, and we are working to reach nearly 1 million tpy once the project is completed. The project will

give us an additional capability of over 150 bpd, depending upon available feed. At the very least we are hoping for at least half of this. We will be in a good position by the middle of next year to deliver the products. We are also focused on environmental projects that target the reduction of carbon emissions in our industrial operations by re-using Co2.

Protecting the environment is one of our strategic objectives and part of our goal to achieve further sustainability within and outside of Kuwait. More than ever, we see companies moving away from using Co2-derived fossil fuel, and instead moving toward more environmentally friendly Co2 produced from capturing offgas that would otherwise go into the atmosphere. As we are focused on making environmentally sound business decisions, we have launched two Co2 recovery projects, which are the first of their kind in Kuwait. In addition, we have also launched the Middle East’s first plant water recycling project.

What are your expectations for the company and for Kuwait’s petrochemicals industry in 2016?

For the petrochemical industry, 2016 will be a year of gradual recovery from the dip it experienced earlier, which started toward the end of 2014, although certain challenges still need to be addressed.

We positioned EQUATE to be resilient and to maintain the ability to work in different environments and pursue opportunities in the face of prevailing challenges. The petrochemical industry will be in a better position in 2016, and the market will be more attractive.

Our productivity will increase, as we will hopefully finalize our PE debottlenecking project and increase our overall production. All of this, however, is contingent on having a sufficient volume of feedstock for our operations. We are seeking to bring extra value to the market at the latest by 2H2016. ✖

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

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Sheikha Intisar Salem al-Ali alSabah, Founder & CEO of Lulua Publishing, on empowering a generation of readers.

The increasing connectivity of businesses across borders has led to a growth in opportunities for ICT firms to look abroad.

Firms in Kuwait’s ICT sector are leveraging emerging technologies to create value.

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Telecoms & IT REVIEW

A strong mobile telephony segment defines the Kuwaiti ICT sector, with fixed broadband and fiber-optic technologies yet to reach their full potential.

W

ith the introduction of the Kuwaiti administration’s new Foreign Direct Investment Law in mid-2013, higher volumes of overseas capital are expected to boost a number of sectors within the economy over the coming years. The promulgation of stronger regulations governing public-private partnerships and the setting up of new companies aims at increasing the contribution of non-hydrocarbon sectors to GDP. For the Kuwaiti ICT sector, this is good news.

Kuwait was one of the first countries in the region to adopt the internet, and while the segment’s potential has not been fully exploited thus far, the state’s dedication to fostering sectoral infrastructure and expertise indicates that usage is on course for sustained growth. It is the third largest spender on ICT in the region. Overall, ICT is growing as a result of consumer-driven demand, with the rapid rise of mobile telephony and general computer use in the country. The government,

OK COMPUTER

Image: LOYAC

Loosening restrictions on foreign investment and a revamped regulatory system are attracting ICT investment and interest from multinational firms.

while dedicated to developing the industry through investment incentives and capacity-building programs, has not been the primary force behind growth, with e-government initiatives and official support for the sector being embraced only relatively recently. As a result, it should be noted that, in general, Kuwait has low penetration of internet services compared with other GCC countries, meaning that the country still holds untold potential for investors in this area. However, mobile penetration rates are among the highest in the region, and a range of private telecommunications firms are present in the country, developing infrastructure and making the most of a dynamic and competitive market. The Ministry of Communications has acted as the regulator of the ICT industry, and grants licenses to a number of mobile operators.

VIVA, operating in Kuwait for the past six years, has emerged as the fastest growing of the telecoms companies there. The corporation posted revenue of $787.4

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million in 2014, representing growth of 31%.

Over the course of its operations, it has reached positive shareholder equity of over 400%. It has risen to become the second largest operator in the country, with 32% of the market share, and maintains that two thirds of its workforce are locally-hired. It was listed on the Kuwait Stock Exchange in December 2014, marking an important milestone for the venture, and has been active in introducing new technologies to the market, thereby increasing competitiveness and improving service. In 1H2015 VIVA brought in Voice over Long Term Evolution (VoLTE) services, allowing for high definition video calls and setting a benchmark for rivals in the industry.

Wataniya, which has rebranded recently to become Ooredoo, has had similarly striking success in growing its business in Kuwait.

Reaching 2.5 million subscribers in 2014, it recorded revenue of $553.5 million in the same year. Ooredoo has endeavored to keep up with higher demand from the data segment and a declining voice usage, and has introduced Interactive Voice Response (IVR) and Ooredoo Customer Experience (OCE) to improve client relations. In addition, a partnership with Apple allowed the company to distribute the iPhone 6 and iPhone 6 Plus in 2014. Ooredoo Kuwait has established strong staff education programs to encourage employees to pursue further studies, and is also active in CSR activities. The company owns a 75% stake in Ooredoo Tunisia, 71% in Ooredoo Algeria, 48.45% in Ooredoo Palestine, and 100% in Ooredoo Maldives. The company has identified Kuwait as a clear priority market for developing better mobile and financial solutions.

Another major competitor is Zain, owned by a mix of interests. The Kuwait Investment Authority claims 24.6% ownership, Al-Khair National Company 15.5%, and treasury shares of 9.8% and public stock of 50.1% make up the remainder. In 2014, Zain Kuwait posted total revenues of $1.2 billion, and boasts 2.7 million customers in its network. It has a 35% market share, and was voted Middle East Operator of the Year at the CommsMEA Awards, and Best Telecom Operator in Kuwait by Arabian Business. In addition to this, it has invested in research and development, completing a unique Joint Innovation Center with Huawei to explore new technologies in mobile and broadband services in the region.

In 2012, Kuwait registered 5.1 million mobile subscribers, a figure which rose to over 8 million in 2015. The gradual introduction of 4G services is yet another indicator of how advanced the mobile telephony offering is at present. With penetration at over 200%, and LTE penetration nearing 100%, the segment stands in stark contrast to fixed line telephony, which has less than 1 million subscribers.

Installation and maintenance of the latter is managed by the Ministry of Communications, although plans to privatize the segment have

been in the works for several years. However, delays in getting this off the ground and further liberalizing the telecommunications market at large have partially dampened interest in these opportunities. The independent telecoms regulatory body is known as the Communication and Information Technology Regulatory Authority (CITRA), established in November 2014

by Amiri Decree. Expectations are that the Authority will be fully up and running by year-end 2015. Kuwait remains the only country in the region that does not have such a body, with the bulk of those activities still undertaken by the Ministry of Communications. This body, however, has been instrumental in guiding the broader development of the sector since its establishment in the mid-1950s. Originally focusing on mail and telephones, it has expanded its role over time to manage the roll-out of emerging communications technologies.

Though the country’s comparatively sluggish ICT development in other fields (such as broadband) over previous decades was in part borne of the delayed digitization of state services, this and other issues have been enthusiastically dealt with by authorities in recent years. The Central Agency for Information was set up to provide an integrated e-government system, and its challenging mandate has involved the establishment of cross-platform internet-based access to state services, from health to the innovative TASDEED cashless payment system for bills, fines, and other fees.

The introduction of fiber-optic infrastructure, an area which is receiving increasing volumes of investment of late, will undoubtedly help to boost the sector and digital services at large. It is in the government’s interest to advance this technology as rapidly as possible, and to continue to encourage the establishment of startups and the arrival of foreign technology firms to the state. As part of the overall economic diversification policy, ICT research and development will become more and more attractive considering the broader regional growth of the industry. New concepts such as the Internet of Everything (IoT) and Machine-to-Machine (M2M) networks are coming online.

The possibility of developing content and software for the MENA market is also a draw, with Arabic the fourth most-used language on the internet. A clear sign that this area is growing is the 2015 establishment of IBM’s first facility in the country. It aims to contribute to Kuwait’s anticipated knowledge economy, and was licensed by the Kuwait Direct Investment Promotion Authority (KDIPA) with ICT investment totaling over $1 billion in 2015, and an estimated CAGR of 2.4% to 2019 from Fitch Group’s BMI Research, the future looks bright for the sector. A necessary broadening of economic activity within the state calls for the development of other opportunities, and with the still untapped potential of various ICT segments clearly present, the coming five years will prove interesting. ✖

FAHAD M. AL FALAH Managing Partner, MENAFILE What are some innovations in the world of archive and data management?

With archiving, there is an observable move toward the digital spectrum. We store physical archives for our clients and are now going through the process of assisting them with transferring their data into digital form.

Another critical service that we will hopefully launch in Kuwait in the next few months is mobile destruction, which is a vehicle outfitted with a heavy-duty industrial shredder, as well as equipment that destroys hard drives and computers. The largest source for security leaks we found in Kuwait is trashcans. Western countries have closed this gap by employing mobile destruction services. We provide locked bins that no one has access to, destroy them in the truck, and issue a certificate of destruction under the witness of a company representative and then we return the bins empty.

Are you targeting expansion in other countries?

There has been increased activity in this particular sector in the Gulf, and there are quite a few operators in the Emirates, Saudi Arabia, and Bahrain. MENAFILE is our main archiving entity, but our subservices include MENASCAN, our digitalization component, and MENASHRED, our mobile destruction business. Assessment of future expansion will depend on our ability to deploy any one of these services, not necessarily all of them. Another potential avenue is strategic partnerships with other regional players.*

*Read the full interview at thebusinessyear.com

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INTERVIEW

WRITING the future TBY talks to Sheikha Intisar Salem al-Ali al-Sabah, Founder & CEO of Lulua Publishing, on empowering a generation of readers, regional trends in publishing, and the future of content creation in Kuwait.

What led you to focus Lulua Publishing on the themes of personal growth and empowerment?

I have been reading selfhelp for years, since before it became fashionable, and it helped me transform my life for the better. Looking at what was available to the Arab world, I started Lulua Publishing solely with a magazine. A lot of what is available in Arabic is not credible, and sometimes a little frivolous and superficial when it attempts to touch on selfhelp issues. It is not fair that people who cannot read in English don't have access to the best information, and I asked what I could do. I wanted to be able to give people credible information in their

mother language because, though many people can speak English in this region, to read and comprehend something is different, especially content related to psychology and well-being. It is important sometimes to have your mother tongue to digest this information, and that is what we do. We only publish in Arabic because our target market is the Arabic readers.

We had our first stand at the Kuwait Book Fair in 2015. We are actually the first publishing house in the Arab world that only publishes self-help, personal growth, and physical and emotional well-being content, and we are the only one that concentrates on inspirational publications.

What trends are you seeing in publishing in this region?

We predominantly work within the GCC, and we are seeing more and more inspirational publications coming into the market. The Kuwait and Saudi Arabia book fairs are the two largest in the region in terms of sales and attendance. The 2015 Kuwait Book Fair was bigger than in 2014, which is promising.

Therefore, there is a growing trend. I disagree with anyone who says people do not read; they do, however their focus has changed. People still want to know what other people do, so biographies are still widely read, as well as novels. Content is moving toward triggering people’s

• Offices in Kuwait, Dubai, and Beirut • Focuses on Arabic-language publications

imagination, or their core being, whereas content about things such as history have slowed down. Poetry that invokes pleasure and self-help content is growing. Before the digital era, there were not as many opportunities to read; hence, people just devoured books and magazines, but now we have access to the internet to read online. People have become more selective about what they read. Audiences have also changed the focus of what they read. We all want to grow in one way or another, and so we either grow your heart, your soul, or both.

Regarding Kuwait, what does the future hold for original content creation?

We have many trainers, coaches, and people giving seminars and workshops, and they are able to make an excellent living out of it.

We need to give them a little bit more time to be sure

that what they are teaching has a long-term effect before we start using their content.

Again, a lot of the content that they use was learned from the West; therefore, they have to adapt before we can say that it is really their content. In Lebanon, there is a more established track record. It is just at the beginning, and so there is still a lot of filtration. In three to five years, we will have many excellent writers coming out of this region. Right now, we have a 60:40 ratio of Western to local content. We started with a higher percentage of Western, which we were translating. We are seeing more and more local content and that is working well. We are able to find people now and are aiming for a 70:30 ratio in the near future. ✖

BIO Sheikha Intisar Salem al-Ali al-Sabah is an author, entrepreneur, and philanthropist.

She established Lulua Publishing, the only publishing house in the Middle East fully dedicated to personal development.

Sheikha Intisar also founded Alnowair, a Kuwait-based non-profit organization that aims to spread a positive attitude and outlook on life. Sheikha Intisar her first production was the award-winning film ‘Habib Al Ard’, which debuted in 2015 to commemorate 25 years since the Iraqi invasion. She co-founded Prismologie in 2013, an international beauty brand.

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FOCUS E-COMMERCE

There is a growing e-commerce sector emerging in the Gulf, with Kuwait showing signs that it could be on the verge of a digital retail boom.

ONLINE WHAT HAPPENS when you take consumers with already strong purchasing power and shift their buying habits to the online sphere?

The answer is an increase in total sales. In one of the highest valued growth forecasts of all e-commerce industries worldwide, the coming GCC e-commerce boom is expected to achieve an overall sales value of up to $41.5 billion across the region by 2020, according to market researchers Frost & Sullivan.

That is exactly what is happening in the GCC, with Kuwait among the top markets ready to take the leap toward embracing more e-commerce activity in everyday life.

Kuwait enjoys one of the highest per capita incomes in the world, with internet penetration rates that also rank among the highest in the region. The country’s mobile and digital economy continues to grow with plenty of room for even more enhanced connectivity.

When compared to the UAE, the leading Gulf state in terms of ICT infrastructure, Kuwait lags behind in areas such as broadband, fiber optics, and smart services, suggesting that once these gaps are filled, by either government or private sector investment, the adoption of e-commerce will naturally follow.

Consumer ability and willingness to shop online in the Gulf has been growing notably in Saudi Arabia, where the mammoth e-commerce platform from China, Alibaba.com partnered with the Makkah Chamber of Commerce, an example of how foreign e-commerce players are moving in and taking advantage of market potential, creating new sales channels

for multinational businesses, and opening up new markets for GCC consumers.

Similarly, ensuring that the correct ICT, transport, and logistics infrastructure are in place to support an e-commerce revolution in Kuwait will depend on government support.

The need to upgrade government policies to reflect e-commerce business models represents one major initial obstacle, while the integration of digital payment mechanisms such as PayPal in Kuwait will be key to any serious development of the segment. Along with the adoption of e-commerce portals by businesses operating in the country, the upgrading of traditional distribution channels will also help to create a scenario in which consumers will increasingly shift to online purchasing methods. E-commerce in Kuwait is still an immature market, but in line with global trends, and with the increasing digitization of services in daily life, it is just a matter of time until businesses and consumers embrace the technology in a big way.

In a GCC e-commerce market estimated to be worth $41.5 billion by 2020, it is not certain how much of a share Kuwait will be able to take. However, the establishment of IBM’s first Kuwait office in 2015 has led many in the industry to conclude that the Kuwaiti ICT sector is on the up. As Kuwait moves closer to becoming a knowledge-based economy, per capita online retail spending will continue to rise, while various smart initiatives are likely to create the necessary circumstances for sectoral expansion over time. ✖

Image: Cienpies Design

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FORUM

partnering GLOBALLY

KHALIFA EBRAHIM AL-SOULAH Managing Director & CEO, Zajil International Telecom Company KSCC

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

T

o continue growing we aim to expand internationally. We acquired licenses in Bahrain, Jordan, and Saudi Arabia, and with those licenses we began operating our international network, going into partnerships with regional players such as Etisalat, Omantel, du, and Ooredoo in Qatar. We expanded our presence throughout Egypt, Iraq, and Iran to include more countries in our network. We went to the Far East as well as Europe and the rest of Asia, in Singapore, Hong Kong, Pakistan, and India, and then London, Paris, Istanbul, Frankfurt, and also New York. Through those international gateways we reached out to the world to serve our customers in the Middle East as well as support multinational companies in this part of the world. We support global Tier 1 operators such as British Telecom and AT&T by serving their customer interests in this region. In 2002, we started reaching out, focusing on communications, adding more revenue, and leveraging our existing licenses in those various countries to connect Kuwaiti companies to the Middle East, while also enabling connectivity from the rest of the globe to the region in terms of communications connectivity through our Tier 1 operators. That gave us the edge in terms of increasing our penetration into the market as well as helping regional companies rather than depending on Tier 1 companies. Hence, we started promoting regional connectivity through Zajil.

The increasing connectivity of businesses across borders has led to a growth in opportunities for ICT firms to look abroad for expertise and expansion.

MOHAMMED KATEEB

AHMAD SALIH

Group Chairman & CEO, Path Solutions

CEO, Gulfnet Communications Co.

P

ath Solutions is a segment player, so we do not have the luxury of selecting the markets where we want to do business. We serve the Islamic finance sector, so we are present wherever there is an opportunity. The clients we serve are all over the world. We have customers from Malaysia all the way to London, and everywhere in between. We have had amazing growth in Africa, the Middle East, and SouthEast Asia. The only reason we are not in the Americas and Australia is because Islamic finance has not been moving forward as quickly in these countries, although we have recently seen some interest in Canada and the US. When we look for business partners, we look at sales partners. We provide all the support and implementation on our own because that allows us to control the quality of the deliverables. This is important for us and gives us a great competitive advantage over those who use third parties for that. We do use some partners on the sales side and we have some key partners in technology as well, like Oracle and SAP. These partners help us with the platform infrastructure and we then put our application on top of that.

T

his part of the world is not known for its technological leadership and innovation, and there is little focus on R&D. We are a consumerist society and economy. Therefore, we are constantly looking abroad for technology creators that are leaders in their respective markets.

We are bringing different technologies to Kuwait through alliances with these global players that can in turn benefit from our knowledge of the local market and the local business culture. This will take time, as we need to continue educating the market, but the transition will come eventually. Another line of business for us that has the potential for expansion is network security. As more and more machines are being connected to the internet, more information is exposed and more people are at risk. Institutions of all kinds are gradually realizing these risks and have worked to protect their systems.

We have partnered with leading international companies specializing in these kinds of security services so that we have a market edge and competitive advantage. Many organizations in Kuwait have yet to recognize the real danger of unprotected networks.

We are working hard to educate the market and help key potential customers realize the greater need for network security.

COMMUNIQUÉ

QUICK, EASY SOLUTIONS Abdulhamid Al Omar, CEO of Talabat.com, on how the company got its start, advice for entrepreneurs, and expectations for 2016.

ABOUT ABDULHAMID AL OMAR Abdulhamid Al Omar, CEO of Talabat.com, the leading online food ordering service platform in the GCC, has joined the company as the head of Business Development and Product Management in 2010. With an MBA from the University of Leeds and a BS in Computer Science from the American University of Beirut, Abdulhamid was the e-channels team leader at Kuwait Finance House (KFH), one of the leading Islamic banks in the Middle East prior joining Talabat.com. Talabat.com evolved from a Kuwaiti based start-up to become a market leader in the e-commerce business. In 2015, Rocket Internet acquired Talabat.com for $170 million dollars, representing the largest internet technology acquisition in the Middle East till date. The ownership of Talabat was later transferred to Delivery Hero, a global player in the online food delivery operating in more than 35 markets with a network of 200,000 restaurants.

How did Talabat get its start, and how have you seen the company grow over the years?

Established by passionate Kuwaiti young entrepreneurs, Talabat is a mold of a concept that they experienced during their study abroad. Coming back to Kuwait they believed that with the wave of internet domination and need for easy, quick solutions it would be relevant to the fast-paced market. With limited resources, they overcame many odds and brought life to Talabat in 2004. Depending solely on basic online marketing and building a diversity of restaurants profile to cater to the online ordering community, it began gaining visibility. In 2010, Mohammad Jaffar bought the concept where the size of Talabat was at only 700 orders a day, and now Talabat has grown to achieve more than 50,000 orders per day. Talabat is no longer just an online ordering platform, it has become a driver for food purchase decisions whether it’s at home or to dine in.

People use Talabat to check out menus, restaurant reviews, prices, and menu variety even before they visit a restaurant. I recall one of the best moments I have had is hearing people say to each other “Yala Talabat-it” like “Google it”. Seeing the metamorphosis of the brand within the past five years, has left my team and I more determined and focused to cloak each house, each person, and each phone with Talabat orange.

What does the $170 million acquisition of Talabat by Rocket Internet signify about the online food delivery market in the Middle East?

I think it is worth highlighting that, the Middle East and specifically the GCC, according to a study made by the US Consensus Bureau worldwide that internet penetration in the GCC is almost 85% and smartphone penetration is 80%. Compared to the rest of the world with only 46% internet penetration and in the Middle East at 52%. In terms of customer behavior, GCC citizens like to stay informed, want quick and stress-free solutions that are customiz-

able to their liking combined with the high income per capita, young expanding population, demographical dynamics and increasing demand of food delivery both by customers and businesses makes this market a very ripe one. In Kuwait alone, the restaurant industry revenues exceed $2.4 Billion in the year 2014 of which between 30-40% is generated by home delivery and Talabat dominates 95% market share for online food ordering in Kuwait currently. Market dynamics and industry value coupled with the increased performance of Talabat, led to the valuation, as it factored in the potential prospects and future growth of the business to dominate the entire Middle East. Again the market is a ripe one that Talabat during its peak took advantage of and positioned itself as a pioneer of online food ordering.

How does Talabat’s story give credence to the potential that is out there for Kuwait’s entrepreneurs?

Talabat is an inspiring story, especially for passionate young entrepreneurs in the region. We were approached by numerous entrepreneurs in Kuwait curious to learn the secret recipe and we were always glad to stretch the support and provide the guidance. Entrepreneurial development here in Kuwait although receives attention presents plenty of opportunities that are supported by private and government supported initiatives, such as Kuwait National Fund for SME’s. We can only hope that Talabat’ s story will inspire further drive in the business sector to give more consideration to sponsoring relevant ideas that support entrepreneurs in Kuwait.

What advice would you give to entrepreneurs in Kuwait who are looking to grow like Talabat has?

Interesting ideas and concepts spur everywhere in Kuwait, but great ideas and concepts need to have commercial and practical feasibility applicable to the market. Thus I would advise entrepreneurs to

stay loyal to their idea, determined to see their idea come to life, and reflect on the idea to further develop it into a business plan that makes it feasible for implementation. It requires full time attention to build the model with the support of key elements and key functions. Although it may be vague in the beginning as with Talabat, building a high performing team with key roles is essential to any business.

I cannot reiterate enough how important it is to have a great team and maximize on their expertise.

I have always been proud to be part of the team and even more proud that the team that I have worked with always supported each other, which is interpreted now as the Talabat culture. We work together as a family to support each other to drive business performance and growth.

What other potential opportunities exist in the e-commerce space in the Gulf region?

E-commerce in the GCC is an undiscovered forte with lots of opportunities. Numerous e-commerce projects have become visible and successful in the region, in for example retail and tourism. More effort is needed to raise awareness to the use of online services and the added value they present to companies and customers alike. The potentials for e-commerce in the Gulf is very high and by 2020 this industry is valued at approximately $41.5 billion according to recent studies. E-commerce should be tapped and exploited, through educating the public and supporting retail e-commerce projects, which

IN NUMBERS Began with about 700 orders a day, to current activity of over

50,000 orders per day

Acquired by Rocket Internet for

USD 170 million

in 2015, the largest acquisition of an Internet company in the Middle East to date Talabat dominates

95%

of the market share for online food ordering in Kuwait currently

will present value worth to both the customer and merchants. Talabat is a premier example of this, it only requires a few steps to place an order and removes the hassle of traditional phone ordering.

What is the biggest impediment to conducting business that you currently face?

As any business the only impediments that we face are external factors that could affect the overall key performance indicators of the business, and managing our decisions effectively around making them to our advantage rather than touch the business. Since any business depends heavily on the human element to succeed, we are always hungry for young experienced talents. There are challenges finding the right talents especially in the e-commerce industry, but the picture looks far more optimistic these days.

What are your expectations for Talabat in 2016?

Keeping focus on performance, growth and continuously improving on the product and the value proposal offering is at the heart of our vision for 2016.

Our objective is to increase our market share and expand to dominate the MENA region in the coming period. Talabat’s main competitive advantage lies in its name, which means "orders" in English, giving it versatility for future endeavours and service line expansions and diversifications. With our current holding group, Delivery Hero, we work together closely to reinforce our platforms performance.

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B2B

INNOVATION Firms in Kuwait’s ICT sector are leveraging emerging technologies to create value.

Founder & CEO, Omedia

KHALID AL-ZANKI Founder & CEO, Alzanki Enterprises

What is unique about how social media platforms are being used in Kuwait?

ABDULWAHAB AL ESSA Traditionally, people have not had the opportunity to speak their minds in Kuwait, and in the Middle East in general. It is difficult to obtain a license to publish something officially, making social media the best alternative. That is why social media platforms are very political here in the Middle East, whereas in the United States where social media is associated more with popular culture, they already have open media.

Social media did not come to the rescue the way it has in the Middle East. It is powerful here because governments are unable to control it. The popularity of a platform depends on the country. In Kuwait, Facebook is number one because of the expats, but it is equally popular among Kuwaitis, as are Twitter, Instagram, and Snapchat. If there are political issues or elections coming up, then Twitter becomes the most utilized social media platform.

KHALID AL-ZANKI What is happening in Kuwait with digital platforms is mostly ad hoc.

Companies tend to lack proper social media marketing strategies that are aligned with their launch campaigns. They may choose the wrong time to launch or post the wrong content.

Many people view social media as an advertising platform, but the purpose of social media is to connect and build a relationship with the marketplace. Businesses now are copying each other and most are going about it the wrong way. Digital platforms are not well integrated. Some businesses here struggle with the concept of viewing social media as a customer-centric platform.

It is about humanizing a business, logo, or brand, and connecting with the marketplace.

Anyone can create a website or Facebook page to promote themselves, but not everyone can go on mainstream media and present what they have. It is imperative that businesses mix and match.

What solutions do you bring to the Kuwaiti market?

KAZ We have become increasingly selective about the clients we work with. We treat each industry and each client differently. When we first work with a new industry, we study the terminology to understand what makes the industry successful. We study what we can do differently for each client and look for small, creative ways to help launch their products and

campaigns successfully without changing what they do. We do not want to do things that are not aligned with strategies, so we take existing resources and enhance certain aspects to take them to the next level. We educate the market on how to effectively launch products. We wanted to simplify matters for our clients, so we developed the pre-launch, launch, and postlaunch sequences, each with their own objectives. People are beginning to implement these terminologies, though many lack the expertise in Kuwait, which is where we come in.

AAE We offer full media coverage of certain products or launches a company may be involved in. Instead of simply announcing that there is a new restaurant opening at The Avenues, we send our celebrity influencers to try the restaurant live and to document the whole experience via their social media accounts. It is more transparent because the clients will hear the feedback from the people directly, which also makes it more effective. If we are approached by a large corporation, such as one from the food or oil industry, we are able to match the appropriate celebrity influencer with that corporation and industry. Most of the companies, especially international companies and national agencies who work here and operate in Kuwait, know little to nothing about our culture. Their knowledge about social media in Kuwait is also limited. ✖

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

ABDULWAHAB AL ESSA

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Fawaz A. Al-Farah, President of the Directorate General of Civil Aviation (DGCA), on the development of air transport.

Rasha A. Al-Roumi, Chairperson & Managing Director of Kuwait Airways, on the process of rebuilding the airline.

Fares Barqawi, Chairman & CEO of Posta Plus, on achieving quick success as a newcomer.

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Transport & Logistics REVIEW

The government has earmarked $112 billion for investment across different sectors, including road, ports and airport infrastructure, water, power and social infrastructure, a metro, and national rail network.

Widely viewed as an avenue to boost foreign investment, these projects will also incorporate private sector involvement.

L

ong buoyed by sustained oil demand and high oil prices, the transportation sector in Kuwait is playing a vital role in helping to shape the country’s economy while also serving to distinguish itself from its neighbors. However, its infrastructure is in dire need of overhaul, and the government is taking appropriate steps to maximize both the transformation of its infrastructure network while simultaneously attracting investment. According to a report by KFIB, the government earmarked $112 billion for investment across different sectors, including road, ports and airport infrastructure, water, power and social infrastructure, a metro, and national rail network. Widely viewed as an avenue to boost foreign investment, these projects will also incorporate private sector involvement.

According to an Alpen Capital report regarding the state of the construction and infrastructure industries released in June 2015, by prioritizing such infrastructure projects,

ONLY CONNECT

the sector is slated to grow by 15-20% by year-end 2015.

Major projects include the national railroad, with a projected cost of $10 billion and a completion date of 2018, the Kuwait City metro network, to be completed in 2019 at $7,000 million, and the Sheikh Jaber Al Ahmed Al Sabah Causeway to be completed in 2018 at a cost of $2.6 billion.

AIR

Image: Philip Lange

In many ways, this is a golden age for Kuwait’s transportation. The new metro and railroad systems will do nothing less than transform the sector’s impact across the country. And fresh investment in ports and highways will ensure the country’s strategic location is more connected than ever to the region and its economy.

Kuwait’s sole civilian airport, Kuwait International Airport, serves as a hub for both Kuwait Airways and Jazeera Airways. Though designated as such, the airport also has Al Mubarak Air Base within the compound, which serves as the headquarters for the Kuwait Air Force. In 2013, there were 67 different airlines operating within the country, and the Central Statistical Bureau reported that the airport can accommodate 47 aircraft on its tarmac. In 2013, the airport saw 9,376,618 passengers, though an increase in these figures has led to an ambitious renovation plan that will accommodate the

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Image: Natthawat Wongrat

Kuwait International Airport serves as a hub for Kuwait Airways and Jazeera Airways

The country has two national carriers: Kuwait Airlines, the national flag carrier of the country’s aviation sector, with services also offered by Jazeera Airways. In 2013, the Kuwait Central Statistical Bureau recorded 37,904 scheduled and 1,160 unscheduled aircraft movements inbound, while outbound movements numbered 37,916 and 1,155 scheduled and unscheduled, respectively, for a total of 75,820 schedules and 2,315 unscheduled for year. The airport has experienced fluctuations in movements; in 2008, there were 58,657 total scheduled movements, which surged to 75,499 in 2009, only to fall to 68,474 in 2011.

Scheduled passenger movement in 2013, according to the Central Statistical Bureau, was 9,201,842, an increase from 2012’s 8,719,159.

In terms of scheduled freight movements, Kuwait International Airport saw a total of 163,836 tons, a decrease from 2012 levels of 166,118. The total freight movement in both scheduled and non-scheduled inbound and outbound flights for 2013 was 176,261,290 kilograms. 6,796 non-commercial flights were operated at Kuwait International Airport in 2013.

ROADS increasing traffic. However, the expansion has experienced multiple delays, further complicating the current increase in passenger load and what is expected in the near future. In order to alleviate this issue, the government announced in October 2015 its intention to build a terminal capable of handling 5 million passengers annually in the interim. According to the trade publication Construction Week, the new terminal will increase the airport’s total capacity to 10 million passengers each year, and construction costs are estimated to be around $4.35 billion. Overall, the comprehensive expansion project is slated to boost capacity to over 25 million passengers a year.

The private sector is predicted to play a significant role in expanding the aviation industry in the near future. In an interview with TBY, HE Fawaz A. Al Farah, President of the Directorate General of Civil Aviation (DGCA), described the importance of utilizing Kuwait’s private sector: “The private sector has ample opportunities to participate in these development projects, and also in offering services at Kuwait International Airport, such as handling and passenger services. The company we will create to manage Kuwait International Airport will be able to sign and make contracts and agreements with other airport operators and service providers, so they will have access to international expertise in terms of managing the airport.”

Road infrastructure was the second-largest category in infrastructure construction (after energy). It is necessary—the total number of vehicles on the road increased from 1 million in 2012 to 1.7 million in 2013. According to the Kuwait Central Statistical Bureau, there were over recorded 1.9 million vehicles operating in 1H2014. Total investment in new highways is expected to reach $2.1 billion in 2017.

While Kuwait has sufficient infrastructure in other transport areas, its land transport is the process of being updated. In 2010, the United Nations Development Program (UNDP) launched a project with Kuwaiti officials in order to “develop an efficient traffic demand management, road safety, and enforcement system, integrated information system, institutional reform, efficient taskforce, and monitoring and evaluation system that will assist planning, implementation, and management of sustainable transport system.” The project is expected to be completed later in 2016 at a cost of around $10.4 million.

RAIL While road-building is a top government priority, this endeavor is often eclipsed by the more prominent metro and railroad projects.

Bearing in mind the importance of improving public transportation in relation to economic progress, Kuwait has recently announced that bidding for the long-delayed metro system project, bidding for the Kuwait Metropolitan

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KUWAIT 2016

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Rapid Transit System (KMRT) will begin in early 2016. The KMRT system will, according to the government’s Partnerships Technical Bureau, it will consist of "an integrated network-unified fleet and limited passenger interchange," comprised of 69 stations and a total length of 160km with 68 stations (60% of them being underground). A state of the art network, the trains will be driverless and have an operating speed of 90kph. The system, which is expected to cost upwards of $7 billion, is expected to be completed in five separate phases. The first phase would link the rail freight depot—which is to be connected with the GCC rail network—with Kuwait International Airport and into Kuwait City and construction is expected to commence in 2020.

Also slated to begin in the first quarter of 2016 is Kuwait’s National Rail Road (KNRR).

A key infrastructure development, the KNRR will “enhance Kuwait’s regional integration, boost trade volume, and create new job opportunities,” according to the government. It will streamline the network between Kuwait City and the country’s airports and seaports, as well as link Kuwait in to the rest of the GCC network. With an expected length of 511km double track, the KNRR will “serve freight and passengers and will have a 120kph regional lines speed and a 200kph high speed.”

PORTS Kuwait has two dry cargo ports, Shuwaikh and Shuaiba, and three oil terminals: Mina Al Ahmadi, Mina Al Shaiba, and Mina Al Abdullah. Shuwaikh port is located on the Kuwait edge of the Gulf, providing a strategic foothold. Kuwait’s most crucial port, it occupies

The government announced in October 2015 its intention to build a terminal capable of handling 5 million passengers annually in the interim.

The new terminal is expected to increase the airport’s total capacity to 10 million passengers each year, and construction costs are estimated to be around $4.35 billion.

a total land area of 3.2 million sqm and 1.2 million sqm water basin area. According to the Kuwait Ports Authority, the total length of all berths combined is 4,055m. Port traffic passes through a 8km long, 8.5m deep channel, allowing Shuwaikh to receive vessels of 7.5m draft in any tide level and vessels of 9.5m during high tide.

Shu’aiba Port is located 45km south of Kuwait City and was built with the intention of serving the greater Shauiba industrial area, which is the largest designate area that includes oil refining, cement manufacturing, and gas liquefaction. The port is bounded by the Southern Pier of Ahmadi Port from the north and the Mina Abdullah port from the south. The port is 4,068m in length and contains 20 commercial and container births that range in depth from 10-14m. Four berths are used specifically for container vessels, and the port offers facilities for general cargo, containers, tankers, and barges. ✖

KUWAIT METROPOLITAN RAPID TRANSIT SYSTEM PROJECT In Kuwait, cars rule. The city is designed with the car in mind, as opposed to the bicycles or pedestrians, and when it comes to getting around, driving is the most viable and safe option.

This urban reality has been brought into question with the recent socio-economic growth of the local population and city areas, triggering growing concern regarding the congestion occurring on Kuwait’s roads, and encouraging authorities to get the $7 billion city metro plan moving again.

To optimize efficiency, trains within Kuwait’s upcoming metro system will be driverless, running at a maximum speed of 100kph. The network will be completed in five phases and will include four metro lines, 60% of them underground. With tendering expected to begin in 2016, Kuwait’s multi-billion dollar, 68-station, and 160-km metro project will link to the country’s railway network project, also up for bid in the same year. To spur economic growth and enhance efficiency in Kuwait’s urban transportation network, the government is looking to improve the local public transportation systems by way of the new metro—a key project in Kuwait’s Vision 2035.

IT’S JUST THE BEGINNING

Kuwait, UAE, Bahrain, Syria, USA, UK, China, Canada

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INTERVIEW

added VOLUME

TBY talks to Fawaz A. Al-Farah, President of the Directorate General of Civil Aviation (DGCA), on the development of air transport in Kuwait and investment areas.

figures. Various expansion projects are underway for our airport facilities. One of the biggest projects involves a new passenger terminal, to be undertaken by the Ministry of Public Works. The project is still in the tendering process.

Once completed, it will accommodate up to 25 million passengers in the first stage.

We at the DGCA are taking on another project that involves renewing the two existing runways and constructing a third, as well as a new air control tower. There will be new taxiways as well, and even a new cargo city at the airport.

These are huge and highly anticipated projects.

How has the air transport industry developed in Kuwait over the past few years?

Where do you see room for improvement within Kuwait’s civil aviation sector, and what are your priorities at the Directorate?

The local air transport industry has grown significantly.

Since we adopted an open skies policy at Kuwait International Airport, we have seen a great increase in the volume of passenger aircraft and cargo traffic. In 2014, around 10.3 million passengers used Kuwait International Airport, an increase of 10% from 2013. There are 85,000 aircraft using the airport, a 9% increase from 2013. Revenues of the Kuwaiti air transport market reached around $1.9 billion last year. Most of that revenue was from direct ticket sales through travel agencies or airline offices in Kuwait, not including tickets sold on the internet. We also saw a cargo increase of about 7% in 2014 compared to 2013, reaching 189 million kg of cargo. This has also brought challenges with it, because we now need to upgrade Kuwait International Airport so it can sustain these kinds of

Over the next 10 years, our task is to deal with this anticipated growth. Air transport and traffic are forecast to grow at least 6% annually. One of our priorities is to create a company that will be charged with the management and operation of Kuwait International Airport. This is based on the premise that an independent company can act in a more flexible and commercially viable manner under the supervision of the DGCA. What opportunities do you see for further investment from the private sector to meet these growing demands?

The private sector has ample opportunities to participate in these development projects, and also in offering services at Kuwait International Airport, such as handling and passenger services. The company we will create to manage Kuwait International Airport

will be able to sign and make contracts and agreements with other airport operators and service providers, so they will have access to international expertise in terms of managing the airport.

How do cooperation agreements like the open skies policy contribute to Kuwait’s economic growth and enhance cooperation in the region and internationally?

The open skies policy is a base for us to expand our bilateral air transport relationships with other countries. We have witnessed an increase in the number of airlines serving our airport, around 45 international carriers in all. Also, Kuwait International Airport is linked to an expanded network of expanded networks, and that brings more choices for passengers to select suitable air transport carriers. It also brings reduced airfares due to increased competition, which is to the advantage of the passenger. When airlines increase their operations at any airport, it contributes to the national economy, as airlines pay charges and fees to the airport, they buy catering for flights, they buy fuel, and they pay for office rental and services at the airport.

What message would you give the business community in terms of how the DGCA is supporting air traffic growth?

We are supporting that growth, and we think there will be more opportunities for business investors to come here and utilize these opportunities in the construction and navigational equipment projects we have at hand, as well as services projects that we will also be offered at Kuwait International Airport. ✖

IN NUMBERS

10%

YoY passenger increase in Kuwait International Airport in 2014

6%

annual growth projected for air traffic

BIO Fawaz A. Al-Farah is the President of the DGCA. He holds a degree in Business Administration from Kuwait University and an MBA from the American University in Washington, DC. He began his career as an Air Transport Researcher at the DGCA and has other key positions since then, including Secretary General of the Supreme Council of Civil Aviation and Member of the Board for Kuwait Airways.

Transport & Logistics

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INTERVIEW

FLYING HIGH again TBY talks to Rasha A. Al-Roumi, Chairperson & Managing Director of Kuwait Airways, on the process of rebuilding the airline, streamlining labor, and the importance of a flagship airline.

How has the rapid development of the aviation sector regionally impacted Kuwait Airways, as one of the first local airlines established in the Gulf?

Kuwait Airways was established in 1956 as a private company, and has since become a fully government-owned company. The Iraqi invasion destroyed the airline’s infrastructure, as the aircraft and hangars were all either abandoned or destroyed. We had to rebuild everything and start from scratch, and the airline’s rebirth became a source of pride for Kuwait. Looking back at the history of the region, oil became the defining commodity in the GCC countries, and with the oil boom came a focus on new strategies by those GCC countries, very much around leisure and also aviation, which is a key platform in places like Qatar. This all happened at the expense of Kuwait Airways. However, Kuwait Airways has always remained the favored and preferred airline of the Kuwaiti people.

What has been your strategy to bring Kuwait Airways back to the leading market position it once held in Kuwait?

When I became chairperson and managing director, my first priority was to sign contracts for new aircraft with either Airbus or Boeing. In line with that strategy, we are in the process of receiving 25

new aircraft from Airbus, ten of them wide body and 15 of them narrow body, in addition to 12 leased aircraft. We also purchased 10 Boeing 777 aircraft. This was essential for us to be able to regain a share in what has become a competitive airline market in the GCC and beyond. The Kuwaiti people fly all over the world, and we wanted to reclaim our place as their airline of choice so that they would prefer us to the likes of Qatar Airways, Emirates, or Etihad. We introduced our new fleet far faster than most airlines could, ensuring that customer experience is consistently outstanding. Our other priority was to achieve a financial transformation of the company so that it could be self-sufficient.

• 100% governmentowned • Utilizing new flagship Boeing 777 aircraft

ues. One thing we take great pride in is that Kuwait Airways is truly a Kuwaiti company, in that it is run, managed, operated, maintained, and staffed by Kuwaitis, which distinguishes us significantly from other airlines in the region, including Qatar, Etihad, or Emirates.

How were you able to streamline the workforce and ensure that your employees were also an efficient part of the company’s transformation?

What do you expect will be the most important factor in making Kuwait Airways a top airline in the Gulf region?

According to the Kuwaiti privatization law, people can opt for either redundancy or early retirement. Some people were also transferred to government services. We ensured that the company was efficient from a company perspective, while at the same time recognizing the loyalty and service of people who had in many cases worked here for 15 years or longer. Nevertheless, we are still over-staffed, so the process of streamlining contin-

The airport is the most important factor. It does not matter how many aircraft you have if you do not have the facilities to operate them and cater to the increased flows. Kuwait has much more competition, partially due to the fact that people see Kuwait as being a more attractive market in itself.

Qatar and Emirates are about providing connectivity, but it is a different situation in Kuwait. Carriers come to Kuwait to take the business of Kuwait.

As the national flagship carrier of Kuwait, what vision you would like to see achieved at Kuwait Airways moving forward?

The world first gets to know about your country through your airline, so it is an important part of any country’s economy. We want to become a boutique airline that is growing healthily, serving Kuwaitis and those who live in Kuwait. We want to provide a service that gets them where they want to go at the frequencies and with the quality of service that they desire, and we want them to prefer us simply for the pleasure of flying Kuwait Airways. ✖

BIO Rasha Abdulaziz Al-Roumi was appointed Chairperson and Managing Director of Kuwait Airways (KAC) in December 2013. She has been responsible for launching the transformation of Kuwait Airways, re-establishing the airline as a leader in regional aviation and beyond. Rasha Abdulaziz Al-Roumi’s successes include ordering an entirely new fleet of aircraft and securing an agreement with key partners to build a new terminal at Kuwait Airport. Her impressive 30year aviation track record garnered the Business Woman of the Year 2014 designation from the Arabian Business Magazine.

She holds a Bachelor’s in Insurance and Statistics from Kuwait University.

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FOCUS KUWAIT INTERNATIONAL AIRPORT

PROCEED TO GATE Kuwait has a modern, well-maintained transportation system, but the country’s infrastructure may soon become insufficient. Top of the list for expansion is Kuwait International Airport.

THE RAPID ECONOMIC GROWTH that the Kuwait has undergone in the recent years has led to an extraordinary increase of the inflow of people in the country, mainly visible in the scaling figures of its air traffic. In order to receive the increasing number of passengers and properly greet them to the country, the DGCA is overseeing an expansion plan at the Kuwait International Airport (KIA).

The Directorate General of Civil Aviation (DGCA), which operates the airport, is jointly working with the Ministry of Finance and with Ineco, a global leader in transport engineering and consultancy that has been contributing to the development of infrastructures the transportation sector in more than 45 countries all over the world.

Under the contract, a new U-shaped terminal building, comprises of a basement level, a ground floor and two additional floors, will be constructed. It will be located to the south of the existing terminal and will be connected to the existing terminal building via a tunnel. The Kuwait Airways Terminal, or Terminal 2 (as it is expected to be named) will spread over an area of 90,000sqm and is anticipated to be completed by November 2016.

This new structure will feature 30 gates and will boost the facility’s capacity from the current 7 million passengers to 20 million passengers a year after that it becomes operational.

The $2.1 billion expansion project also includes the extension of the two existing runways.

The airport’s western runway will be extended to 4,775m, becoming the seventh longest runway in the world and will be capable of handling the A380 aircraft. As per the other runway, the plan is to make it 4,000m long. Furthermore, a

2014

10,300,000 passengers, up 10% YoY

85,000 aircraft, up 9% YoY

third runway is planned to be constructed.

After the first phase of this huge expansion plan will be completed, the airport will have eight gates capable of handling A380 aircraft, new aircraft parking spaces, a headquarters for the Directorate, a 400-bed transit hotel, waiting rooms and parking areas with a capacity of 4,500 cars.

A second phase will include further expansion and the construction of other passenger terminals which would take the capacity of the airport to 55 million passengers a year.

Phase 2 is at the moment at conceptual stage.

Kuwait International Airport is located in Farwaniya, 16km south of Kuwait City. Its expansion project is highly anticipated and much needed given the increase in activity seen at the KIA over the past decade. Two indicators of this growth being in 2014, around 10.3 million passengers and 85,000 aircrafts used the KIA, represented an increase of 10% and 9% year-on-year, respectively.

Gulf countries are investing enormous amounts of money to enhance their infrastructure and housing facilities. In April 2014, the new Hamad International Airport in Doha, Qatar, opened its doors and with an investment of over $16 billion, it became one of the most opulent infrastructure in the world.

In January 2015, Dubai International Airport has become the world’s busiest airport for international traffic, overtaking London Heathrow Airport and Abu Dhabi is also building a new mid-field terminal airport.

In 2006, the DGCA’s “Open Skies” policy was introduced, with the aim to liberalise the bilateral arrangements governing air traffic operations with other countries. This measure attracted the interest of new carriers which started operations in Kuwait and encouraged existing carriers to increase the number of their flights.

The Open Skies policy was in accordance to the vision of HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, who sought to develop Kuwait into a commercial and business hub for the region is finally taking shape.

These days, excellent service quality and competitive prices are hallmarks of the airport’s ground operations. In 2016 the Kuwait International Airport is predicted to welcome 13 million travellers and will give a great first and last impression to all of them. ✖

Transport & Logistics

THEBUSINESSYEAR

LOCATED 16KM SOUTH OF KUWAIT CITY, KUWAIT INTERNATIONAL AIRPORT IS UNDERGOING A MUCH-NEEDED EXPANSION TO COPE WITH INCREASING ACTIVITY OVER THE PAST DECADE.

TERMINAL 2 90,000sqm

To increase from

7 million passengers to

60canopy m 30 roof 20 million span passengers

gates

AIRPORT EXPANSION HIGHLIGHTS

$2.1 billion cost

To be completed by November

2016

Western runway to be extended to

4,775m to become the 7th longest in the world

SOURCE: DIRECTORATE GENERAL OF CIVIL AVIATION

2nd runway to be extended to

4,000m

New

3rd runway

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INTERVIEW

What was the key to taking NAS from one airline client in Kuwait to its current position in emerging markets across the MENA region?

fair share TBY talks to Hassan El-Houry, CEO of National Aviation Services (NAS), on expanding market share, facilitating business development in emerging economies, and leveraging an accumulated reputation for quality.

To build a company you have to focus on delivering value to your customer. We did that by providing a high quality of service and being disciplined in regards to our costs. We have been able to meet our clients’ targets at reasonable prices. In 2003 we started business in Kuwait with one customer, KLM. We were focused initially on passenger services, and then expanded into route services with cargo, lounges, meet and assist, an aviation training center, aviation security, and finally, terminal management. Geographically, Kuwait was our base, and in 2008, we expanded to India with a ground handling company and eight airports. In 2009 we launched operations in Bombay, at one of the largest airports in Asia, in partnership with Celebi, a Turkish ground handling company. In 2009, we started in Kigali. In 2012, we added Sharm El Sheikh and expanded to Abu Dhabi, and in 2013 we started managing the Sheikh Saad terminal. In 2014 we won a tender in Afghanistan, and also opened a VIP terminal in Abu Dhabi. This year we are hoping to launch operations in Côte d’Ivoire.

We have been aggressive in our approach to expansion to meet a fast-growing demand.

What role does NAS play in facilitating business and economic development in emerging economies?

Aviation plays a crucial role in the economy, and there are two sides to what we do; the passenger side and the cargo

• Established in 2003 • Operations in the Middle East, Africa, and South Asia • Over 6,000 employees

side. The passenger side is designed for airlines that need services based on safety, security, and cost effectiveness.

Business travel supports local businesses expand and locate overseas customers or suppliers. The reverse is also true with international companies that want to do business in emerging markets. On the cargo side we are supporting emerging markets, farmers, and producers by providing efficient importing and exporting.

NAS was named Best Ground Handler in emerging markets three times. How did you achieve this, and what is the significance of this recognition for the company?

Quality is key. Airlines know NAS to be a reliable partner whom they can trust to provide the best quality of service in the country. The award has boosted morale in the company over the years because it recognizes the hard, and often repetitive work that people do within their defined, specific areas of expertise. It is rare that people appreciate the job that these people do, and our employees appreciate the positive reinforcement.

What new heights are you aiming to reach in the future, and what are your targets for 2016 specifically?

Our vision is to become the aviation service provider of choice in emerging markets.

We will continue our aggressive growth primarily in Africa, and to a large extent in the Middle East and Central Asia as well. We aspire to have one to two big wins and three to four small wins every year.

In 2016 we will continue our focus on quality, safety, and security. We will continue our investment growth and continue to hire qualified individuals. ✖

BIO Hassan El-Houry is the Group Chief Executive Officer of NAS. Hassan El-Houry transformed NAS from a local ground handling company into a leading regional airport and aviation services provider.

In 2012, he was appointed Chairman of UPAC and its subsidiary Royal Aviation, which owns the Sheikh Saad Terminal in Kuwait. In 2014, El-Houry was honored by the World Economic Forum in Davos as a Young Global Leader for his contributions to aviation and airport services. He holds an MBA from the Wharton School of the University of Pennsylvania and a Bachelor’s degree from the American University of Beirut.

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HUSSEIN ALHASASEEN Area Manager – Kuwait, Royal Jordanian (RJ)

MOHAMMED ALNAHARI ALHASHIMI Manager, Emirates – Kuwait

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

What are some of your most important routes from Kuwait?

HUSSEIN ALHASASEEN The top destinations for RJ from Kuwait are London, Frankfurt, Vienna, Barcelona, and the US. It is well known that Europe is the largest destination in Kuwait, and our market share from Kuwait to Europe is expected to continue rising in 2016. The majority of Kuwaiti people like traveling to Europe, especially in the summer time, so we are focusing on that particular period of the year. We have also seen strong demand for student travel, and we project the number of students traveling from Kuwait to Jordan to increase by 10% in 2016. The World Bank ranked Jordan the top medical tourism destination in the MENA region.

Jordan is also attracting a lot of investments. As we work to meet these demands, we plan to maintain our status as a full-services, legacy airline.

MOHAMMED ALNAHARI ALHASHIMi Beyond just size, we have a good mix of leisure and business travelers going in both directions. That said, we do not concentrate on a particular set of destinations, but are instead looking to grow to new points out of Kuwait. Emirates Airline travels to 150 destinations, in-

regional AIRLINES Airlines in Kuwait are looking for ways to differentiate their offering when vying for a share of the highly competitive regional airline market.

cluding 16 cargo destinations, and we serve almost all of them from Kuwait. However, there are some destinations in Europe and the Far East that are extremely popular with the Kuwaiti public. Both the North and South American markets are increasing in popularity, and these points are doing extremely well out of Kuwait. These destinations are huge leisure markets, so in the US we recently inaugurated flights to Orlando, which has become popular out of Kuwait. We also have a dedicated booking website for Kuwait. These factors drive the growth in business.

How do you maintain your position in such a competitive regional market?

HA In 2014, we only had two competitors; this year, we have three. We have had to adapt in order to sustain and increase our share in the market. In order to do this, we have been promoting the average fare in Kuwait. In 2014, we were selling tickets at $410 with taxes included, and in 2015, we have set our prices between $305315. To avoid a drop in revenue and a shrinking market share, we are now selling to other destinations beyond Amman within our route network, such as

London, Europe, North America, and North Africa, especially Cairo. We see strong indications that RJ can grow in Kuwait, and we can take a greater share from the market. Since the beginning of 2015, we have been focusing on growth and we have had encouraging results.

MAA Competition is good for our business; with competition, all of the airlines are forced to provide better service, and we at Emirates have always focused on a consistent strategy of providing the best quality service through aspects such as our award-winning in-flight entertainment and investing in the newest aircraft technology. This has always been our approach in any market to stay ahead of the competition. In addition to this, we always try to reach the passions of our customers.

Emirates is not just focused on transporting passengers between an origin and a destination, but also on the overall experience of making travel a part of our customers’ daily lives.

This is why we associate our own brand with our customers’ passions, such as sports, arts, and culture. This approach is one of the things that gives us an edge in how we can present our value proposition here in Kuwait. ✖

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INTERVIEW

HIGH NETWORK individuals TBY talks to Fares Barqawi, Chairman & CEO of Posta Plus, on achieving quick success as a newcomer, leveraging new technology, and the state of Kuwait’s logistics infrastructure.

What differentiates Posta Plus from its competitors?

Posta Plus is not just a traditional logistics firm; we are different. Our approach is selling ideas that make an impact on the customer experience. Today, we provide customized services that complement a company’s quality and consumer targets. We help our customers with exactly what they need. We are currently educating the market and creating a new demand for a project called Mailroom Management.

The idea came about when we started this project KUFPEC during 2013 and it was a success. Eventually, we took over their facility for the purpose of full mailroom management, managing all external and even internal correspondences for the company. Another idea called domestic delivery operation was derived from a previous big project we had called EZ Post with Jebel Ali Authority, which involved handling all their mail for three years.

Their response to the project was fantastic—they loved it. If one employee wants to get in

contact with another, they can send a message that will go to a dispatcher in the mailroom.

Then, the dispatcher can send out a messenger, making the process more efficient.

What are some challenges that you encountered at Posta Plus as a relatively new logistics company?

Having presence in several countries made us conclude that understanding a country’s geography is quite essential.

Around 80% of our resources are navigating forces on the ground, which reflects a high cause and effect relationship between delivery, customer experience, and operating costs. Secondly, human capital in our industry is quite essential. While hiring, it is crucial to bring on board qualified, dynamic, and compassionate people that have a relationship with the goods being delivered to the customers’ doorstep.

Being present in developing countries and one of the fastest moving and evolving industries, finding the right qualified people is challenging.

Finally, industry and government regulations impose high operational risk on the logistics industry. Unless the company enjoys a strong financial position, it will suffer from barriers to entry that exist into the courier space.

How does Posta Plus use technology as a competitive advantage when focusing on specific industries?

We develop our software inhouse and we have well dedicated team with the IT department for three elements:

• Established in 2006 with $19.75 million in capital • Focusing on e-commerce • Expanding facilities to 4,000sqm

software, hardware, and developers. Our website, the coming mobile application, and all the operational and accounting systems were developed in-house and these have been a huge contribution to our success. These have given us a competitive advantage because we can customize solutions without third parties and depending solely on our internal resources. Posta Plus is focusing on the e-commerce industry. As a time-sensitive service, the main obstacle for these companies is logistics. We work to cut down the time. MarkaVIP is one of our biggest customers when it comes to e-commerce. We are serving them in Dubai, Kuwait, and soon in other countries. Also we have a company called “Student Center,” which is completely owned by Posta Plus. It is a business concept similar to FedEx Kinkos. We are trying to have more efficient integration between the three. If a company can provide a onestop shop, the customer will choose you.

How has Kuwait’s logistics infrastructure contributed to your success?

The Public Authority for Civil Information (PACI) has invested great efforts in building a logistics infrastructure.

All facilities have designated codes within Kuwait making the delivery value chain effective. We integrated our systems with PACI’s systems and linked them to a GPD network that assists in speedy delivery and tracking shipments. We are able to plan appropriately. We understand the regulations of the GCC and the market demands in Kuwait.

We have a clear vision and understanding of the customers’ needs. We provide our customers with customized services, we understand the country’s geography, and we know how to use our resources. We partnered with the right people at the right time. ✖

BIO Fares Barqawi, a Palestinian-Jordanian national holding a Bachelor’s degree in Accountancy from Applied Science University in Jordan, began his professional career in 2004 as a Finance Manager with Near East Media. In 2008, he joined Posta Plus Group in Kuwait. After being appointed Regional Manager in 2012, the company expanded to neighboring countries such as Syria, Bahrain, and the UAE in addition to new offices in the US, UK, and China. In 2014, Fares Barqawi became Group CEO of National Express Company and Gazal Logistics and in 2015 he was chosen as Group CEO of Posta Plus Group.

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NATIONAL RAIL ROAD SYSTEM FOCUS

ONE RAIL TO LINK THEM ALL Not to be out-done by or left out of the mega-GCC rail network project set to link all six Gulf countries by rail, Kuwait is completing the link with a national rail road system plan of its own.

TOTALING AN ESTIMATED $10 BILLION, Kuwait’s National Rail Road System will traverse the country through its Iraqi and Saudi Arabian borders by way of a 574km railway, linking seaports, industrial cities, and key cargo drop off points both in the country and in neighboring Gulf states. It is one of the major infrastructure projects in Kuwait’s Vision 2035, and in addition to creating jobs surrounding an entirely new rail transport sector, it is set to enhance Kuwait’s regional connectivity and spur an increase in local trade volumes, while also contributing to reduced economic and environmental costs of transportation of both freight and passengers.

As authorities in the GCC have begun to realize, an integrated rail network is the cornerstone of any urban public transport system. In Kuwait, one of the key markets in the Middle East, rail will provide several benefits, including helping to cut costs on transportation, where currently over 90% of transportation is handled by private vehicles (INECO).

Minimizing time spent in traffic and providing an alternative means for passenger transit will also be major time savers supporting businesses, commuters, and other visitors in Kuwait and across the region. In providing enhanced connectivity for freight and passengers alike, Kuwait’s national rail project will facilitate growth in the volume of exports and imports, and it is expected to be an added support towards increasing inward investment. Traffic on the roads should also reduce, as shipments by truck shift to rail. The new rail network will enable the country to be-

come a more efficient and attractive place to do business both regionally and globally, ultimately contributing to the state’s economic growth.

States in the GCC have yet to fully embrace and see the benefits of an enhanced rail network as a dominant mode of transportation.

Kuwait still relies heavily on roads as its primary means of transport in the country, leading to serious congestion, increasing accident-probability, and placing increasing pressures on road maintenance for local municipalities. The use of roads as a primary means of transportation may be justified in a region with such low costs of fuel, a reliance on road transport has also contributed to rising costs and increasing transit times of transportation. With the rapid urbanization of Kuwait over the past few years, the government has identified rail as a viable alternative mode of surface transportation to address projected growth in freight and passenger transport challenging Kuwait’s infrastructure. The urgency with which Kuwait pursues construction of its rail project will be a key factor in determining completion and operation dates of the country’s still-developing railway network. Once fully completed, the Kuwait’s rail network will link to the rail network that connects each country in the GCC including Saudi Arabia, Oman, Qatar, the UAE, Bahrain, and Kuwait in an ambitious, first-ofits-kind mega-project for the region, and is expected to be operational by 2018. As rail project activity ramps up in nearby Gulf states, the rail transport sector in Kuwait will certainly be one to watch in the years ahead. ✖

FREIGHT AND PASSENGER RAIL LINES

511km MAXIMUM SPEED PER HOUR

200km JOBS

10,000 INVESTMENTS

$250 billion

SOURCES: PARTNERSHIPS TECHNICAL BUREAU (KUWAIT AUTHORITY FOR PARTNERSHIPS PROJECTS), AMEINFO

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Rising demand in the construction sector, particularly for infrastructure, is putting pressure on existing regulations.

A new national cultural district is being carved into Kuwait’s urban landscape as Amiri Diwan projects move ahead on schedule.

Investors in the Kuwaiti real estate market weigh in on their focus for investment in the short and long term.

Construction & Real Estate REVIEW CONSTRUCTION

Through the new five-year development plan (2015-20), the government seeks to maintain the strong growth performance the sector has experienced over recent years.

D

ue to Kuwait’s oil reserves, much of its economy is able to weather all but the fiercest financial storms.

That said, the Kuwaiti construction sector didn’t read the memo about the global financial crisis, and only experienced a minor slow down, followed by strong growth over a number of years with $188 billion worth of construction projects underway in September 2015. To help maintain a strong sector, plans are afoot to deliver more roads, residential units, and infrastructure projects across the country by 2020. In 2015, the infrastructure sector is expected to grow by 15-20%.

Along with an increase in infrastructure projects, a rise in the demand for housing is also helping to boost the construction sector. The Public Authority for Housing and Welfare (PAHW) announced plans that it would be building 174,000 houses by 2020 to meet demand in the country.

The private sector is also one of the main drivers behind the sector’s growth accord-

KEEP ON MOVING ing to Alpen Capital’s GCC Construction Industry Report 2015, as a number of new projects get off the ground while demand for residential and commercial space will also be key drivers.

PROJECTS GO

Image: Insha’a Holding

A restructuring of the PPP law aims to take the investment burden off the public and attract more private and foreign investment.

The value of contracts awarded will increase from $27 billion in 2014 to $31 billion in 2015, according to Venture’s Kuwait Construction Industry 2015 report, with building and infrastructure projects the likely focus areas over the next few years. This increase is due to the government’s plan to build 45,000 new housing units, an airport expansion, a number of energy megaprojects, and a new refinery, all part of the five-year development plan. On top of this, Kuwait’s Central Tenders Committee awarded around $5 billion worth of tenders in 1Q2015 alone, with the top 10 in the oil sector accounting for $4.2 billion, while the top five of these tenders accounted for $4.17 billion. The Ministry of Electricity issued the highest number of tenders with 24

Construction & Real Estate

coming in at a total of $486 million. The Public Authority for Agriculture and Fisheries offered three tenders worth $40 million, while Kuwait University offered 15 for a total of $36 million.

People expect 2015 to be a solid year compared to previous years as confidence grows in the sector and the market as a whole. In light of this, many of the sector’s figures are on the rise.

In 2015, contractor awards are set to rise to $9.9 billion from $9.55 billion in 2014.

Compared to 2013, which was a little over $5 billion, contractor awards have almost doubled in two years according Venture’s report. A major factor behind this rise is government investment, and especially the $2 billion earmarked for the tourism sector, which will go into the expansion of hotels and build a foundation for the sector’s future. In addition, the government’s focus on infrastructure building, specifically bridges and transport infrastructure, is boosting the construction sector and also integrating the country into the region. The $6.2 billion investment for the motorways is also going a long way to establish Kuwait as a hub for infrastructure projects. Building and infrastructure projects will be the bread and butter for construction companies for the next few years. In 2015, it is expected that building construction projects will account for an estimated 42% of total projects, largely because of the PAHW’s plans to build more affordable housing over the next five years. Infrastructure accounts for 18% of construction contracts awarded in the sector. Another boost to the sector will come in the form of a $2 billion investment in the tourism sector. This money will be used to help create a more tourist friendly environment while also increasing trade and turning the country into a regional financial hub, which in turn will develop the MICE tourism sector. This money will likely be used to develop tourism infrastructure in the country while also increasing capacity. A number of hospital and university projects are also in the pipeline, which will continue to drive the construction sector forward.

The major plan the country has announced is the government’s five-year development plan.

With total investment announced at $116 billion between 2015 and March 2020, the plan will be a major force behind the sector’s growth.

While the country has grown rapidly in recent years, major investments are now needed to modernize the country’s infrastructure, which is where the five-year development plan comes in. It will tackle the country’s roads, bridges, ports, railways, and airports, create thousands of jobs, and significantly increase the country’s competitive edge. Some of the projects in the development plan include Phase I of the Lower Fars Heavy Oil Field Development, the Fifth

Gas and Condensate train at the Mina Al Ahmadi Refinery, and extensions at the Sabah Al Salem University and its Colleges of Social Science, to name a few. Other major projects include the Kuwait Metro Project, which will cost around $7 billion, the Kuwait International Airport, which will come in at around $3.3 billion, the Subiya Causeway, which will cost close to $2.6 billion, the Al Zour Refinery Project, which will cost around $15 billion, and extensive motorway construction, which will cost around $6.2 billion, according to Zawya.

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CONSTRUCTION CONTRACTS AWARDED FOR BUILDING AND INFRASTRUCTURE ($ BILLIONS) SOURCE: VENTURES 9.6

10.0

5.0

CHALLENGES While there are many positives about the construction sector in Kuwait, it still has a few issues that need to be ironed out. One of the main problems, which is the same for many GCC countries, is its dependency on foreign workers, despite efforts by the government to tackle the issue. The lack of private-sector investment has also been a challenge, and still continues to be, as much of the investment planned over the next five years is still coming from the public sector. However, the government took a major step in tackling this issue in March 2015 with the introduction of a new public-private partnership (PPP) law. The main idea behind the law is to overcome the challenges faced in procuring PPP projects in Kuwait by clarifying the law and bringing it more into line with international standards. The new law places a great emphasis on the principles of transparency, openness, freedom of competition, and the equality of opportunities. This new philosophy is music to investors’ ears and hopes to create a more investor-friendly environment in the country, particularly in relation to attracting financing. As well as providing a more beneficial financial framework for investors, the new law also includes provisions for foreign investors and creates a more level playing field with

CONSTRUCTION SPEND PER SECTOR (APRIL 2014) SOURCE: MEED 20% Residential 17% Public

13% Commercial

13% Healthcare 28% Education 5% Hospitality & Leisure 4% Mixed-use

2013

2014

2015

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People expect 2015 to be a solid year compared to previous years as confidence grows in the sector and the market as a whole. In light of this, many of the sector’s figures are on the rise. In 2015, contractor awards are set to rise to $9.9 billion from $9.55 billion in 2014.

Image: SSH Design

Kuwaiti companies. The main aspect of this is the lifting of foreign ownership restrictions permitting project companies to be foreign owned.

It is hoped that this new law will attract more foreign and private sector investment into the construction sector by making it more transparent and removing barriers to entry for companies. Another challenge in the sector is that of contractor pricing. On some projects the price

DR. SULAIMAN T. AL-ABDULJADER Founding Chairman, Kuwait Green Building Council (KGBC) What are the key selling points of going green for the private sector construction industry in Kuwait?

The preconceived idea as seen in many emerging markets is that green and sustainability is always attached to the words “additional costs.” Recent studies have proven that green buildings are becoming commercially feasible. There are various elements of the building process that can be applied, especially in a country like Kuwait that has an apparent set of advantages adapting solar, a resource that is currently underutilized. Statistically, buildings represent no less than 50% of carbon emissions. The health benefits and the clean environment that sustainable buildings provide are definitely selling points. When it comes to the developers, economic feasibility becomes the main concern for building green.

How are you engaging with the private sector and encouraging them to go green?

From an architecture or consulting point of view, the private sector is always led by demand. Private sector developers are led by economic feasibility. Part of our role is to emphasize economic feasibility and encourage the government to provide incentives to the private sector. Policy should provide enough incentives for the private sector to undertake green building practices. Policy cannot be pushed prematurely before the private sector is prepared, because there is a risk of a backlash.

Our main challenge is a lack of awareness and lack of knowledge on sustainability. Any policy requires that raising the level of public awareness before its introduction.*

*Read the full interview at thebusinessyear.com

A rendering of Kuwait’s new Cultural Center, currently under construction

submitted by the contractor is higher than the estimated approved cost by the authorities, leading to difficulties and mistrust. The government is looking to mitigate these issues by working through its five-year development plan.

Kuwait has seen a significant amount of development over the past few decades, and infrastructure and residential projects will be the key focus of the government for the next few years. The main areas of investment will be airports, roads, residential units, and rail, to help deal with the rising demand from its growing population. Ongoing projects by PAHW in the PPP model will be significant drivers behind the construction industry with the hope an influx of private foreign investment will continue to stimulate the market. With a $2 billion investment planned for the coming years, major opportunities lie in the tourism sector as the country hopes to create a better foundation through the revamping and renewal of a number of projects in the sector. The hope is to attract more business travelers through the development of the country's hotels and infrastructure. Overall, the future looks bright for the Kuwaiti construction sector with a number of projects ongoing. The hope is that the momentum achieved over the past couple of years can be maintained and help turn Kuwait into a regional trade and financial hub. ✖

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ENG. HAITHAM M. AL REFAEI CEO, Insha’a Holding

ENG. MOHAMED ABUELJEBAIN CEO, Abueljebain Engineering Consulting (AEC)

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

What is your assessment of the opportunities and challenges in Kuwait’s real estate and construction market?

ENG. MOHAMED ABUELJEBAIN The stability over the past two or three years has kept the parliament intact, which has reflected positively on the economy. Although the area is not entirely stable, Kuwait is internally focused. The Minister of Housing promised 12,000 dwellings in one year, which was fulfilled. Now, it is promising another 12,000. Despite the drop in oil prices, Kuwait’s economy is booming as promises are fulfilled by the ministers who have stayed in office. The major obstacle in Kuwait right now is traffic and parking; however, we have solutions in mind.

Attracting tenants is becoming more important. In the past, it was “build it and they will come,” whereas now, competition is fierce. There is an abundance of office space in Kuwait at the moment, and real estate developers can hold their breath for a little while. Developers can make projects unique to tenants by providing them a quality location and parking.

ENG. HAITHAM M. AL REFAEI In 2005 the government advertised the introduction of a development plan, but because

supply and DEMAND Rising demand in the construction sector, particularly for infrastructure, is putting pressure on existing regulations that industry leaders say need streamlining.

of the relationship between the government and the parliament most of the projects have been delayed. This plan has to become a reality; otherwise the country will be in a disastrous situation. There is no room for patients in hospitals, and constant traffic on the roads. We need new power plants, we need new roads, and we need new cities. The population is growing, and demand is also growing.

What do you think is needed in Kuwait’s construction market to make it more efficient?

HMAR Processes need to be revised and streamlined. A contractor placing a bid in 2015 is lucky if they are able to build the project in 2017. We are asked to input a price in, check the currency compared with the Kuwaiti Dinar, check the shipment rates, the insurance rates, the rates of the manpower necessary to work, all before we are able to make a bid. Most of the economic factors will have changed by then. Currencies are constantly changing. In addition to that, all of our projects are a lump sum. Because the lump sum of projects are unchangeable in contracts, a relationship is being created between the client and the contractor where everybody wants to cover them-

selves legally. As I bid for the project, I bear responsibility.

The contractor undertakes an enormous risk when bidding for a lump sum project. The value and the percentage is very high in order to cover the risk if anything happens.

What are some new building regulations expected in the Kuwaiti construction and real estate development market?

MA Old regulations required a maximum 50sqm roof area. Often though, when a house has been completed, people will expand the roof area to 100sqm without having the permit to do so. Now, with upcoming new regulations, you can legally have 100sqm of roof area. This may sound like a small initiative, but once the rule becomes law and is implemented, we expect an influx of homeowners that want to change or add to construction on their houses.

The government may also increase the current percentage that they are allowing homeowners to build. Expanding households will have a negative impact on the current infrastructure of roads, electricity, and phone lines, which are not dynamic enough to match the sudden rise in build-up. Some areas will suddenly become congested and unlivable. ✖

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FOCUS AMIRI DIWAN CULTURAL CENTERS

CREATIVE CONTROL A new national cultural district is being carved into Kuwait’s urban landscape as Amiri Diwan projects move ahead on schedule along Kuwait’s Gulf coast.

More often than not, the pace of construction of infrastructure and construction projects in Kuwait is directly related to the speed of government procedures and approvals. It is no secret or surprise that projects commissioned by HH the Amir and his cabinet, the Amiri Diwan, on behalf of the government, are expedited and reach completion faster than others in Kuwait. At unprecedented speed by Kuwaiti standards, the Amiri Diwan Cultural Centers are being built across Kuwait, breeding anticipation and curiosity about these new icons of the country’s cultural district.

SSH Design, the longest-running architectural engineering firm in Kuwait and third out of the top 10 architectural firms in the Middle East, has designed and is monitoring the construction of Kuwait’s national cultural district.

SHEIKH JABER AL AHMAD CULTURAL CENTER At a cost of about $976 million, the construction of the Sheikh Jaber Al Ahmed Cultural Center is a megaproject currently underway on Kuwait’s Gulf coast. The cultural center will contain nine theaters and eight indoor amphitheaters and one outdoor amphitheater, the largest of which will be able to seat up to 2,000 people. The theaters will be a combination of concert, conference, and exhibition halls, and will also include a national library to house historical documents.

SHEIKH ABDULLAH AL SALEM CULTURAL CENTER Coupled with the Sheikh Jaber Al Ahmad Cultural Center, this facility will form the main part of Kuwait’s new museum district in which six primary buildings will be the outstanding highlight.

A natural history museum will feature wildlife and biodiversity, Arabian wildlife, artifacts from prehistory, and environmental

exhibits. A science museum will also showcase an experimental atrium, and house sections on technology and transport, health and medicine, as well as the human body and mind. There will be a museum of Islamic history and a space museum that will feature astronomy exhibits, among others. Finally, a fine arts center and theater will play host to premier shows, world-class acts, displays, and events, and these are set to become hubs for art and culture for locals and visitors alike. Traditional Kuwaiti architectural elements along with contemporary and modern designs will lend a distinctly local atmosphere to the area.

AL SALAM PALACE Situated beside the Sheikh Jaber Al Ahmad Cultural Centre, the final piece of Kuwait’s new cultural landscape is the Al Salam Palace. First constructed in the 1960s to house visiting heads of state and foreign dignitaries, the Al Salam Palace is being restored and refurbished, in a modernization effort that is breathing life into the district again. Plans for the palace include a visitor center, a museum, and a palace garden. The museum section will focus on the 15 rulers of Kuwait who have led the country since its foundation, and these exhibits will be displayed in galleries and the nine palace rooms of the complex.

The aim of the new cultural district is to attract not only local visitors and tourists from abroad, but also world-leading musicians, performers, academics, and business leaders to the country. Coinciding with the nation’s designation as the Capital of Islamic Culture of 2016 by the Arab Organization for Education, Culture, and Science (ALECSO), the inauguration of the cultural district is expected to be heavily marketed and promoted over the coming year, and will firmly establish Kuwait as a center of culture in the wider Gulf region. ✖

GEORGE ABI-HANNA What is your outlook on future development projects in Kuwait?

Kuwait has an extensive amount of work in the pipeline. There are several housing projects, hospitals, institutional buildings, and essential infrastructure works such as utilities, roads, and bridges. Regarding housing projects, there is a new movement towards building smart cities in Kuwait. We are currently developing designs for two hospitals as the country still has a large demand for medical services. We expect to see substantial work coming in the next few years and we are ready to take that on with our enhanced capabilities. From our current readings of the market, 2016 will be a solid year for new projects. There is a demand for

infrastructure, and we have begun to receive invitations for design work. Such projects will subsequently move into the construction phase so 2017 and 2018 should see a significant rise in construction activity.

What is needed to boost the speed of development in Kuwait?

In most cases, the speed of projects is governed by the government procedures. Kuwait has restrictions on labor, materials, and statutory authority procedures, which tend to be protected. Kuwait will need to enhance its resources and systems to facilitate project delivery if it is to achieve its national development plan objectives.*

*Read the full interview at thebusinessyear.com

Senior Partner & Resident Director, Kuwait, SSH Design

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Kuwait has a large housing deficit and a young population. Both the state and private sector are attempting to meet this demand with new housing and development projects.

Review

R E A L E S TAT E

HELLO, HOUSE The macroeconomic projection for Kuwait holds that real GDP will slow through 2015 as the government cuts back on subsidies before recovering in 2016 and 2017 as a raft of development projects gets underway. In the real estate and construction sector, the groundwork is already being laid. The country is well placed to withstand lower international oil prices with strong macroeconomic fundamentals and the lowest break-even oil prices amongst the GCC QNB forecasts real GDP to slow to around 1% in 2015 before recovering in 2016 (1.8%) and 2017 (3.3%).

Generally speaking, the real estate market slowed moving into the year, and failed to gain momentum moving into 3Q2015 due to a confluence of seasonal factors such as the Holy Month of Ramadan and global economic factors, most notably oil prices and the emerging markets slowdown. The 3rd Quarter Real Estate Report by the Kuwait International Bank (KIB) showed that national real estate market indicators dropped by approximately 29%, to $2.26 billion (KWD685 million). The total number of deals concluded in the market fell in tandem to 1,180 compared to 1,660 deals during 2Q2015.

For the first eight months of 2015, total real estate sales reached $6.92 billion, down 23% YoY. While the market was strong from 2010-14, low oil prices are crimping spending by energy related firms, and analysts at the Kuwait National Bank also faulted geopolitical tensions in the region finally for the decrease in real estate market activity.

As of early October, total residential sales reached $3.24 billion, with $266 million occurring in August. In terms of dollar volumes and number of units sold over 2014, both were down by 22%. Land prices were up slightly after the market corrected in mid-2015, and are in line with 2014 prices. While vacant plots were bid up by high demand between 2008 and 2014, analysts with the NBK are expecting change in trend over 2015, as residential homes surpass plots in sales. In terms of total area, buyers in Kuwait prefer homes ranging between 300-400 sqm and of 400-500 sqm plots.

Over a year of low oil price environment has taken its toll on property investment, where

the preference is for apartment buildings. Total sales reached $2.94 billion through October, representing a 27% decline over the same period 2014. Over the last year or so, investors have shifted from buildings and vacant plots toward apartments. These apartments are relatively small-ticket acquisitions but in current market conditions, they represent a notably higher return than the stock market or bank deposits.

Commercial sector sales activity also slowed, albeit to a lesser extent. Sales volumes were down 14% to $826 million by the beginning of October. In August, eight transactions took place with the most expensive sales being a complex in Farwaniya and a showroom in Dajij valued at over $1 million each.

PERFORMANCE BY SECTOR In spite of the decrease in business, average value of property deals in 3Q2015 held, at $1.9 million per deal. The sector average deal value was $1.2 million for residential and $12.7 million for commercial properties.

Residential and investment sectors’ sales rose in 3Q2015, as did commercial sector’s sales. As such, residential sector sales amounted to $912 million, decreasing by 33% YoY. Data from the Real Estate Registration & Authentication Department of the Ministry of Justice showed that during 3Q2015, the residential sector recorded 760 deals, down 34% quarterly and falling by over 53% YoY. Meanwhile, the average value in the residential sector deals increase by 2.4% quarterly and 43% on annual bases. While prices were up, volume was down by 391 deals.

In contrast to the downturn witnessed in the residential sector, commercial sales improved to $370 million, an increase of 10% over 2Q2015.

Recent legal reforms have significantly reduced the barriers to entry for foreign firms and the commercial sales are expected to reflect this in the coming years—first through firms capitalizing on conducive market rates for investments, and later through firms following expected market expansion.

Commercial sales in 3Q2015 were twice the levels recorded for the same period in 2014 according to the KIB Kuwait Q3 Real Estate Market Report. In turn, deals bounced back by 9%—to

The waiting list for governmentsubsidized housing grew to more than 100,000 in 2013 and is expected to grow by thousands each year, considering that more than half of the 1.2 million nationals are under the age of 25. In 2015, total applications reached 4,559 suggesting that demand far exceeds supply.

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REAL ESTATE TRADING VALUE (2Q2015) PUBLIC HOUSING 2% Chalets 1% Industrial Warehouses 11% Commericial

44% Investment 42% Private

only 29. This is still well above the deals count recorded for 3Q2014, when only 12 deals were conducted. In the commercial sector, the average deal value increased by 21% over Q2 and 36% YoY, hitting $12.86 million average deal values. Meanwhile, warehouse sector sales decreased to $18.12 million, while the crafts sector sales increased to $31 million. Only two deals went down in the showrooms sector in 3Q2015, for a total value of approximately $22.73 million. The investment sector’s share rebounded to 40% only of the total market sales. The residential sector share on the other hand fell to nearly 40.5%. Meanwhile the commercial sector’s share rose to 16.4%.

LOCATION MATTERS According to the 3Q2015 numbers from Kuwait Finance House (KFH), the Hawally Governorate attracted the largest share of total sales with 29.4%, or $609.4 million. As of June 2014, the population of Hawally was estimated to be 890,533—or more than a quarter of the total population. The area is a large suburb that hosts a commercial center, sports stadium and numerous other amenities that make it one of the hottest property markets in Kuwait. Al-Ahmadi Governorate came second place with 21% of the market total sales of $441 million. This governorate is located in the southern part of the county, and has rural charm and British architecture. The southern governorate also represents a critical part of Kuwait’s economy, as several oil refineries are located here. Finally, Al-Jahra came in a distant third, with total sales amounting to around $95 million.

In terms of market performance by geographical areas, Salmiya registered the strongest performance with 13% of total market sales of $273 million followed by Mahboula with approximately 6.5% of total market sales.

That said, Mahboula, which is experiencing an infrastructure boom and heavy construction at several sites, was the strongest performer in terms of number of deals, with 19% of total.

Land is scarce in many parts of the country, and Kuwait faces a housing deficit that the state aims to ameliorate with more than 36,000 residential units by 2017. This project is part of a number of projects undertaken by the Public Authority for Housing Welfare. Stringent technical conditions have been set by the authority. These planned housing projects will address the increasing demand for such projects, where housing applications are on the rise.

Some Kuwaitis claim to have waited for up to 20 years on the housing list. According to Reuters, the waiting list for government-subsidized housing grew to more than 100,000 in 2013 and is expected to grow by thousands each year, considering that more than half of the 1.2 million nationals are under 25. In 2015, total applications reached a figure of 4,559, suggesting that demand far exceeds supply.

According to the proposed distribution table for the year 2014/2015, the Public Authority for Housing Welfare has distributed around 3,258 residential units. Up to 1Q2015, 9,459 units were distributed in Sabah Al-Ahmed, Western Abdullah Al-Mubarak, Abu-Halifa, and Sabahiya from September 2014. This means that 12,753 units were distributed during the financial year 2014/2015 in line with the announced distribution plan. By increasing the size of new offered residential lands, these projects may mitigate the volume of housing crises in the country.

During 2Q2015, the Public Authority for Housing Welfare delivered its planned projects inducing houses, plots, services, buildings, public utilities, power stations, infrastructure services and public facilities in Sabah Al-Ahmed city at a cost of $437 million. Such projects also require the construction or upgrading of roads and service buildings. While projects undertaken generally are within timelines, execution is still less than expected in projects and services at Jaber Al-Ahmad and Sabah Al-Ahmed areas, North West Sulaibikhat and Qairawan areas with a cost approximating $1.3 billion. Total value of incomplete projects approximate as of mid-2015 was in the hundreds of millions of dollars, including public buildings projects, which dominate at a cost of around $1.16 billion. In other words, there are delays in the completion of these projects.

Ultimately, the real estate market has a history of stability that is expected to carry forward. Several reasons account for this including residential real estate units in the market that fulfill the increasing demand on residential real estates through the Public Authority for Housing Welfare. Looking ahead the sector can count on improvements in investment real estate thanks to an increase in construction ratios. This will contribute to the increase in offered quantities. ✖

MUHANNAD AL-SANE Founder, Chairman & CEO, Al Riyada Finance & Investment Co. What has been your investment strategy since founding the company in 2008?

Following the crisis of 2008, we realized that the best strategy was to invest in real assets with income generation, especially since interest rates were going down and equities became too risky to invest in. The real estate market provided some stability, and gave us an income to cover banks debts and interest, allowing us to share dividends with the shareholders. Many of our projects are located in the southern part of the country.

The population is increasing, with high demanding for retail, dining concepts, and malls. We have identified southern Kuwait for development because the population there currently has a poor entertainment offering, and we are working to provide stateof-the-art lifestyle options for the region. In Kuwait, income per person is high, so people want to spend their disposable income on retail and dining.

How do you decide on locations for your projects?

In choosing a market, you have to be a pioneer and select something different. The state’s population is increasing, and demand is high in the services sector for malls, shopping centers, and dining.

We set up in the southern part of Kuwait where the population is not well served, and worked to provide lifestyle options for the people there. We want to provide something with a new design and an innovative concept. We saw an opportunity in this sector.*

*Read the full interview at thebusinessyear.com

SOURCE: KFH

Construction & Real Estate

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INTERVIEW

MIDDLE of the road TBY talks to Eng. Khaled K. Al Mashaan, Vice Chairman & CEO of ALARGAN International Real Estate, on the company’s strategy for growth and choosing local partners, and investment opportunities in the mid-market segment.

How has ALARGAN in Kuwait grown to its current position today?

BIO Eng. Khaled K. AlMashaan has three decades of experience in civil engineering and real estate development.

In 1994, he founded ALARGAN, a pioneering real estate development company focused on quality affordable housing, middle-income housing, and commercial outlets within the GCC region. Under his leadership, ALARGAN has grown from a family-owned business into a publicly listed company on the Kuwait Stock Exchange.

He received his Bachelor of Science in Civil Engineering at California State University in Los Angeles.

He also successfully completed a Financial Management Program and the Advanced Management Development Program at Harvard University Graduate School of Design.

The company was established simply to serve the purpose of providing young Kuwaitis with suitable homes. We started out as a construction company with a small amount of capital; however, over a period of about three years, we were able to increase our capital and form new partnerships.

Our first project began in 1996, providing 18 homes below $330,000. When we first started, the least expensive house in the private sector was about $826,000, which most people could not afford.

We provided all the specifications and architecture of our homes to our buyers, as well as warranties; a service which had not been offered before. There was a high demand in the market for affordable homes and we allocated prices based on what the buyer could potentially afford after receiving subsidized government loans. We maintained this service up until 2003, when land prices skyrocketed, at which point ALARGAN looked into other markets. We established ourselves in Oman in 2003, ultimately transitioning from

ALARGAN HQ is Kuwait’s first LEED platinumcertified building

a family-owned company to a shareholder company, upon which we were able to increase our capital to KWD10 million. In 2005 we further increased it to KWD25 million and managed to expand into Bahrain in the following year, then lastly in Saudi Arabia in 2007. We keep our capital small, although our assets are incessantly growing.

What are the fundamentals of the mid-market segment that make it a good investment?

We invest in secure properties that generate consistent revenues. The mid-market has been underserved for a long time, and it is the largest.

After the crash, many companies realized the focus should not be solely on the high-end market. The Middle East has the highest growth per capital in the world, so there will continue to be an influx of buyers. We have been fo-

cused on the mid-market segment for 20 years and know it quite well. Over this time ALARGAN has built up on experience, aligned itself with the right partners, and added value to markets in new territories. In every market we enter, we raise the bar in terms of service, and we lower prices. We are in an advantageous position and claim to be the leader in a niche market.

What qualities do you look for in choosing local partners?

We unlock land value through strategic partnerships. Local partners are a must to have, because we cannot assume we know everything when we enter a market. They not only show us a map and explain the way locals are thinking, but help us logistically with the government sector. We look for partners that share our mentality i.e. they must be straightforward and interested in serving the community before making a profit.

Our partners should not be developers or contractors, or competitors in the same field; they should be in banking or other industries of interest.

We should add a new dimension, so that we add value to their portfolio rather than matching it. ✖

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B2B

GHANEM YOUSEF AL-GHANEM Chairman, Sokouk Holding Co.

IBRAHIM A. AL AWADHI CEO, A’Ayan Real Estate

local RE INVESTORS Investors in the Kuwaiti real estate market weigh in on their focus for investment in the short and long term, and overcoming the current challenges in the sector.

What are some of your investment targets over the coming years?

GHANEM YOUSEF AL-GHANEM There are many growth opportunities in every part of the world. In the GCC, there are growth opportunities with Expo 2020. We are not only targeting the local market; we have investments in Saudi Arabia, especially in Mecca and Medina.

One of our investments is in the Zamzam Hotel, as well as other investments in Medina. We are targeting the European and US markets. This is our long-term plan. However, right now, at a Kuwait-level, we are focusing on operating the Millennium Hotel. We managed to restructure

IBRAHIM A. AL AWADHI The market in GCC countries has fluctuated rapidly. We are affected by political, economic, and oil price risks. Our target is first to focus on building quality and identifying our target tenants, with strategies that vary from country to country. In Saudi Arabia we are targeting hotel apartments with an experienced operator. Rather than focus heavily on income, one of our core strategies is to become one of the leading real estate companies in Kuwait. As such, rather than focusing on profit at the end of the year, our strategy is to focus on projects that will add to the company’s solid reputation and help its sustainability.

What is your view of the real estate investment environment around the GCC compared to Kuwait?

IAAA Kuwait suffers from too many restrictions on investing in residential property; companies are not allowed to invest in the residential sector, which can be the greatest source of profit. Secondly, Kuwait is a small country, where 93% of land is owned by the state. Only 7% is reserved for development, of which about 5-5.5% is related to the residential sector, which cannot be developed by the private sector, leaving us with just 1.5% of usable land. In addition, lands cost is very expensive.

For example, the empty land that still exists in Kuwait City is extremely expensive, ranging between KWD3,000 per sqm to KWD7,000 on a main street. In terms of investment, land costs typically contribute around

60-70% of total project costs, compared to other countries where construction costs are much higher compared to land cost. Do we as a company want to invest in Kuwait? Naturally yes, because Kuwait has the resources and the money to make it a viable proposition. Yet while we perceive the opportunities, there must also be regulations governing the market. The government is keen to regulate the financial markets as well as the stock market, but there is no focus yet on the real estate market in Kuwait.

What are some other opportunities you see for investment in Kuwait’s real estate sector?

GYAG Our local real estate investment focus is a mix of residential/retail property development. However, in Kuwait opportunities are currently limited. The main local real estate investment activities that occur are limited to residential rather than commercial or retail-type properties. We aim to pursue something in the industrial area, and we are trying to push the government to open up industrial investment to the private sector and raise capital there.

We see growth potential in Kuwait, but the government has to do a lot of work to encourage more foreign investment. Currently, it is not an encouraging enough environment for investors to come from abroad. We were optimistic with the plan of $120 million to develop and restructure the country and economy, diversifying from oil, and upgrading the infrastructure, education, and healthcare systems in the country. However, it is going slowly and the government is struggling to achieve its development plan goals. We would like the government to be more aggressive in terms of achieving its plan. It has to rely more on the private sector instead of doing everything by itself; otherwise, projects will not be realized on time. ✖

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

our debt last year to basically make it compatible with the expected cash flows and growth figures of all our assets. We are mainly trying to focus internally on restructuring and managing the portfolio that we have. Then, we have a plan going forward starting from 2017 to explore different markets.

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Mutlaq Al-Zayed, CEO of Kuwait Flour Mills & Bakeries Co. (KFMB), on investment opportunities in the food sector.

Azzam Al-Fulaij, Managing Director of Bubiyan Fisheries Co., on the importance of fisheries for the country’s food security.

The Kuwaiti food and beverage market presents numerous opportunities for franchises and local efforts alike.

Food & Agriculture REVIEW

Kuwait currently enjoys a high level of food security, largely thanks to a supply of imports paid for through oil revenues. Still, it will need to secure trade routes and increase domestic production to maintain its current situation.

K

uwait is in an enviable position in that it is classed as a food secure country. This is due to its ability to import its food requirements using its vast oil wealth. Like other members of the GCC, Kuwait users its export revenues from oil and gas in a trade-based system for food security. Because of the country’s arid climate and limited water supply, domestic food production is unable to meet local demand.

The effects of climate change and increased soil salinity have led to challenges in the agriculture sector and slow growth. However, Kuwait’s population is growing rapidly along with a rising affluence, meaning consumption patterns are changing, which adds to the challenge of reaching sustainable development in the sector. According to a report on food and water security by Future Directions, spending on food imports is expected to exceed oil revenues by 2017, meaning economic diversification is essential if the country is to

THE NEED TO PLOW

Image: Heath Johnson

A number of government initiatives are set to boost production in the agriculture sector; however, it must also look into how to manage supply and demand more effectively to ensure the sector is as efficient as possible.

maintain its system of tradebased food security.

One of the major problems the agriculture sector faces is the lack of available arable land. Only 0.6% of the country’s land is arable, with only 0.3% of that used for permanent crops and 7.6% for permanent pastures. To make things worse, arable land is declining at a rate of 1% per annum. On top of this, Kuwait’s arable soil is not exactly user-friendly, with 80-90% of it sand with very low water retention. Almost all of Kuwait’s cultivated crops use artificial irrigation, accounting for 54% of the country’s total water consumption. Due to the restraints in the sector, agriculture only contributes 0.24% to GDP. The labor force has declined, and so too has agricultural production. Still, all this does not mean that all is lost. In order to increase agricultural production, the government will be required to invest in advanced agricultural technology, as well as increase training and education in better farming methods to make the sector more viable.

KUWAIT 2016

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TOTAL NUMBER OF CATTLE VS. SHEEP SOURCE: MINISTRY OF AGRICULTURE 628,041

516,727 445,943

452,208

28,745 25,775

2010 -11

2011-12

27,310

25,112 2012-13

CATTLE

2013 -14

SHEEP

FOOD SECURITY To ensure the country maintains its current level of food security, the government will be taking a number of actions. First, it hopes to reclaim more land through irrigation to increase the country’s capacity to produce food.

Support for large-scale food production has allowed for a steady increase in domestic production recently for some food items, such as poultry, eggs, fruit, and vegetables; however, a lack of water places a limitation on any more ambitious expansion in the sector. The best way to ensure the country’s food security will be to reduce any vulnerability associated with a dependence on food imports, which will also be the most cost-effective way. Kuwait’s reliance on imports is always risky, as any disruption in supply is a cause for concern.

Kuwait’s geographical position, neighboring Iraq and Iran, could cause problems as, in the past, Iran has threatened to close vital shipping routes in the region while the political situation in Iraq is volatile with a potential to disrupt supply lines. An increase in food storage capacity would go some way to mitigate any supply disruption.

SELF SUFFICIENCY One of the main initiatives the government will use to ensure food security is its plan, announced in May 2015, to achieve food self-sufficiency by 2040. While exact details of the plan are limited, the scheme hopes to increase domestic production across the country. Significant projects are underway in the northern frontier farming region, Al-Abdali, and Al-Wafi farms in the south, as well as other regions across the country. The plan aims to increase production of livestock and dairy products as well as increase land reclamation and green fodder. The expansions and initiatives will help people cope with the dryness and desertification of the country. The plan hopes to reverse some of the desertification of Kuwait by turning desert into arable land. In addition to this, the plan also pledges a significant budget to subsidize animal feed, water treatment, and financial support for related projects. Since the plan is a very long-term project, more details will emerge as it begins to take shape and effect. However, for now, an outline of the direction in which it will head has been made, which is good news for farmers and herdsmen.

Much of the government’s focus so far is on supply management; however, to ensure long-term food security, it must also consider demand management. Kuwait is among one of the highest food and water consumers per capita in the world. The level of food consumption is so high that an estimated 90% of Kuwaitis are reportedly obese or overweight.

Managing food consumption and reducing demand would not only alleviate some pressure on the agriculture sector, but also help to create a healthier society and reduce the burden on the healthcare sector as well. According to Future Directions, 58% of Kuwaitis prepare more food than needed, leading to over eating and waste. Subsidies for farmers along with high affluence and low food prices have led to overconsumption.

FOREIGN WORKERS In terms of the workforce in the agriculture sector, it is dominated by unskilled foreign workers, which is not unique to Kuwait but a common theme region wide. According to the Manpower Public Authority in Kuwait, the total number of migrant workers in September 2015 was a little over 1.5 million, with the private sector accounting for 96% of those. Of those workers, 5.1% work in agriculture and fishing, or around 80,000 people. These workers are often unskilled and on low wages. Attempts to get Kuwaitis into the workforce have had limited success, especially in low paid jobs in agriculture.

Food & Agriculture

One of the main initiatives the government will use to ensure food security is its plan announced in May 2015 to achieve food self-sufficiency by 2040. While exact details of the plan are limited, the scheme hopes to increase domestic production across the country.

In March 2015, Albania came up as an unlikely source of potential for the agriculture sector.

A meeting between the two countries’ ambassadors proved fruitful as they both felt it would be beneficial to work together. The Kuwaiti Ambassador, Najeeb Abdulrahman Al-Bader, created the framework on how they could work together to take advantage of the potential between the two countries. Albania has considerable expertise and experience in agriculture and knowledge transfer will be a top priority.

With much of the country already a desert, stemming the flow of desertification will be key to the sector’s success. Maintaining a high level of food security is also a top priority, and the reclamation of land will go a long way to securing that. Managing food supply and demand will also be key, not only for the country’s health, but also when it comes to reducing costly imports. To maintain Kuwait’s trade-based import system, diversification of the economy will be necessary as the growing population demands more food. Still, the government has recognized the possible issues while times are

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TOTAL NUMBER OF CHICKENS (MILLIONS) SOURCE: MINISTRY OF AGRICULTURE 46.2

44.0

44.2

40.8

2010 -11

2011-12

2012-13

2013 -14

good, winning plenty of time to address any problems that arise. If it is to increase its storage capacity, it will be able to shield itself from trade fluctuations while it tries to expand its domestic production. A greater task, which may be out of its control, is establishing a high level of water security. Also, with 100% of agricultural products artificially irrigated, a steady water supply is vital. ✖

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INTERVIEW

born and BREAD TBY talks to Mutlaq Al-Zayed, CEO of Kuwait Flour Mills & Bakeries Co. (KFMB), on trends and investment opportunities in the country’s food sector.

What kind of growth have you seen in your production over the past few years?

Growth in the food sector is dependent on population growth, public attitudes, and trends. For instance, there was a growing trend for the more wholesome bran bread, therefore we decreased production in white bread. Our growth is at 4%, and this figure is the ballpark for the bread industry globally. The market for fast food buns is a key factor in our profit sustenance. We have been exporting our produce for more than 25 years. We mainly focus on the GCC, but we also export to Jordan, Egypt, and Iraq. Exports have been growing fast, and our key exports are flour, pasta, and biscuits. Demand for our high-quality products is growing both internationally and domestically. However, diets differentiate according to locality. Food culture is varied across the Middle East, some populations consume more rice, others more bread.

How would you describe your role in securing a stable supply of food to the people of Kuwait?

Kuwait is not an agricultural country. We cannot produce our own food, so it is very important to concentrate on food security, mainly in regards to storage. Food security in our part of the world is an important issue and we take the matter seriously. We store our products in

IN NUMBERS

4

million units of pita bread per day

100

tons of European breads per day

silos which are close to the sea maneuver. When ships dock, we are responsible for loading and unloading.

We do this through in taking from the ship to the silo, then to the packing area and finally onto further transportation by road or air. This procedure ensures minimal human contact, and enables strict control of bacteria and pesticides.

What are your plans to meet the rising food demands of Kuwait’s growing population?

Kuwait's population is rising rapidly; the population is currently at about 3.2 million and 1.3 million are Kuwaiti, the rest are expatriates. In cooperation with the government, we have been acquiring more land to increase our storage space. The key

pillars of food security are ease of access (affordability and reachability) and quality.

In the past, there has been a number of destabilizing crises in Kuwait, where the operations of Kuwait Flour Mills and Bakeries Co. have aided in crisis management.

What opportunities are there for investors to inject innovation and product development in the Kuwaiti food sector?

There is a wealth of opportunities in the Kuwaiti food sector for investors—95% of food in Kuwait is imported from abroad. However, Kuwaiti SMEs are thirsty for capital injection. In particular, the dairy industry is fertile ground for expansion.

What do you predict will be the major trends and primary revenue drivers for KFMB in the next five years?

Global trends are moving towards gluten-free products for celiacs and those with sensitivity to flour. We will be setting up our first gluten-free bakery after Ramadan 2015. We have been working on this project for more than four years and are MENA pioneers for gluten-free produce.

What are your expectations for 2016?

Internationally, the agricultural industry is doing well.

We hope that there will not be any dramatic weather fluctuations that will impact the world agricultural mar-

ket. Drought or heavy rains can impact on harvesting.

However, our expectation is that the global wheat harvest will be stable. Kuwait is not as pliable to food prices as developing countries, thanks to our high average income.

In 2016, we plan to invest in healthier products, centered on our gluten-free bakery concept. ✖

BIO Mutlaq Y. Al-Zayed is the CEO of KFMB, and started working in the company in the distribution department in 1986. After eight months he was promoted to Head of Marketing and Distribution, and later to General Coordinator, Sales Director, Deputy Managing Director, and finally Chief Executive Officer in 2013. He is now an expert in managing the local and international business, marketing, operations, and strategic plans, and is in continuous development of the current products and introduction of new products to meet the requirements of the global market. His latest achievement was in 2015 when KFMB started production and distribution of gluten-free products, making them the first locally producing companies of gluten free products in the Middle East.

Food & Agriculture

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INTERVIEW

TBY talks to Azzam Al-Fulaij, Managing Director of Bubiyan Fisheries Co., on the importance of fisheries for the country’s food security, and the challenges facing the sector.

ON-LINE How has Bubiyan Fisheries Co. invested in the development of fish farming in Kuwait?

BIO Azzam Al-Fulaij is Managing Director of Bubiyan Fisheries Co, in addition he is also General Manager of Abdullaziz Ibrahem Al-Fulaij Trading and Contracting Institution, which he founded in 1991.

He gained his Bachelor’s degree in Business Administration from Grand View College, USA, in 1988.

Azzam Al-Fulaij sits on the Board of, among others, Al Ahli Bank of Kuwait (ABK).

Bubiyan Fisheries Co. started the first fish farm in Kuwait in 1985 as a joint venture with the government. We are still the only licensed fish farm in the country. Previously we only produced two types of local fish, bream and grouper. We brought in fish from Greece, Spain, and Bahrain, in particular sea bass, which does very well in Kuwait, as does the sea bream. We continued to grow and created a solid fish reserve for Kuwait, which is important for the country's food reserves and food security. Every day we take 3 to 5 tons of fish to the market. Fish prices here are actually quite cheap compared to the production costs, but this is balanced out by the government providing the land and paying for the fish feed. In return, our job is to support the people by providing a fixed price, and low cost fish supply.

What challenges have you seen in the farming of fish in Kuwait over the years?

In 1997 and 2001 there was a marine crisis in Kuwait with the red spot disease, which destroyed our reserves. We sought help from Kuwait University, the Ministry of Health, and other Kuwaiti ministries. They also brought experts in from overseas to determine the origin of the disease because this was the first time it had hit Kuwait.

We brought in fresh supplies of grouper and local

sea bream from Bahrain and began re-growing the operation. The government is not protecting our waters from pollution caused by domestic and industrial waste, which goes straight into the sea.

Another critical factor is that two power stations have been built in Kuwait Bay and these are damaging the marine environment. Kuwait Bay is the second largest hatchery in the world after the Gulf of Mexico. There should not be any power plants on Kuwait Bay because they use the seawater for cooling and then discharge warm water back into the sea, disrupting the ecological balance. It is still very important that the two electric power stations on Kuwait Bay are decommissioned and that the sewerage and other untreated waste water that is currently being discharged into the sea here is stopped.

One positive change in the industry is the new law that has been put in place prohibiting fishing across the bay. This applies to both fishing from the shore and from boats.

Unfortunately it is too late, although this has helped with overfishing.

Around 80% of fish in Kuwait are imported from Bahrain, Iran, Pakistan, and Turkey.

Do you have plans to increase local production of fish in Kuwait?

The country as a whole needs to increase the number of companies in the fish farming industry. We are happy to provide our expertise to grow local production.

IN NUMBERS Produces

1.2

million tons per year of fish

Kuwait Bay is the

2nd largest hatchery in the world after the Gulf of Mexico

How important is fish farming to Kuwait? Do you think there is room for more investment and growth in the industry?

It is very important. Fish farming should be the future, not just for Kuwait but worldwide. For example, fish farming has been significant for the economies of the Philippines, Thailand, Greece, and Turkey. The demand for fish is high with growing populations, but the marine stocks are not increasing. Globally, there are many people catching fish with no government controls. The future should be farming in order to protect our important fish reserves. ✖

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INTERVIEW

TBY talks to Karim Chouman, General Business Manager of Nestlé in Kuwait, on trends in the market, and promoting nutritional habits in the Gulf.

healthy living What are your objectives to take Nestlé in Kuwait to the next level?

ery, we also introduced the Kit Kat Mini Moments.

Our global mission is to enhance quality of life with good food and beverages everywhere. In the Middle East, we strive to do that by offering an array of tasty and healthy products that meet local needs for quality, taste and pleasure—while addressing specific nutritional requirements to help achieve healthy and balanced diets across all life stages and at all times of the day.

What is your understanding of the local taste profile in the Gulf, and how is Nestlé catering to that?

What trends do you identify in the Kuwaiti market?

Kuwaiti consumers have been enjoying their Nestlé brands such as Nestlé NIDO, Nescafé Coffee, and confectionery brands since the 1950s.

Sales of coffee products have been the main contributor to growth. The latest additions of the innovative Nescafé Arabiana, launched locally in 2014 and Nescafé Dolce Gusto, are also fast becoming local favorites. Nescafé Arabiana is the first instant soluble Arabic Coffee, which reduces the long process of preparing of the traditional Arabic Coffee to seconds, which is popular with GCC consumers.

Another product is Nescafé Dolce Gusto, is a multi-beverage system, for a variety of coffees from cappuccinos to espressos to macchiato.

When it comes to confection-

Nestlé’s heritage in the Middle East goes back over 80 years. We have our 60/40+ Program that constantly re-challenges our products to ensure they are preferred by at least 60% of local consumers of a large panel. We continuously renovate our product portfolio to meet the taste and pleasure needs of consumers, in addition to meeting the strict Nestlé Nutritional Foundation criteria.

How is Nestlé promoting nutrition, health, and wellness in the Gulf?

Nestlé understands the health challenges of the region and ensures our products cater to the latest nutrition recommendations for healthy living. In June this year, Nestlé was the first multinational company to publish forward-looking commitments to society in the Middle East, with the unveiling of the first regional “Nestlé in Society - Creating Shared Value” (CSV) report. It also covers 20 commitments published with specific objectives, which Nestlé aims to fulfill by 2017 or earlier, in the areas of nutrition, responsible sourcing, water,

environmental sustainability, people, and compliance.

In the Middle East, where under-nutrition and obesity exist side by side, the regional report’s commitments focus on leading the industry in nutrition and health research, and providing nutritionally sound products designed for children to nurture healthier generations. Out of the 20 commitments, 11 focus on nutrition. Specific commitments promote healthy diets and lifestyles, mainly through the Nestlé Healthy Kids Programme – Ajyal Salima, developed by the American University of Beirut and now in three countries in the region (UAE, Kingdom of Saudi Arabia and Jordan) where it has reached over 16,000 children to date, further provide nutritionally sound products designed for children, with three new products set to be launched by the end of 2015; help reduce the risk of under-nutrition through micronutrient fortification, by providing 8.6 billion fortified food servings in the Middle East by the end of 2015, compared to 8 billion in 2014; promote healthy hydration; and ensure responsible marketing communication to children. More recently, in October 2015, Nestlé Middle East, MBC Al Amal, and the Arabian Radio Network joined forces to launch United for Healthier Kids (U4HK), with an invitation to everyone to join the movement and contribute towards healthier children. U4HK aims to help parents establish healthier eating, drinking and lifestyle habits for children aged four to 12, and offers game-changing education and fun ideas to inspire action and influence behavior. ✖

IN NUMBERS Nestlé Middle East covers

13 countries

BIO Karim Chouman is the General Business Manager of Nestlé Kuwait, leading an organization of over 250 employees. In his current role, he aims to drive the Nestlé business in Kuwait with a focus on developing strong routes to the market, driving category growth and building talent from within.

He joined Nestlé Middle East in 2007 and became the head of key accounts in 2012 managing regional customers for Nestlé across the Middle East. In this role, his focus was to strengthen Nestlé’s key accounts expertise, develop winning strategies and enhance customer relationships. He has more than 10 years’ experience in the FMCG industry and has worked in different countries including KSA, Kuwait, and UAE, holding various roles from modern trade channel management, trade marketing and sales. He holds a Bachelor’s Degree in Computer Science from the American University of Beirut.

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RESTAURANTS FOCUS

APPETITE FOR SUCCESS A preference for higher quality and varied dishes from around the world marks the Kuwaiti food and beverage market, presenting numerous opportunities for franchises and local efforts alike.

Kuwait’s restaurant and cafe segment has been growing exponentially over the past decade, with the market reaching a state now that many are dubbing saturated. As with retail, consumer behavior is driving continued investment, innovation, and increasing competition in the restaurant and foodservices industry, with high spending power and consumer palettes generally familiar with different tastes and cuisines from around the world providing ample opportunities for food firms.

There is a long-standing emphasis on food as a central part of most social gatherings in Kuwait, and this fact, coupled with a well-traveled population and growing expatriate community, have encouraged the development of a sophisticated, diverse, and adventurous consumer approach to gastronomy.

Kuwaitis crave new offerings, and are unafraid of blending flavors and trends from the international food scene with local traditions and lifestyles. Whether it is formal, casual, fast food, family, take away, drive-thru, or home delivery, it seems that there is always something new available, with room in the market not only for established franchises, but also original food concepts to gain their share of the pie.

Franchises and international brands have taken note of the market with chains such as McDonald’s, Domino’s, Cheesecake Factory, Pizza Hut, Costa Coffee, Red Lobster, Olive Garden, TGI Friday’s, and Texas Roadhouse, as well as several others dominating the fast food and casual dining segment. Kuwait is seen as a key market in most brands’ international expansion plans as evidenced by new entrants in the market each year. After exiting the Kuwait market in the 1990s, the American fast-food

franchise Dairy Queen is back, entering the Kuwaiti market once again in 2015, along with its re-launch in the UAE. Though franchising has been dominant, leading Kuwaiti restaurateur and entrepreneur Basil Al Salem, Managing Director & CEO of Gastronomica ME, explained that what he is seeing from consumers is actually a deviation from the cookie cutter franchise outlets, and a move towards one-off, original food concepts that emphasize quality, a trend he says is not just Kuwaiti or regional—but global. The owner of Kuwait’s top selling, premium burger outlet, Slider Station (a non-franchise, original concept), described the dynamics as follows: “Markets in the region are generally saturated; therefore, success will depend on how innovative our product is and how consistent it is in terms of quality. The model of low cost ingredients and low selling prices just doesn’t work anymore. Wherever you see a McDonald’s, there is always something better right next door to them. People are concerned about their health and what they eat. These concerns have an affect on long-term brands.”

Precise calculations of the value of this segment of the Kuwaiti economy are hard to come by, but estimates by Al Masah Capital Research in an April 2014 report indicate that annual revenues of consumer foodservice companies in Kuwait have hit $1.7 billion. The largest segment being fast food, followed by full-service restaurants, and the café, coffee/tea house, and bakery segment. Trends show that demand is increasing for quality food services, restaurants, and cafés—whether franchised international brands or original home grown concepts.

With one of the highest per capita incomes in the GCC, Kuwait is expected to contribute $189 billion of the GCC’s $2.2 trillion economy by 2020 (Al Masah Capital Research). It is young, multinational, multicultural, globalizing, and expanding population will drive further consumption habits in this sector moving forward as food is and will remain a major part of Kuwaiti social life and its consumer culture. ✖

BASIL ALSALEM *Read the full interview at thebusinessyear.com

Managing Director & CEO, Gastronomica ME In what way is Kuwait a trendsetter in the Gulf?

Kuwaitis are travelers by nature, which means they have a more sophisticated and developed palate. They are more adventurous and open when it comes to retail, be it food or fashion or anything else. In food, original restaurants are definitely trending now. Retail is the most viable opportunity available to entrepreneurs in Kuwait, especially in food and beverages, particularly because most other sectors, such as technology or even light industries, are harder to get into. That is why food is getting saturated. It is a lucrative business as people use their disposable income to spend on

retail, food, and lifestyle. Markets in the region are generally saturated; therefore, success depends on how innovative our product is and how consistent it is in terms of quality. The model of low cost ingredients and low selling prices just doesn’t work anymore. People are concerned about their health and what they eat. These concerns have an affect on long-term brands. The new generation is changing the whole industry, and not even just the food industry; however, they are also erratic in their consumer habits. It is hard to design something for younger people and stay dynamic in a way that makes business sense.*

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Dharar Abdullah Al Dakhil, Chairman of YIACO, on its leading role in the country’s healthcare sector.

As Kuwait’s healthcare sector expands in new directions, maintaining world-class standards becomes ever more vital.

E Sheikha Al-Zain Al Sabah, Under-Secretary at the Ministry of State for Youth Affairs, on nurturing the next generation.

Health & Education R E V I E W H E A LT H

Kuwait’s healthcare sector has a major opportunity to reform and expand—developing its services to cater to a burgeoning population, at home and across the GCC. This signals an opportunity for investors, as well.

T

he healthcare sector is moving forward since its implementation in the 1930s, becoming a regulated sector through several reforms and initiatives that are being implemented by the government. One of the key aspects that is making health sector develop is change in demography. Kuwait’s rapidly changing demographic, currently holds a population of 4 million (made up of 67% non-nationals from 80 countries) with high life expectancy at birth of 78 for men and 79 for women, according to the World Health Organization. Populations across the GCC are increasing, and Kuwait is no exception. Improved lifestyle and higher birth rates and life expectancies are creating demand for hospitals, health centers, and maternity care, childcare, and care services for the elderly. According to the WHO, total spending on health per capita was $2,375 in 2013, or 2.9% of GDP for that year.

HEALTHY & WEALTHY

Image: Nelson Garrido, AGi architects, Ali Mohammed T. Al-Ghanim Clinic

The growing population places pressure on the health service. In total, Kuwait is home to 2.9 million foreigners, mostly from India, Pakistan, Bangladesh, the Philippines, Egypt and Syria, in addition to 1.3 million native Kuwaitis. The country provides free medical services to citizens but expatriates must pay an annual fee of $165 each, besides paying reduced charges for some surgeries, certain treatments and procedures such as X-ray. The government of Kuwait is in the process of implementation of a new health insurance system for expatriates that will be fully equipped with a strong and comprehensive provider network.

PRIVATIZATION

Lifestyle and higher birth rates and life expectancies are creating demand for hospitals, health centers, and maternal, child, and elderly care services. Spending on health per capita was $2,375 in 2013, or 2.9% of GDP.

A major priority for the government is privatization of healthcare across the country. Central to this is its efforts to promote a health insurance that will cover all Kuwaitis, starting with the

KUWAIT 2016

retired. Steps are therefore being taken to widen access to healthcare, and the government started a mega project by establishing the Kuwait Health Assurance Company (KHAC). The KHAC has a starting fund of KWD230 million, which is being used to build 3 hospitals and 16 Primary Medical Centers that they will have capacity to attend more than 2 million expatriates residing in Kuwait under a government-sponsored medical insurance program. Kuwait’s expatriate community will also be fully covered by the KHAC, with access to hospitals and acrossthe-board medical services. This helps the efforts the government is making to reduce the current overcrowding situation in the country’s public hospitals.

In 2014, Kuwait announced a new investment plan worth $7 billion, to finance the construction of 10 new hospitals, adding 6,000 beds alongside a major upgrade of facilities nationwide. When this project is completed, the government estimates it will need an additional 15,000 healthcare professionals in the country. The plan sets out key targets to modernize the health infrastructure and laws to found the development projects, including the promotion of healthy lifestyle in order to adapt them to the needs of a growing population (1.7% per year). Almost 50% of the operating budget of the Ministry of Health is geared towards salaries and benefits. If the Compounded Annual Growth Rate (CAGR) stabilized at 7%, Kuwait’s Ministry of Health operating budget would reach about KWD 5 billion by 2030.

The new hospitals will be developed via a PPP with the KHAC, a partnership that is overseeing the expansion of the healthcare sector and the growing needs of Kuwait’s people, both expatriate and native. KHAC will

provide insurance to expatriates and provide services to insured members via the facilities it owns and manages.

A key partner from the private sector is the Gulf Insurance Group (GIG), whose subsidiary company, the Kuwait-based Gulf Insurance and Reinsurance Company, is working closely with the KHAC to roll out its investments and coverage.

The new facilities include 15 primary care centers. Currently, Kuwait has just 19 hospital beds per 10,000 people—a big shortfall but one that is being addressed. Obesity levels have reached 80% in women and 70% in men.

Although the population is young, Kuwait is in the 13th position in the world for obesity and 7th for diabetes, according to the World Health Organization (WHO) reports. Almost 55% of Kuwaitis have higher than recommended levels of cholesterol. Official estimates from the WHO show that non-communicable diseases (NCDs) will constitute more than 60% of burden of disease in the Gulf region by 2020.

Although Kuwait’s Ministry of Health is the owner, operator, and regulator of healthcare services and accounts for more than 80% of healthcare spending, many citizens are willing to get private treatment paying a bit more. The private sector is estimated to represent 15-20% of healthcare spending in coming years. In terms of amount expended in healthcare projects, the evolution moves from KWD1.56 billion in 2014 to KWD 1.67 billion in 2015—an increase of 6.9%.

The Kuwait Health Insurance Conference, held in May 2015, was a key opportunity for the government and the KHAC to promote the program for moving to a system of mandatory health insurance for every resident of Kuwait.

ABDULLAH AL ASKARI Managing Director, C Club How would you describe the health challenges facing Kuwait’s population?

It can be difficult to maintain a healthy and fit lifestyle in this culture; Kuwaitis eat well, take afternoon naps, and often stay up late. Another challenge is addressing the gap in nutritional education both at home and in school. Kuwait ranks second in the world for obesity and diabetes rates among children, and this has to change fast or it will lead to further complications in regards to health and the wellbeing of the population. Children’s eating habits need to be improved. The Ministry of Education needs to introduce healthier school lunches, as well as raise standards and awareness.

What opportunities exist for more private investment in the health sector to help Kuwait’s population take healthy steps forward?

Everything can change at school and at home.

Sports and athletics used to be more present and highly promoted in schools, which is not the case anymore. Parents nowadays give their children iPads and iPhones, which they use in school, and game consoles to keep them occupied at home. These habits can lead to laziness and a general lack of movement and initiative.

More people are eating junk food or ordering food to be delivered. Healthy habits need to be learned from a young age.*

*Read the full interview at thebusinessyear.com

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The National Development Plan (Kuwait Vision 2030), stretching to 2035 and costing around $110 billion, aims to add 3,500 beds to hospitals and boost healthcare facilities.

When this project is completed, the government estimates it will need an additional 15,000 healthcare professionals in the country. The plan provides ideas to modernize the health infrastructure and laws to found the development projects, including the promotion of healthy lifestyle in order to adapt them to the needs of a growing population.

MEDICAL TOURISM According to recent reports on Medical Tourism, in Kuwait the total amount over one year (2014-15) for medical care overseas is about KWD 1 billion. The total of expenses for overseas treatment increased from KWD 155.2 million in 2013-14 to KWD 246.2 million in 2014-15—representing a hike of 58.63% within a year. This service gives the possibility to send citizens abroad for treatments that they are not available in Kuwait’s hospitals. Currently, the main department responsible to manage this service is the Overseas Medical Treatment Department at Kuwait’s Ministry of Health. This service allows the possibility of sending patients abroad for treatment, in case the treatment is not available in Kuwaiti hospitals.

This has become one of the key planks of the Ministry of Health reforms. In 2014, Kuwait introduced measures that allow the ministry to manage and control levels of medical tourism with the aim of achieving a reduction of 50%. It drastically reduced the number of hospitals that state-aided tourists could use, and make it harder to go abroad for the treatment. From 2013 to 2014, the number of patients sent to London fell dramatically, from 1,100 to 500.

PHARMACEUTICALS Regarding the pharmaceutical situation in the country, the preference for both, medical specialist and patients for branded products, will make the sector dominated by multinational drug makers. The 4Q2015 Pharmaceutical Risk/Reward Index ranks Kuwait at the position 53.7 out of 100. The country has dropped from its position as the third most

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attractive market in the region to the sixth most attractive, falling from a 3Q2015 score of 56.1. While the population is still adopting non-healthy ways of lifestyle, the levels of diabetes and also obesity will continue to increase each year. Increasing insurance coverage and rising income levels will lead to greater spending on diabetes, and commercial opportunities will be sought by multinational pharmaceutical companies and providers.

Nonetheless, foreign companies are starting to take note of the challenges ahead, and recognize the potential for early investors, in what is one of the best-regulated and fast-growing healthcare markets in the Middle East.

GE Healthcare is investing for growth in Kuwait and committed to being a partner and help the country to grow in terms of healthcare, public and private. Kuwait’s medical facilities such as the expansion of Dabous Cardiac Center and the Sabah Al Ahmad Cardiac Center incorporates the GE Healthcare Revolution CT, one of the latest CT technologies created to provide high quality imaging of the heart that will help to prevent cardiac disease in the country. Revolution CT images allow to the healthcare doctors to make more confident actions and may help to prevent more expensive and invasive procedures, particularly for cardiac patients with high or irregular heart rates. According to official estimates, the spent in pharmaceutical sector move from KWD 287 million in 2014 to KWD 300 million in 2015, an increase of 4.7%.

OPPORTUNITIES The potential for foreign companies to invest in Kuwait’s health industry is huge. Those companies offering dental-lab equipment, pharmaceutical and hospital supplies, and specialized systems and technology have a great niche to keep an eye on. In addition, there is an increasing focus and demand for specialized services including laser, nanotechnology, and molecular medicine. Surgical instruments are also in high demand, as well as diagnostic or laboratory equipment in the fields of orthopedics, trauma care, ophthalmology, cardiology, oncology, radiology and radiotherapy, and healthcare information.

The challenge for the government is now to ensure that the high levels of PPP investment seen since 2013 are maintained if the goals for 2020 are to be realized. A key part of realizing universal (mandatory) coverage is through education. The new program, to be unrolled through 2016, seeks both to educate the population on the benefits of healthier lifestyles, and inform on the role of private health insurance in everyday life. ✖

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INTERVIEW

best PRACTICES TBY talks to, Dharar Abdullah Al Dakhil, Chairman of YIACO, on its leading role in the country’s healthcare sector and the outlook for investment patterns in the market.

What is YIACO’s role in supporting large government projects and the national needs of Kuwait’s healthcare sector?

How do you view YIACO’s contribution to the healthcare industry in Kuwait and the region today?

Since beginning operations in the 1950s as one of the first pharmaceutical companies in the entire region, YIACO today has achieved a strong market share and product diversification that is vast compared to other companies in the sector.

Our product portfolio covers a wide range of pharmaceutical brands and medical equipment with partners and principles such as Pfizer, Sanofi, AstraZeneca, and Johnson & Johnson. We play a major role in Kuwait’s healthcare sector by supplying both retail and wholesale distribution to the Ministry of Health, Ministry of Defense, and to the private sector as well. We have the knowledge and the infrastructure necessary to continue meeting international standards, often achieving an even higher level than those required through our quality assurance programs and by applying international best practices. We continuously hold seminars and educational gatherings between doctors and industry professionals to ensure international best practices. These programs are aligned with our international principles to follow suit in worldwide trends and healthcare improvements.

YIACO has continuously supported the government in its projects from the very beginning, since Kuwait’s healthcare sector is reliant on public health. We offer pharmaceuticals through our wholesale division by providing a full range of medication along with medical equipment for the government’s needs. We also were part of the first governmental BOT project to build and operate Adan hospital’s radiology, nuclear medicine, and laboratory as a fully operational medical center. We have managed this governmental project for the past 10 years offering medical services to patients who reside in that area of Kuwait. We are also part of governmental initiatives to introduce medication and services to those suffering from diseases such as diabetes. We also liaise between ministry officials and our partners and principles to streamline and align both parties for the benefit of better services and products in the healthcare sector. These initiatives with the government are all aligned with the compliance and quality standards and solidify YIACO as a leading influencer in the industry.

What trends are you seeing in Kuwait in terms of healthcare sector demand today and moving forward?

We are unfortunately seeing a lot of demand in the blood pressure, cardiac, and diabetic segments. These are currently the segments with the most focus and urgency in Kuwait.

We rely on our principals to

ensure that we have everything necessary to meet these needs.

Looking to the future, we make sure that we are communicating further market needs to our principals when it comes to medical R&D and innovation; we work alongside our principles to pursue products and services worldwide rather than just in Kuwait, which allows us to look beyond what is only available here. What we are seeing is that as the population continues to grow, the focus in the healthcare field will increasingly shift toward the elderly. YIACO is aware of this shift in the healthcare sector needs and along with our partners and the MOH we will be focusing on these needs. As part of this initiative we are looking into homecare and nursing care to expand in Kuwait. The Ministry is looking to put together health insurance for the elderly and we are working with it to ensure that we comply with that when the time comes.

What areas would you highlight as opportunities for further investment in Kuwait's healthcare sector?

There is a crucial need for building and expanding hospitals in Kuwait. With government support, investors can do a lot to close the capacity gaps remaining in our healthcare facility infrastructure.

Notably, the Jaber Al Ahmad Al Jaber Al Sabah Hospital, the largest in Kuwait, is going to be delivered in 2016. With this new project serving the population, the healthcare companies will be able to participate and get more involved in investing toward Kuwait’s healthcare sector. ✖

IN NUMBERS

30% market share

35

pharmacies: the largest network of its kind in Kuwait

BIO Dharar Abdullah Al Dakhil is the Chairman of the Board of Directors of YIACO Medical Company. An MBA graduate who is also certified as an International Financial Analyst, he has built his career in Kuwait in banking and investment.

Since the early 2000s, he has worked at several banks and an investment company establishing himself in financial analysis, Islamic finance, and financial and credit risk. He is currently also the Deputy General Manager of Credit Risk at the Kuwait Finance House (KFH).

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INTERVIEW

TAKE GOOD healthcare TBY talks to Ghassan M. Mamlouk, CEO of Advanced Technology Company (ATC), on the state of the healthcare sector and boosting the role of technology.

What kind of activity have you seen in the Kuwaiti healthcare system in terms of construction of new hospitals and the expansion of existing ones?

BIO Born in 1958, Ghassan M. Mamlouk attended Mission Laïque Française / Lycée Abdel Kader in Beirut, followed by obtaining his BA in Business Administration from the University of Central Florida. He established a specialized dental supplies company in Lebanon in 1982, when he decided to relocate to Kuwait in 1989 after the Lebanese civil war. He joined Advanced Technology Company (ATC) in 1989 as the Dental Division Manager and made Kuwait his home.

He steered ATC into a successful reorganization and expansion and was promoted to Commercial Director in 1995 and to General Manager in 1998.

Having moved the company into a leading position in Kuwait, he was promoted as CEO in 2003. Under his leadership, ATC was listed on the Kuwait Stock Exchange in 2007.

Three years ago, the Kuwaiti government realized the need for new hospitals and new facilities, as the last hospital built in Kuwait was about 40 years ago. Lately, demand has also risen. The bed capacity in the hospitals under the Ministry of Health (MOH) in Kuwait is around 7,000, but considering the demographic trends in citizens and expats, the government saw an urgent need to double that number. Out of eight tenders awarded so far, we have been able to form partnerships with a significant number of awardees. In September 2015, the MOH inaugurated a hospital expansion project of 240 beds in the shape of Al Razi Hospital. Al Razi Hospital has a physiotherapy and rehabilitation center, dealing mainly with orthopedic surgery. The majority of the rooms are private and semi-private, meaning there are one or two beds in each room and no wardrooms with four or more beds, providing privacy to patients. The hospital also has rooms specially designed for obese patients.

The hospital has infrastructure designed to carry it well

into the future, to where it could even become a paperless hospital.

What are you seeing on the cutting-edge of medical technology?

Integration is rapidly evolving. People are looking for paper-free hospitals and automation, whether in the lab, radiology, or elsewhere, so that they can get their results as quickly and as efficiently as possible, ensuring faster and more reliable transfer of data between the various departments of the hospital or even amongst various clinics and hospitals in the country.

This is possible through innovation and technology, and is how you can achieve total integration at healthcare facilities around the country.

To be able to provide this integration, you must have a diverse portfolio and expertise within your own organization in order to be able to implement this properly and fully, and that’s what puts us a step ahead of the competition. We partner with all the big names in both the public and private healthcare industry, and we do not only act as a distributor, but as a partner. We have long-term relationships both with our customers and with the international suppliers we represent.

IN NUMBERS Provides

95%

of a hospital’s designbuild needs and total solutions

Sub-contractor for all medical equipment at

240

bed Al-Razi hospital, opened in October 2015

What is your outlook on healthcare expansion in Kuwait and what are your expectations for future demand?

Adding new facilities and expanding or renovating existing facilities has gone a long way to helping meet current demands in Kuwait’s healthcare system. Many of the shortcomings in the healthcare facilities of the country are taken care of by the new facilities. The government’s new facilities, the doubling of bed capacity, the introduction of new technologies, the sourcing of experts from abroad, continuous government-run education programs, affiliations with international bodies, and the exchange of data all help to take care of future demands as they are forecast to arise. ✖

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FOCUS BUILDING LOCAL CAPACITY

CARE PACKAGE Demand in terms of the quality and quantity of healthcare services and capacity is growing rapidly as Kuwait’s expanding population—rising both in income and life expectancy—creates challenges for the country’s healthcare infrastructure and workforce.

LIKE MANY OTHER GCC COUNTRIES, Kuwait relies heavily on government funding to meet its healthcare infrastructure needs, with the state contributing over 80% of total investment in the sector. The MoH has allocated a massive budget—$4.37 million—toward seven healthcare projects in the country, either newly built or expansion projects, many of which are already underway according to the Kuwait Times. Additionally, for several years, a large portion of the Ministry of Health’s budget has been spent on sending Kuwaiti citizens abroad to receive treatment when gaps in the local healthcare provision prove inadequate or when certain treatments are simply not available in Kuwaiti hospitals. To put it in numbers, an estimated $702 million was spent by the Kuwaiti government on treatment abroad from 2013-14, according to Ministry of Health (MoH) data. Local capacity building is required in order to ensure that the right quality of care can be provided locally, reducing expenditures in the longer term. The MoH is paying even closer attention, as Kuwait’s state budget drops as a result of depressed oil prices on the global market.

The MoH’s flagship capacity-building project is the Sheikh Jaber Al-Ahmed Al-Sabah Hospital, the largest of the Ministry’s planned hospital developments. Designed as a multi-purpose city, it will be the largest medical center in the country, adding about 1,200 beds to the total national capacity, with state-of-the-art medical equipment and services. The hospital is being built in Kuwait’s South Surra area, and will be open in 2016.

When it comes to expatriate care, the government is encouraging the use of private facilities.

Back in 2014, as part of a PPP model, the Kuwaiti government set up a shareholding company with $756.5 million in capital, of which it owns 24%, to establish three hospitals with a total 700-bed capacity, as well as 15 polyclinics that would service expatriate healthcare needs.

Kuwait’s healthcare workforce is dominated by expatriates, and the sector is experiencing major challenges in attracting, retaining, and developing local human capital. Fostering the talents of more Kuwaiti nationals in the sector would create a more sustainable system, as there is currently a shortage of Kuwaiti healthcare professionals and a lack of qualified physicians, nurses, and paramedics in the sector.

Dr. Mohammad H. Al Mutairi, President of the Kuwait Medical Association, explained the issues facing the sector in an interview with TBY: “There is an actual shortage in the number of doctors compared to the fast-growing population and the expansion of the health sector. This is not peculiar to Kuwait, as it is a challenge facing several developing countries around the world. Yet Kuwait is also having difficulties in retaining its doctors, as competitive employment offers in the private sector in other Gulf countries are more attractive compared to the government sector. Kuwait is also experiencing shortages in certain specialties, such as critical care doctors, and we also lack a set of local practice guidelines to organize the specialty.”

Increasing local capacity in the healthcare sector, by adding beds and raising the number of qualified Kuwaiti medical professionals employed in the sector will serve to build a stronger healthcare system in Kuwait.

In addition, a continued emphasis on quality of care, preventative instead of curative treatments, and the promotion of healthier lifestyle habits will also be key to enhancing the overall health of Kuwaiti society, and will reduce the burden on state expenditure. As the nation’s expanding population places increased pressures on the sector’s ability to meet demand, investing in healthcare is not just a top priority but a necessity for the effective realization of the government’s vision for the future. ✖ Image: KuLouKu

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B2B

health SERVICES DR. JOANNE HANDS

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

Clinical Director & Therapist, Kuwait Counseling Center & President, Middle East Psychological Association (MEPA)

DR. ESSA ALESSA Founder & CEO, Asnan Tower

What were the hurdles you encountered when getting your practices set up?

DR. JOANNE HANDS My husband and I co-founed the Kuwait Counseling Center in 2011.

I am a psychologist and, after being in Kuwait for five years, I noticed the need that was here.

It was a very key time because I felt that the community was opening up to the idea of going to a psychologist, to therapy, and having psychological consultations—and not necessarily because they were “crazy,” like they used to say. People started opening up to the idea of psychology, but there were very few people in the field offering these services in Kuwait, especially those who are licensed and ethical. I felt it was a good time to establish this center.

The Kuwait Counseling Center was the first psychological center in Kuwait that offered nutritional services as well. We had a different approach of giving more personalized services to the clientele. From there, we started expanding.

DR. ESSA ALESSA When I graduated from dental school and returned to Kuwait, I wanted to open a dental clinic right away.

I created the logo and started the paperwork. Then, I came

As Kuwait’s healthcare sector expands in new directions, maintaining world-class standards becomes ever more vital.

to know that the law in Kuwait doesn’t allow dentists to practice in the private sector until they have five years of practical experience. It was a disappointment, but I decided to utilize those five years to the maximum. I applied and started seeing patients in Ministry of Health facilities in Kuwait and quickly realized some deficiencies. We understood that real dentistry starts and ends with education, because you want to prevent problems before they happen, but doctors in the government were overwhelmed with high numbers of patients and did not have the time to educate patients on how to brush and floss. One year later and utilizing the same logo, we created an educational website, asnan.com, in both Arabic and English to inform people about dental health. The website did well, and the Arabic world began taking notice. Then to reach more people in Kuwait, we created Asnan magazine in 2005. The magazine was successful and, three years later in 2008, we moved into the private sector and created Asnan Clinic. People were shocked with the quality of the work and very soon we saw the need for expansion. Most dental clinics in the world expand geographically, but we decided to expand

vertically and created a dental hospital, Asnan Tower, in 2012.

Where do you think Kuwait’s healthcare sector has the most need for investment?

JH I would say within the health sector, the psychological field is an area that is under explored.

We don’t have even one general hospital in Kuwait that offers psychological services. Why? All over the world they are as present as gynecological offices or dentists. This is an area that needs to be integrated into the healthcare sector. As I am currently the President of the Middle East Psychological Association (MEPA), an international affiliate of the APA, this is one of my goals to work on and see happening in Kuwait.

What is most exciting for you when you look ahead to 2016?

EA We are extremely excited with our growth patterns. Our patients are satisfied and are referring their friends and families to our practice. If you are providing quality services in the field of medicine, it speaks volumes. As a doctor, seeing the vitals, positive signs, changing people’s lives, and making them smile are the most exciting moments. ✖

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INTERVIEW

large ROLE TBY talks to Dr. Mussaad M. Al-Razouki, Chief Business Development Officer of Kuwait Life Sciences Company (KLSC), on the company’s main investment areas.

What are the main focus areas of the KLSC investment strategy?

KLSC was started back in 2010 as the Life Sciences Operational arm of the National Technology Enterprises Company (NTEC), which was formed in 2002 and is fully owned by the Kuwait Investment Authority (KIA). With NTEC’s capital of roughly $350 million, it created three operational companies, each with $50 million in capital and each catered toward a specific sector of technology.

KLSC is focused on the life sciences sector, which includes healthcare as well as pharmaceuticals and biotechnology.

As a company owned by the government, it is important for us to be a catalyst for the life sciences industry not only for Kuwait but for also the region. Our strategy is based on a combination of understanding the local context and bringing in international best practices. Therefore, we like to partner with the private sector when we can and help private-sector companies grow.

Healthcare and the life sciences industry is a large part of the economy worldwide. It is important for us to decide where within the sector we would like to invest. We developed a strategy back in 2010 to focus on five key areas. First is knowledge transfer. Second is improving clinical research.

Third is developing intellectual property here in the region.

Fourth is supplying the pharmaceutical industry. And fifth is bringing in new medical technologies. In each of these

Fully owned by the National Technology Enterprises Company (NTEC)

five strategic clusters, we have developed platforms, whether by investing in companies or by building a company from scratch.

How do the KLSC’s investments support knowledge transfer and development of the local and regional healthcare sector?

We started by establishing and investing in NewBridge Pharmaceuticals, which deals with intellectual property and distribution in the pharmaceutical space and is currently based in Dubai. NewBridge licenses international pharmaceutical companies and then helps them distribute their products in the region.

The second company we have invested in since 2011 is Clinart MENA, which is a clinical research organization (CRO) that provides a one-stop shop service for running clinical trials for governments and pharmaceutical companies in the region. There is a global trend whereby multinationals pharmaceutical companies are developing targeted therapies on regional genomes, for example for the Middle East,

and to achieve this level of specificity, these companies need to do trials on people from this region. Innomedics is the third company we have incubated and is focused on bringing in the latest medical technology, and has differentiated itself in the market also by importing and distributing products in consumer health, i.e. products that actually impact the consumer directly.

We have also incubated a fourth company called the Life Sciences Academy (LSA), the first training academy in the entire Middle East focused on the life sciences industry. Our fifth platform investment is a company called Ecore, which commercializes the active pharmaceutical ingredients (APIs) that go into the drug manufacturing process. Our vision for Ecore is to expand its services to be a combiner and manufacturer of APIs. What role can the private sector play in ensuring the sustainable development of Kuwait’s healthcare sector?

At KLSC we are always looking for ways in which to stimulate the private sector to invest and co-invest in the healthcare industry, particularly in niche healthcare plays and platforms. I encourage private-sector investors in healthcare to invest earlier within the healthcare industry life cycle and to also maintain a broader and longer investment horizon to support increased innovation and improved quality in the healthcare sector. ✖

BIO Dr. Mussaad M. Al-Razouki is the current Chief Business Development Officer of Kuwait Life Sciences Company (KLSC), where he is responsible for identifying new business opportunities for all KLSC subsidiary companies as well as sourcing investments opportunities for KLSC corporate. A graduate of Columbia Business School, he is the first ever Arab national to receive an MBA with a focus on Healthcare Management and Finance.

An Oral and Maxillofacial surgeon by training, he has completed clinical rotations at the world’s leading hospitals, including New York Presbyterian Hospital of Columbia University Medical Center, Harlem Hospital, Cleveland University Hospital of Case Western Reserve University, and Mass General Hospital of Harvard University. In 2007, he joined one of the world’s largest and oldest strategic consulting firms, Booz Allen Hamilton, which at the time was operating in over 100 countries across six continents with $4 billion in revenue. He was recruited from New York to the Dubai office, where he built the Middle East Healthcare Practice by leading a wide variety of projects across all five dimensions of healthcare.

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The country’s education system is beginning to incorporate a curriculum to prepare students for a career in an increasingly entrepreneurial and globalized world by enlisting help from both the public and private sectors.

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E D U C AT I O N

GAME CHANGERS As Kuwait continues to experience significant population growth, its schools are becoming more crowded and thus creating an education sector that is ripe for both investment and growth. Moreover, as the country looks to become a country known for more than its oil, allocating significant financial resources to bolstering its education sector to meet the needs of education tracks outside of the oil industry is vital. The government has quickly realized that in order to shift its workforce away from being heavily dependent on the petroleum industry, significant overhauls and reforms at every level—from early to higher education—to its current education in order to create a diversified and educated work force that will help mold the shape of the country’s future in both economic and cultural terms.

Education sector officials in both the private and public sector have voiced concerns over the slow pace of policy reforms, citing the need for an ironclad legal framework that will allow schools to be proactive in addressing ongoing staffing shortages. In a bid to guarantee that implementation of such reforms is done in a manner to maximize efficiency, the government announced in early 2013 that the education sector was to receive a massive influx in funding of upwards of $1 billion over five years. The government announced that a significant portion of the money would be allocated to funding new buildings as well as offering state-of-theart training courses and seminars to help Kuwaiti teachers and administrators adapt with the rapidly modernizing educational methods being used worldwide.

Following sweeping education reforms in 1965 that made education compulsory from ages 6 through 14, Kuwait’s education system has undergone multiple efforts to focus on a long-term strategy to incorporate curriculum with the growing needs of a more globalized world. The education system is structured in four levels and lasts a total of 14 years: kindergarten (two years), primary, (five years), intermediate (four years), and finally, secondary, which is three years. According to 2013-14 figures provided by Kuwait’s Statistical Agency,

Kuwait has 604 total schools, with 29 of them dedicated to special education. Its sector is staffed by 60,902 teachers, both Kuwaiti and non-Kuwaiti. Government expenditures on government spending reached a total of over $5.5 billion in 2014—or 9.5% of the state budget, according to the Kuwait Times. In spite of the levels of spending, however, Kuwait’s education system has recently experienced several hardships, especially in terms of teacher payroll and falling rankings among other GCC countries as well as globally. Expatriate staff are estimated to comprise 84% of the labor market within the system, Kuwait has outlined a number of policy reforms to reduce the number of foreign workers by 1 million from 2013 through 2023, averaging 100,000 workers each year.

Higher education in Kuwait is monitored by the Private Universities’ Council (PUC), which is a government institution chaired by the Minister of Higher Education and eight other designated education scholars. The PUC is tasked with admissions requirements, accreditation, and curriculum approval. Because Kuwait has such a specialized workforce, the government has funneled money and resources to encourage its citizens to consider vocational training programs offered by the Public Authority for Applied Education and Training (PAAET). Additionally, given that the country is heavily reliant on its oil industry, the public and private sectors are now offering programs that emphasize entrepreneurism to complement existing university courses and areas of study. Kuwait University, the country’s first and only public institution, is one of the most well-known and highly respected universities. It has experienced sustained growth since its inception and is a flagship in the higher education sector. The university has also recently won several awards recognizing its focus on designing more effective methods of integrating e-curricula in to areas of study.

FOSTERING ENTREPRENEURIALISM Mirroring the growing need for a more diversified workforce, several organizations and partnerships have been formed in order to help

Kuwait University, the country’s first and only public institution, is one of the most well-known and highly respected universities.

It has experienced sustained growth since its inception and is a flagship in the higher education sector.

KUWAIT 2016

cultivate entrepreneurialism among Kuwait’s younger generations. One such company, INJAZ Kuwait, announced a partnership in November with Citi Foundation in order improve financial literacy and soft skills, while also boosting an interest in entrepreneurship. The two initiatives—the Company Program and Innovation Camps—will target a total of over 9,620 young adults across the MENA, while the Company Program is expected to reach an approximate 310 students in Kuwait alone.

In tandem with The Citi Foundation’s commitment to economic progress among young adults by providing a plethora of opportunities in enterprise education, the INJAZ Kuwait program stimulates students by allowing them to conceptualize, organize, and operate an actual business.

In a recently completed study funded by The Citi Foundation titled “Unlocking Arab Youth Entrepreneurship,” it was reported that the majority of students who successfully completed INJAZ’s Company Program had refined critical thinking skills, developed more initiative and self-motivation while equipping themselves with other necessary skills.

In an interview with TBY, INJAZ-Kuwait CEO Rana A. Al-Nibari emphasized the importance of such programs in a country and culture such as Kuwait. “INJAZ over the past year has been involved in working with government, private sector, and relevant bodies in driving youth engagement in different forms. Our values remain: belief in the boundless potential of young people, respect for the talents, creativity, perspectives, and backgrounds of all individuals, conviction in the educational and motivational impact of relevant, hands-on learning, commitment to the principles of market based economics and entrepreneurship, belief in the power of partnership and collaboration, passion for what we do, and honesty, integrity, and excellence in how we do it.”

HISTORY LESSONS In 2003, the World Bank began what was termed “a modern program of education reform” when a Bank team held a Public Expenditure Review in order to outline key points and areas in which to assign national indicator reports that would help facilitate more accurate data as well as introduce different administrative approaches to outlining budgets and structuring finances.

Special attention was also given to improving efficiency of both national and international learning assessments.

After outlining the initial framework and marks that the group would be basing its progress on, the World Bank worked to implement and execute initiatives that would strengthen the Kuwaiti Ministry of Education’s (MoE) information systems and education assessments.

After establishing these parameters, the World Bank and the MoE worked in tandem to begin pinpointing areas in which to improve general education, beginning with curriculum develop-

ment, teaching leadership, strengthening the education center, and developing an agreed upon standard to be applied across the country.

According to the World Bank, new school leadership best practices and policies were tested in 48 schools, a series of pilot programs meant to gauge the effectiveness of several different areas agreed upon within the initiatives, which included new job descriptions to define roles and responsibilities for principals, assistant principals, and teaching staff; the addition of a Vice-Principal for Student Affairs for student support services; a new School Improvement Unit for collecting, analyzing, and disseminating students’ achievement data to staff; and a series of regulations and procedures to streamline the governance and functioning of schools.

As a second stage of further implementation of initiatives to improve education in Kuwait, the World Bank, in cooperation with the MoE, and the National Center for Education Development (NCED) began developing and modernizing in four major areas: curriculum, school leadership, assessment, and educational standards—areas that were focused on in the previous stages of the study.

According to the World Bank report outlining the mechanisms of the program, the first stage of curriculum development and enhancement revolved around five main points, including the training of 12 MoE subject matter expert teams that totaled approximately 130 members on modern curriculum development for both primary and intermediate levels, the completion of the Kuwait National Curriculum Framework, Implementation Plan and Communications Plans for National Curriculum Reform, and “Teaching Plans” for primary, intermediate, and secondary stages, the creation of new competency-based national curricula and standards for primary stage subjects, the creation of new competences-based curricula for 12 intermediate subjects, and technical reports analyzing MoE textbooks and samples of primary stage textbooks.

In identifying the crucial elements of developing effective school leadership, the program advocated for technical support for leadership policy reforms concerning the restructuring of schools, job descriptions, and administrative procedures for both the MoE as well as the Civil Service Commission. In terms of the development of national education standards, the program helped to outline the development of general standards to teachers and administrators, as well as cementing curriculum guides.

An additional cornerstone of the World Bank’s program was dependent upon strengthening the National Center for Education Development, which required providing technical assistance for MoE and NCED staff for training purposes in five areas: test management, test administration and development, field operations, data management and analysis and the release of test results. ✖

ISSAM TALEB Director, Institut Français (French Institute) How dominant is the French Institute's role in promoting French culture and ties in Kuwait?

The French Institute in Kuwait is the main cultural arm of the French community and the French Embassy in the country.

We teach French from beginner to intermediate levels for those interested in going to France for tourism, business, or university studies, as well as to those who want to learn to speak French.

The main purpose of the French Institute is to promote the visibility of French culture in Kuwait. We organize events and promote the French culture, but always with a link or side-byside the Kuwaitis as partners, financially or culturally.

What are your main goals and targets as Director of the institute?

The first goal is to enhance our visibility. We have the best French teaching facility in Kuwait; the venue itself is a nice place to come and have a cup of coffee, to meet people, speak French, and be in-touch with French culture. We hold exhibitions and we have many events such as debates, conferences, and many people from France come to the institute, but we lack the kind of activities and communication with Kuwaitis that are necessary to attract more involvement. The second goal is to enhance partnerships with sponsors here in Kuwait— not only Kuwaitis, but also the French and foreign community.*

*Read the full interview at thebusinessyear.com

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INTERVIEW

unique POSITION TBY talks to Dr. Hanan Al-Mutawa, CoFounder & Chair, Education Consortium, Executive Committee Member Supreme Education Council, on the education sector in Kuwait and challenges in the private sector.

What synergies exist between your roles at the Supreme Council and the Education Consortium?

The Education Consortium (EC) works closely with the Ministry of Education (MoE), the SEC, and NCED. We at EC, being a private non-profit organization, are in a unique position as we are usually invited to consult with the Kuwait government on a broad range of educational imperatives.

This relationship was established with the previous Minister of Education and Higher Education in 2012, because the MoE wanted to develop new strategies in developing national standards thereby creating synergies by integrating roles thus receiving the same benefits as the private schools and universities as is the norm around the world.

The MoE nominated private sector leaders from different industries, and, as a result, I was hand picked to consult on educational issues that would impact the future impetus of Kuwait.

In 2015, co-launched a five-year technical cooperation agreement focused on education reforms

What are the challenges facing private-sector education in Kuwait?

One issue the private sector is facing is a small smattering of unfounded doctrines that are enforced on the education system by the various Ministries. One example is the capping of school fees. This is the only revenue that schools in the private sector can depend on. When a stakeholder such as the MoE determines the fees, it puts unjustified pressure on the private sector.

Fees should be meritocratic

and based on quality. Schools that aim to provide the best quality hit a wall because they cannot legally command fees over the capped limit. The private sector has been given the freedom to bring in quality teachers depending on the taught curriculum. Owners should be in charge of managing their own respective businesses thereby fuelling Kuwait’s economy creating wonderful new opportunities. Another restraint on the private education system comes from the limit of certain nationalities of quality accredited staff we can bring in. For example, private-sector schools from the UK, the US, or Europe do not have an issue recruiting teachers to run their own curriculum, however other Asian-centric schools occasionally have issues recruiting as politics and discrimination mix with the delivery of quality education clouding objectivity and clear rational judgments.

What are your expectations for 2016?

Currently, the committee is set on finishing its five-year plan. One issue all industries are facing is what transpires when a Minister leaves their position. We obtain the required signatures when a Minister approves a plan, but if the Minster gets removed, however, we have to go back and start from the very beginning. The idea is for plans to stay in place, with or without a Minister. It is our hope that Kuwait will be in a fantastic position to move forward from 2015 to 2035 with a new educational constitution that has solid development in curriculum, teachers, students’ welfare, and moving our current highly traditional mode of teaching into the 21st century with the introduction of smart schools and playgrounds across Kuwait. ✖

BIO Dr. Hanan Al-Mutawa currently serves on the boards of various education-related government committees and speaks widely on strategy, management systems, competitiveness, healthcare delivery, and subjects related to business, government, non-profits, and humanitarian leaders.

She has been formally recognized for her work by way of awards and honors from numerous embassies and governments, with the recently formed non-profit Education Consortium being the latest award recipient for Inspirational Female Leader with Exceptional Tangible Business Results (UAE, 2015), Women’s Comprehensive Development Excellence Award for the Arab World for Cultural Development of Businesswomen in the Arab World (UAE, 2015), Outstanding Educational Service (UK, 2014), Outstanding Personal Achievement in the Education and Childcare sector (UK, 2014), and Female Entrepreneur of the Year in Europe, the Middle East & Africa (NYC, 2014).

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VOX POPULI

HIGHER EDUCATION EXPANSION As Kuwaiti industry becomes more high tech, universities are looking to educate and train the next generation of employees.

DR. NIZAR HAMZEH President, American University of Kuwait (AUK)

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UK is the only liberal arts institution of higher learning in Kuwait and perhaps in the Gulf region. Its distinctiveness from other private institutions of higher learning in Kuwait stems from the fact that it provides professional education blended with the tradition of liberal arts education, which is not the case for all private universities in Kuwait. Our programs emphasize not only in-class learning and teaching, but also outside-class experiences such as extra-curricular and co-curricular activities, tying in community service, for example, to provide the students with real-life experience.

AUK has made significant accomplishments over the past 10 years, and in that time we have been dedicated to improving the standards of education and working on program accreditations. Quality education need not only be provided through professional competency but also through the development of soft skills such as critical thinking, leadership, verbal and written communication, responsibility, and integrity.

When students graduate they should be ready not only to perform well in a skilled position, but also know how to be effective leaders who understand the impact of their decisions.

ence in addition to our Bachelor of Engineering Technology.

Master and PhD programs are also in our sight. We are now activating a research committee and developing our laboratories in order to offer applied research.

ABDULLA A. O. AL SHARHAN Chairman, Australian College of Kuwait (ACK)

PROF. DONALD BATES President, Gulf University for Science and Technology (GUST)

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here is no sense in educating people if they cannot get jobs.

There is a high demand for engineers because oil is the primary revenue generator here. GUST will thus look into incorporating programs in chemical and petroleum engineering. The medical sector is another major segment of the economy, so I can see us mov-

ing more aggressively into the medical management and administration field. As such, we will be looking to expand into the back-room operation for medical services, and teaching management and administrators of medical facilities.

This would fit in well with our business program. Developing a program in political science would also be a good opportu-

nity, as politics is a key topic in Kuwait, and we do not yet have a political science program.

Part of the DNA of Kuwaiti people is entrepreneurship, and we could look at developing some entrepreneurship programs, along with some incubators and research parks.

That would be another service to the community that would drive our growth.

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e are an integral part of industry. Our job is to supply young people with the skills they need to work in business and engineering. We have graduated over 4,000 students in 10 years; most of them have joined the private sector in areas such as oil and banking. We speak directly with employers to ascertain how and where our curriculum could be adjusted to their needs. We also plan to offer accredited training programs for our graduates based on our conversations with employers.

Close to graduation, we host career fairs where employers introduce prospective graduates to various job opportunities. Schlumberger for example is the biggest employer of ACK engineering graduates. In 2016 we hope to establish closer ties with industry and improve our project-based learning. At a later stage, we plan to offer a Bachelor of Engineering Sci-

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ENTREPRENEURSHIP FOCUS

LEARNING TO FLY The entrepreneurial scene in Kuwait is growing, as more entrepreneurial and business educational and training programs challenge accepted business practices and operate on the cutting edge of tech and business.

Kuwaitis who return home after getting their degrees abroad are often frustrated by the obstacles they face when starting new businesses.

Now, this sentiment has fueled an intensified entrepreneurial spirit in Kuwait. In line with the growing startup culture in the country, the number of educational programs and workshops on the theme of “entrepreneurship” has been increasing in Kuwait in recent years—with a particular focus on collaboration, knowledge building, and the sharing of expertise.

To support the growth of entrepreneurship, entrepreneurial education and related training programs are becoming more prominent in the country and are now taught at the high school, university, and adult/professional levels.

The following programs have made a name for themselves by challenging accepted business practice and operating on the cutting edge of tech and business.

*Read the full interview at thebusinessyear.com

Techstars Through a MoU signed with Kuwait’s KWD 2 billion National Fund for SMEs Development, Techstars, a global SME network, will be supporting Kuwait’s goals of developing its entrepreneurial landscape by providing leading technological support and training for entrepreneurs in the country.

Start-up Weekend Start-up Weekend Kuwait ran its third session in Kuwait in September 2015, and will run annually each year. The weekend is a 52-hour marathon of work, where teams collaborate to build business models out of their ideas, applicable to solving real life problems, then pitch in a competition for funding. Participants learn skills such as coding and how to value their target markets.

THRIVE Located in Kuwait City’s Global Tower, THRIVE Enterprise College is an initiative operated by Education Consortium (EC), an award-winning educational NGO based in Kuwait co-founded

by Dr. Hanan Al-Mutawa and Russell Byrne. In line with EC’s objective to upgrade the standards of education in Kuwait and the region, THRIVE’s

aim is to flip the model of business education. At its essence its a school, but in its methods, the college is incorporating a “learning by doing” philosophy, empowering students by bringing business into its classrooms, which don’t look like classrooms at all but are designed as boardrooms where students interact as they would in an office setting. Their motto and the motto of most entrepreneurs is: “learning by doing.” A Peter Jones Enterprise Academy, THRIVE is a unique offering in Kuwait’s education space and will begin taking students in 2016.

Sirdab Lab Sirdab Lab is a Kuwait-based business start-up accelerator, the first of its kind in the country. It provides support to entrepreneurs, particularly focused on digital products and tech startups, helping them to improve on the quality of their websites and applications and launch their businesses “from the basement to the boardroom”. It also hosts workshops, events, and programs for entrepreneurs as well as mentorships. The accelerator is known as the creative and supportive incubator behind a number of well known Kuwaiti start-ups that received assistance from Sirdab Lab’s in funding and streamline their business models.

INJAZ Through this NGO owned by Alghanim Industries, students between the ages of 11-24 years are being empowered by INJAZ, learning entrepreneurship and financial management skills that prepare them for economic success in today’s globalized economy. The organization’s mission is to create future business leaders out of today’s youth.

Brilliant Lab This Kuwaiti based entrepreneurship organization offers a program called Startup School whose objective is to help entrepreneurs put their ideas into a business plan, create an executive summary, and practice pitching their ideas to investors, peers, or potential partners.

There is a continued emphasis on the ways in which young entrepreneurs create a more vibrant private sector in the country, and this coupled with the increasing educational focus, will be key to making Kuwait’s entrepreneurial endeavors a success. This continued focus on entrepreneurial education and expertise will drive Kuwait’s entrepreneurial movement to greater successes.

Investors should take note that there is a passionate, young, startup ecosystem that is up and coming in Kuwait, and it show no signs of slowing down. ✖

SAUD AL-TAWASH CEO, Gulf Telecom How important is it to support the growth of tech-startups in the region, and what is Gulf Telecom doing to advance this agenda?

The Middle East faces a big challenge in the coming years, and it is more pressing than security, war, or political instability. Finding jobs for young people of the region will emerge as the most difficult obstacle in coming years. There could be up to 100 million young Arabs without jobs within the next five years. That is a serious problem, and unless both the public and private sectors address this problem, it is going to create a massive demographic problem. It is our duty to look at solutions to capitalize on this potential. The most effective investment will focus directly on young people, to train them, and to bring them to the next level.

We play our part in funding start-ups as part of our CSR activities in Kuwait and the region.

We fund young entrepreneurs and have established business incubators. We support and fund them, and provide our IT resources and guidance through things like supply chain management. The results have been successful so far. This helps Gulf Telecom satisfy our CSR requirements, and allows us to expand in different verticals. We have incubated many startups for young entrepreneurs in Kuwait and the Gulf.*

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FORUM

EDUCATION REFORM A large expatriate population and a young, local population with international aspirations means a wealth of educational options are on the table in Kuwait.

JENNIFER J. BECKWITH

REBECCA NESS

Founding Director, American United School (AUS)

Superintendent, American School of Kuwait (ASK)

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hen I first came here in 1996, I found the school to be a strong educational institution, but a big positive is that we have kept growing. We haven’t been stuck in a “this is how we did it 50 years ago” mindset. We have taken a look at 21st century skills to ensure that we are providing the education students need for the future. We have greatly expanded our AP program. From the beginning, we have always had students that had the capability of going to the top-notch universities and that trend continues. I think this school educates its students with the education they need for their future, because not everyone wants to go to a top-notch university. If that is what a student wants, we have got the education, but if you want other opportunities, for example, this school has excellent fine arts and music programs. I believe we have been the leaders in activities programs in Kuwait.

One thing that makes us different is that we are totally embedded in the US curriculum system. It is as if someone picked this school straight out of the US and placed it here. I am not sure if other schools have the same emphasis on arts and music as we do; we are sure to maintain a lot of consistency in the activities program so that programs do not fluctuate, and they continue to flourish.

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roblem solving and critical thinking are the essentials of the standards that we use to teach students. We no longer use rote learning to teach subjects such as math. Instead, we give students a problem and ask them what the possibilities are for solving that problem. Some students have a creative way of thinking that allows them to come up with a solution that the teacher may not have realized. We use collaboration with the kids. We do not mind our students collaborating, and our classrooms and hallways are set up for this. It used to be that you had to do the work on your own, but the world does not operate that way; students must learn to operate in a collaborative manner using teams, for it is teamwork that allows a wider viewpoint and build acceptance. This is what AUS does in classrooms with groupings, accelerated learning for those who need it, strategic intervention. and honors courses for those who want them.

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ANJUM MASOOD

DAVID BOTBYL

PAUL SHROPSHIRE

Principal, International School of Pakistan (Kuwait)

Superintendent, American International School, Kuwait (AIS)

Principal, The British School of Kuwait (BSK)

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n the years immediately after my arrival in 2006, 2007, and 2008, we achieved the best scores in the Pakistani education system worldwide. We have been working to reach even higher levels, not only in the Pakistani system, but in the British system as well. The quality of schooling here can match any other school in Kuwait, despite the fact that other schools charge much higher fees and higher teacher salaries.

That is a huge difference between us and others. Going to school here is much cheaper.

For example, we are charging only KWD400, whereas the British and others are charging KWD3,000-4,000. This year with the Pakistani system exams for grade 9, 10, 11, and 12, out of the top 12 exam positions, 10 were students at this school. It is certainly competitive, but the amount of opportunities that my school offers is equal to any of the other schools, even with their higher fees. The only thing that makes them different from us is the environment in those schools, because they have more money and bigger grounds. I cannot offer as much in terms of facilities, but in terms of the education here, you will not find anything negative about my school. As an example, with regards to science labs and computers, the British Council always comes to me for advice. The International School of Pakistan is also associated with the Cambridge system, which is a managing body for arranging exams. We attract students from many nationalities as well. This school is 80% Pakistani and then 20% other nationalities.

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his is my first year in the role. It is a continuation of me being part of this school for many years. I am striving to ensure that the institutional memory at AIS is sound. We know that most of our students tend to arrive at pre-K, KG-1, and KG-2, and they tend to stay with us the whole way through. Around 60-70% of our students who started in KG are here when they graduate. We have a commitment to them that every year, even if there is a new teacher or a new principal, the learning remains continuous, otherwise you get in the way of students’ progress. We try to provide a solid foundation so that the student experience here is grows from year to year.

We have students from 45 different nationalities. Roughly 60% of our students are Kuwaiti nationals and about 25% are from other Arab countries in the region. The remaining students come from all over the world. It is our mission to ensure that every student achieves their best and gets the most out of an AIS educational experience.

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SK is a founding member of the British Schools of the Middle East (BSME), which is a group of around 200 member and associate member schools.

Aspiring member schools must meet strict criteria to be eligible, and be inspected and approved by majority vote at the annual conference. Recently, the British Government recognized the value of the international education market to the British economy— billions of pounds per year in terms of direct and indirect revenue. Quite rightly, they want to put a seal of approval on British schools abroad that meet top standards and have developed the British Schools Overseas (BSO) certification. We trust that the November 2014 meeting of BSO schools in Hong Kong will lead to BSK being among the founding members of the Association of British Schools Overseas. Our existing BSO status entitles us to link with authorities in the UK and take newly qualified teachers through their induction year, which is a wonderful opportunity for both the teachers and the school. Kuwait is perhaps not the most scenic place in the world but there is something special and highly attractive about it nevertheless. One of our recruitment tasks is to explain Kuwait’s many qualities to candidates. From a professional point of view, it is certain that our teachers will enjoy working with students that are as smart, well behaved, and highly motivated as ours and with parents that are as attentive and supportive.

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INTERVIEW

on another LEVEL TBY talks to Russell Byrne, Co-founder & CEO of Education Consortium, on its role in promoting progressive educational curriculum and teaching methods in Kuwait and throughout the GCC. Education Consortium is an award-winning non-profit based in Kuwait, but with a reach across the GCC. What are your main aims in developing the education sector?

BIO Russell Byrne has over 25 years of practical experience in the education, retail and financial services sectors.

Having successfully founded and managed many businesses, his passions have led him to form the award-winning non-profit Education Consortium whose goal is profound academic integrity blended with real world applicability through experiential learning.

Recognized as a Fellow with the worlds’ leading professional management bodies, he is passionate about working with and helping individuals and organizations achieve their goals. He is on an empirical journey of discovery focused on entrepreneurial leadership and management, innovation and creativity, while continuing to grow his businesses in the GCC and the MENA region. His core strengths are enterprise and entrepreneurship, and business leadership and management, through creativity and disruptive innovation, specific to highlevel decision-making.

We market ourselves as an education management consultancy that provides advice on best practices in Kuwait and throughout the GCC. There is an inherent prescriptive nature in what people want here, but true education is about recognizing individual potential. However, the prescriptive system of education here is what caps that potential, and an individual can rarely grow in that environment. We aim to break the mold by providing individualized education platforms that will bring the state of play of education up to speed.

What are some of your local activities in Kuwait?

We regularly consult to companies all over the world that wish to establish themselves in the region. Furthermore, we have recently built and launched our very own Royal Britannia Kindergarten (RBK) along with Royal Britannia Academy (RBA), and are preparing to launch the Royal Britannia School (RBS) in Kuwait through our ties with British curriculum. In Kuwait, basic vocational skills, i.e. the “learning by doing” method is not incorporated into standard curriculum. We continuously work to flip the learning model. Although we have obvious and assessable pedagogical imperatives, our students lead the teaching and learning.

Is most effective method to advance your educational philosophy through the private sector or influencing national public policy?

It is impressive that the public sector has everything available to them; i.e. the resources, funds, and an unfortunate stranglehold on accessible space available for development. Kuwait has everything at its behest, but the prevailing issue is that with public sector education policy, the teachers rule. With the help of the National Center for Educational Development (NCED), we try to implement change at the policy level, but if the teachers do not want it, it just does not move forward. This is where we work hard to continue to flip the model leading the way in the private sector and influencing policy at the county level where students lead the learning journey.

What is the investment environment like in Kuwait’s education sector?

In the private education sector, there are a handful of players, and it is an extremely tight-knit community. Businesses are being sold from one owner to another, and it depends solely on who has the biggest piece of the pie. This is both a fortunate and unfortunate event, because the culture dictates the level of influence we have.

Education can sometimes become a transactional business here. The education sector is 90% government-owned, however they closely follow the 10% of the private sector players hoping to influence that

THRIVE academy will begin taking students in 2016

90%, because they want the results that we are getting in the private sector to flow into the public sector. Although investment in education makes sense, it is often viewed as a long-term strategy that does not yield a healthy profit quickly enough, therefore making it unattractive to most investors who commonly have shortterm outlooks in this region.

What do you hope to see in terms of Education Consortium’s future impact on the education sector?

No two educational institutions will be the same. There will be a shifting focus on creativity, innovation, technology, the arts and sports, and we will continue to challenge and change the pedagogies, epistemology, and paradigms that exist here. It is crucial we break the mold. The level of conformity is high, and we are seriously missing the respect for individualization. Young people have these incredible aspirations of doing things that do not exist in Kuwait and we are teaching these children skills for jobs that do not yet exist. We have to break the conformance cycle and begin to inculcate new attitudes into our culture through embodiment, engagement, and empowerment. ✖

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INTERVIEW

YOUNG & talented TBY talks to HE Sheikha Al-Zain Al Sabah, Under-Secretary at the Ministry of State for Youth Affairs, on helping to nurture the next generation.

What is at the forefront of the Ministry of State for Youth Affairs’ strategy to develop the youth in Kuwait?

At the forefront of the Ministry of Youth Affairs (MYA) mission is the youth themselves. Essentially, the Ministry has arisen from the youth themselves, and is run by and for the youth. At its core, MYA is a facilitating, enabling, and empowering incubator that promotes positive youth development and provides services, opportunities, and a supportive environment for youth engagement across a myriad of different fields.

With departments specializing in leadership development, capacity building, volunteerism, entrepreneurship, research and development, and creative content creation, the Ministry’s very structure has been developed according to the needs of its community. Since its formation, it has supported the development of upward of 250 youth initiatives in the fields of science, education, art, health, leisure, and business.

It has also partnered with key stakeholders in the public, private, and civil sectors on a number of youth-driven capacity-building projects.

It has also worked with the

country’s top universities on educational programs and campaigns to address a number of societal issues affecting both the youth community and the country at large.

Kuwait has a population of nearly 4 million, of which over 70-80% are expatriates. Of Kuwaitis, more than half of citizens are under the age of 25. In this demographic context, what key role do you see the Kuwaiti youth playing in Kuwait’s economic future?

I see the Kuwaiti youth playing a significant role in Kuwait’s economic future. In fact, I will go so far as to say that, given the sharp decline of oil prices worldwide, without the youth, there is no long-term sustainable economic future for Kuwait. You see, Kuwait’s economic future depends heavily on the creation of new industries. And no one is better positioned to do more with less and to take that risk than the youth themselves. In fact, one of the key roles that I see the Kuwaiti youth playing is that of problem-solvers.

Young entrepreneurs have the imagination and necessary innovative skills to solve many of the socio-economic and infrastructural issues we face today.

What are the main issues concerning youth in Kuwait? What hurdles do you see impeding their development and full potential?

A crippled educational system, labor market restrictions, business regulation controls, poor administrative infrastructures, and the lack of viable incubators and venture capital injection are the major issues that stand in the way of youth development today. In addition, Kuwait has a low level of new industry creation due to the lack of a proper ecosystem that would in turn be able to manage and interweave all entrepreneurial aspirations.

In order to encourage the entrepreneurial spirit in Kuwait, the Ministry continues to support and deliver a multitude of enabling projects in the SME creation and incubation fields.

What are your expectations for the Ministry of Youth, and the Kuwaiti economy, in 2016?

I have many expectations for 2016 and beyond. The Kuwait Development Plan for 2035 aims at transforming Kuwait into a financial and international hub. But in order to do so, we must first fix the nation’s existing educational system and overall human development plan. With today's

dynamic global economy centered on the development and exchange of knowledge and information, the state must invest in capacity building and knowledge transference. Individuals and human capital need to develop multifaceted expertise. Skills must be fostered and nurtured to meet both the demanding needs of modern-day life as well as the innovation-driven global arena. We must recognize the importance of knowledge in value creation, enable a society of life-long learners, and encourage out-of-the-box thinkers and innovators to hold key decision-making positions in government. We must also invest in R&D across all sectors and highlight the importance of a comprehensive educational backbone when re-structuring our much-neglected and dated public educational system. In addition, we must build platforms for creativity and expression; areas where new ideas and possibilities may be freely challenged and explored. ✖

BIO HE Sheikha Al-Zain Al Sabah is Under-Secretary at the Ministry of State for Youth Affairs. Prior to this position, she co-founded Eagle Vision Media Group KSCC and served as Chairperson and Managing Director. Before that she worked for ABC News’ World News Tonight with Peter Jennings in New York, and she has also produced and directed a number of political talk shows for Kuwait Television.

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FOCUS YOUTH EMPOWERMENT

COMING OF AGE Investments focused on supporting young people in Kuwait—who form the lion’s share of the population—are gaining increased momentum as the country consolidates its plans for the future.

CATEGORIZED AS ALL KUWAITIS in the country between the ages of 14 and 34, the youth of the country represents the largest demographic group in the Gulf nation at over 60% of the total population. As authorities work to transform the country into the region’s leading financial and commercial hub and enhance its economic competitiveness, Kuwait is increasingly focusing on developing the potential of its youth to pave the way forward.

These initiatives are being spearheaded at a government level by the Ministry of State for Youth Affairs, one of the youngest ministries in the country, in operation now for just two years. The Kuwaiti government has acknowledged the urgency and importance of providing ample resources and the right environment for the youth to thrive, lead, and have the freedom to both voice their ideas and see them through—particularly in terms of shaping national policy and allowing for entrepreneurial activity to take place in the local economy.

In light of Kuwait’s growing emphasis on the youth demographic, the government is making a revamping of policies and infrastructure that affect the youth a top priority. To do this, the establishment of Kuwait’s Ministry of State for Youth Affairs as well as the National Youth Council will play a key role in establishing a National Youth Policy for the country. The Undersecretary at the Ministry of State for Youth Affairs, HE Sheikha Al-Zain Al-Sabah explained how the aims of the Youth Council as well as crucial areas of the Youth Policy of Kuwait were being pursued in a focused manner: “To engage youth even further in national policy, MYA is working closely with key decision-makers on the formation of National Youth Council. This council will be charged with drafting key changes to some of the nation’s dated legislative mandates in a number of different fields. In addition, through its programs and interventions, MYA is striving to systematically address critical constraints to youth development, such as labor market controls, business regulation limitations, an ill-serving public educational system, and a bureaucratic and dated administrative infrastructure.”

Reflecting Kuwait’s desire to make the youth a priority for government, the country launched an award initiative entitled “Kuwait’s Award for Youth Excellency and Creativity,” designed to foster the talent and creativity of the youth by encouraging them to submit work in various areas such as health, sport, education, media, culture and arts, entrepreneurship, volunteer work, science and technology, Sharia sciences, urban planning, architecture, and housing. The award was launched in November 2015 and is the first of its kind in the Arab world.

Investment in Kuwait’s youth is not only a priority of the government, but also for private sector institutions and NGOs that are adding value to the opportunities being created. Key organizations such as INJAZ, LOYAC, The Proteges, and AIESEC, working both in-country and abroad to provide education, training, and community service programs for the youth to bolster their development.

The Youth Empowerment Symposium is another major youth development initiative in Kuwait. It celebrated its 4th year running in 2015, and is held annually under the patronage of HH the Amir of Kuwait and features several local and international industry experts in business, technology, economics, and media who emphasize the importance of developing oneself through education. They motivate young people to continue to embrace the resources available to them and strive for constant improvement of their skills in today’s rapidly-changing economy.

The size of the youth demographic coupled with its potential to shape the country’s future are two reasons why both government and non-government institutions are paying more attention to this segment. Particularly unique in the national youth strategy is the focus on developing entrepreneurially creative youths, who are able to innovate and embrace the rapid speed at which the globally-connected economy evolves through media and the use of technology. Provided they take advantage of the resources and opportunities at their disposal, the youth of Kuwait will play a crucial role in shaping the long-term national strategy. ✖

Inspiring Creative Education Award-winning Education Consortium invests in original market-leading initiatives strategically designed to strengthen and EMBOLDEN school leadership, ENGAGE students, and EMPOWER Communities, Educators, Businesses, Governments and Academic Institutions to secure a sustainable future.

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VOX POPULI

YOUNG TALENT Developing the next generation is essential if Kuwait is to meet its goals.

RANA A. AL-NIBARI CEO, INJAZ-Kuwait

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

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wareness is key. Today, youth and stakeholders involved directly and indirectly realize the hardships of the job market. Therefore, it seems that the youth are more willing and able to invest in themselves to secure a brighter future. But standard education is not equipping our young people for success. Our young people have the opportunity to contribute to their communities and nations through engagement and involvement in the development of a private sector for their nation. Over the past year, INJAZ has been working with government, private sector and relevant bodies in driving youth engagement in different forms. We plan to continue working with the communities to address that gap and we encourage the youth to take the utmost advantage of the opportunity.

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ne of the major programs we are running is called the “Small to Big” program that is run in association with King’s College and Harvard Business School, focusing on entrepreneurs. Throughout the years, 100 entrepreneurs have graduated from Kuwait, and many of these have scaled their businesses dramatically. We had several testimonies that the program added to their knowledge. We sent those entrepreneurs to these major schools and we arrange their fees and more. We also run Escapade, which is a destination management solution designed to change the concept of travel in the GCC, creating more interactive and enriching travel experiences. Many of the young people in the GCC are born into a society that is not used to things like adventure travel or backpacking. We are trying to build up this concept to increase backpacking, traveling, and the understanding of other civilizations.

SHAMLAN AL-BAHAR Co-founder & General Manager, The Protégés

AYMAN AL SALEH President, AIESEC-Kuwait

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IESEC is based on exchange. Most of our work at AIESEC involves connecting internationally, rather than restricting ourselves locally. If there are internships available in Kuwait, we can offer the opportunity to AIESEC candidates from abroad.

AIESEC is considered one of the best global human resources for corporations. Most global companies would like to have AIESEC participants work for them because they have skills, they understand world issues, and they have done real work through our practical experiences. There needs to be more of a focus in Kuwait on diversity within organizations. AIESEC is trying to introduce a new culture and we hope more companies can get into the mindset of globalization. Also, AIESEC provide the opportunity for young people in Kuwait to go on internship opportunities in a global organization outside Kuwait.

FARREAH AL SAQQAF Founder, Chairperson, & Managing Director, LOYAC

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OYAC is a principle-based center, where our values are the basis of our efforts to integrate the future of the country with the overall development of the youth, rather than with the nations commodity-based fortune. The only thing that will save us is the sense of humanity, and Kuwait has a positive energy that is related to the hearts of the people. What I want to see in Kuwait is the youth adopting humanitarian and community values, living them, and being happy. I want them to be happy and they can only be happy if they are at

peace. We just developed the steering committee to list the priorities. We recently launched LOYAC-Ahmadi in the summer of 2015 and we are planning for LOYAC-Jahra. We want to emphasize these two new LOYAC branches in Kuwait. In addition to filling our agenda and raising funds, another priority is the LOYAC Academy for Performing Arts. There are huge performances set for 2017-18, and that will further connect the youth of the world on this upcoming tour that will focus on peace, love, and on celebrating differences whilst merging different cultures.

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HE Sheikha Hussah Sabah AlSalem Al-Sabah, Director General of Dar al-Athar al-Islamiyyah (DAI), on preserving culture.

Abdul Mohsen Behbehani, Director of the Behbehani Group, on staying competitive in the luxury brand industry.

Archaeologists have uncovered a rich past on Kuwait’s Failaka Island stretching back over 4,000 years.

Tourism & Retail REVIEW

Kuwait is on the verge of a sea change in the tourism sector, with an overhaul of transportation infrastructure expected to significantly boost capacity.

A PLACE IN THE SUN S

unshine and sand are hallmarks of Kuwait, but the country has historically been neglected by international tourists. This is set to change in the coming years, with authorities pumping capital into infrastructure development and promotion of niche segments within the tourism sector. Though the government’s stated goal of reaching the million-tourist mark may seem ambitious, the concerted efforts that have been made to date, along with a firm commitment to carrying out its stated policies, bode well for the sector and for Gulf tourism at large.

Tourism directly contributes 1.5% of Kuwait’s GDP, coming in at KWD839.1 million in 2014, and this is expected to continue rising over the coming decade.

Growth of over 5% is the aim for 2015, while an average rate of more 6% is predicted each year until 2025, according to the World Travel & Tourism Council (WTTC).

By that year the sector’s di-

Image: Arlo Magicman

With hydrocarbon revenues remaining depressed, prospects in a range of other sectors are being considered by investors and the state alike.

rect contribution to GDP is projected to hover around 1.8%. Its total impact on GDP stood at around 3.5% in 2014.

Other indicators are similarly promising, and clearly demonstrate the positive trajectory of the industry over recent years. As an expanding sector of the economy, and one which is completely service-based, tourism naturally creates job opportunities.

In 2014, over 90,000 people were employed in the sector, and forecasts state that this figure will rise to over 130,000 within a decade, representing more than 4% of overall employment. A consequence of such growth statistics in increased investor interest, and this too has been evident in terms of incoming capital.

Standing at KWD172.6 million in 2014, total investment is also estimated to grow by over 4% per annum, reaching KWD276 million, as per WTTC speculation.

Tourism expenditures in Kuwait are heavily weighted toward the domestic leisure segment, with local tourism spending representing al-

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most 90% of the total. However, despite the relatively low volume of international tourists compared with nationals, government efforts to promote the state’s overseas image and increase interest for both investors and visitors are ongoing and expanding. Over recent years, Kuwait has used various platforms abroad to build interest in its tourism potential, and to demonstrate its commitment to improving transportation infrastructure and connections with other nations through investment commitments. All of these initiatives form part of the national tourism authority’s larger fiveyear plan, which is geared toward attracting leisure tourists from abroad, particularly from nearby Gulf countries. Though international visitors have traditionally comprised business travelers for the most part, Kuwait’s current policy is to emphasize the state’s family and leisure tourism potential. To this end, repre-

The Bin Hussein Group performing traditional Kuwaiti maritime music

Image: Dar al-Athar al-Islamiyyah (DAI)

sentation at events abroad has been ramped up, and authorities are working to host a growing number of festivals to stress the natural beauty and budding entertainment segment of the tourism industry.

The Hala February festival, for example, was held in 2015. It marks the country’s liberation over 50 years ago, and takes place each Spring, drawing more and more tourists every year. To honor Kuwaiti independence, the month-long schedule of events includes parades, carnivals, competitions, and games. Another key component of the celebrations is shopping, with many offers extending over the course of the month to draw in families and tourists and increase footfall in its major malls and shopping centers. The biannual Gift Festival is held in the Mishref district of Kuwait City, and serves large numbers of merchants and traders along with manufacturers and customers, domestic and foreign. A range of traditional goods are sold at the event, providing an ideal showcase for craftspeople from across the country. The Gold and Jewelery Exhibition and International Perfumes and Cosmetics Exhibition are additional examples of the kinds of state-organized festivals that are increasing the country’s attractiveness for visitors.

To cater for the higher volume of tourists entering the country, approximately 10,000 new rooms are coming online over the course of 2015. This represents a considerable increase on the total of 15,365 beds that were available in the country in 2013. Growth in the luxury hotel segment is also a key element of planning for the influx. Hotels are hoping that new refinery projects and industrial development will continue to provide a base of business customers, while the expanding leisure segment is expected to increase occupancy rates and opportunities in the hospitality sector.

Meanwhile, the development of new resorts and touristic attractions are hoped to not only bring in more families from the GCC for holidays, but to also encourage business travelers to stay for extra days in-country, and boost tourist night figures overall.

Among the attractions already on offer are Kuwait City’s numerous sights and destinations. Perhaps the most well known of these is the Liberation Tower in the center of the city, which stands as one of the tallest telecommuncations towers in the world at 372m in height.

Just under halfway up the structure is a revolving restaurant that provides an unrivaled

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The expansion of the country’s main airport will emerge as the most important factor in the increase in tourist arrivals over in the short term.

panorama of the city and its hinterland. The 46,000sqm Grand Mosque is another iconic building in the capital. Built over the first half of the 1980s, its subtle color scheme and design blends elegantly with the surroundings, and the space plays an important role in religious festivals throughout the year. Another slightly more obscure but intriguing sight is the House of Mirrors, a private home in the city created by a local artist and her partner. It is completely covered with mosaics and mirrors, and stands out with its unique design from the standard style of housing found across urban Kuwait. Other existing attractions are being developed or expanded to bring in tourists, such as Failika Island, which lies off the coast in the Arabian Gulf. The island has long played an important role in Kuwaiti history, and the various archaeological sights located there attest to its importance. Though some of its population was forced to move following the Iraqi invasion in 1990, the government is now focusing on redeveloping its infrastructure and preserving its past to attract visitors from the mainland and abroad. Discussions about the construction of a bridge to connect it with the capital are ongoing, and when complete would ensure its place as one of Kuwait’s key tourist draws. In addition, a proposed marina would make the most of the spectacular surrounding marine environment and stimulate the development of the higher-end tourism segment.

The expansion of the country’s main airport, however, will emerge as the most important factor in the increase in tourist arrivals over in the short term. The Kuwait Directorate General of Civil Aviation is managing the upgrade project, which will see a new passenger terminal that will allow for up to 13 million passengers annually by 2016. This is a substantial rise on the facility’s former capacity of around six million passengers, and will do wonders for the capital’s image in the eyes travelers arriving by air. The enlargement is being carried out in parallel with national carrier Kuwait Airways’ own expansion, which has been moving

from strength to strength since restructuring its business model and route plan over recent years. By 2022, the number of destinations served will have been transformed, with connections across all continents planned by that year. The purchase of new Airbus aircraft, which arrived over 2015, will modernize the fleet, while the company’s management is pursuing more and more long-haul routes, including point-to-point routes providing services between other destinations outside of Kuwait, which will start in 2018. In 2015, the new destinations of Ahmedebad and Bangalore were announced, increasing access to the subcontinent, an area with already established links with the Gulf. The airline will relocate to the airport’s new terminal in 2017. Other carriers, such as Jazeera Airways, have also been experiencing considerable success, with double-digit growth registered in 4Q2014 and early 2015 on routes to Lebanon, Jordan, and Turkey. Future plans for the Kuwaiti air transportation segment include further expansion projects at the airport, which will ultimately bring capacity to an impressive 25 million over the next decade if the tender process gets underway over the coming year.

Outside of the government’s own promotion and investment schemes, Kuwait is supported in its endeavors by the UN World Tourism Organization (UNTWO), which has been providing consultancy services to increase efficiency and effectively restructure the sector. The group’s vast experience in improving the hospitality and transportation services on offer in emerging economies across the world will be of benefit to Kuwaiti authorities as they advance their approach to the sector. In early 2015 the Secretary General of the organization visited Kuwait and toured its attractions and facilities with a working group to begin the longer process of assistance. Programs such as this, in tandem with already fruitful attempts to foster the sector’s growth, show strong positive potential for Kuwaiti tourism and suggest that its climate will be enjoyed by many new visitors into the future. ✖

Al Roshinah Restaurant Al Roshinah Restaurant AlKuwaiti Roshinah for TraditionalRestaurant Cuisine.

for Traditional Cuisine. for Kuwaiti Kuwaiti Traditional First Authentic KuwaitiCuisine.

Restaurant First Authentic Kuwaiti Restaurant First Authentic Kuwaiti Restaurant in a five star hotel. in a five star hotel. in a five star hotel.

Al Roshinah… The Mixture of Past & Present Al Al Roshinah…

Roshinah… The The Mixture Mixture of of Past Past & & Present Present

Serving Lunch & Dinner from 12:00 pm to 11:00 pm Serving Lunch & Dinner from 12:00 pm to 11:00 pm Serving Lunch & Dinner from 12:00 pm to 11:00 pm

Kuwaiti Traditional Restaurant Kuwaiti Traditional Restaurant Kuwaiti Traditional Restaurant

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INTERVIEW

TBY talks to HE Sheikha Hussah Sabah Al-Salem Al-Sabah, Director General of Dar al-Athar al-Islamiyyah (DAI), on working to preserve and enhance the unique culture of the country and region.

the very BEST Most GCC nations face the challenge of balancing cultural heritage with rapid globalization.

What are the foundations of Kuwaiti culture, both historically and today?

BIO HE Sheikha Hussah Sabah al-Salem al-Sabah is the co-owner of the al-Sabah Collection and Director General of Dar al-Athar al-Islamiyyah (DAI). She has lectured on topics related to Islamic art and culture at universities and cultural institutions in the Middle East, Europe, and the US and has contributed to publications with a similar interest. She is actively involved in architectural preservation, working to ensure that traditional buildings in Bahrain, Syria, and Egypt are protected and restored to the original design. She has also been involved in archaeological excavations in the region, both as a field worker and a patron.

Families have traditionally been the focus of Kuwaiti culture and that remains the case today. Multi-generational families share homes, celebrations, and the responsibility to continue Kuwait’s history, traditions, and stories. What is interesting today is the growing role of grandparents outside the home. It is not unusual for grandparents to bring their grandchildren to participate in DAI cultural and educational programs held during working hours. This is an example of how Kuwaitis are adapting to fast-paced modernity without sacrificing the important role of the family or social and cultural heritage.

What is the aim of the new children’s library, and what are some other leading educational programs that you are focused on in Kuwait?

The primary focus of all our education programs is cultural awareness, although it takes various forms depending on the audience. DAI programs strive to give participants the information and experiences they need to truly be a part of an increasingly global civilization. In addition to attending the evening lectures, educational opportunities cannot be underestimated. Adults completing the docent training course and working as a

docent have an opportunity to be intimately involved in nearly all aspects of DAI. They host guests in the museums, participate in special lectures and training sessions, and generally support the organization as needed. In effect, the docents are students and teachers, constantly learning more about the arts and culture of the region and sharing their knowledge with others.

The children’s libraries, which will open in both the ACC and YCC in January 2016, and all of the children’s programs, are based on the “Four Cs” of collaboration, communication, creativity, and critical thinking, which are built into activities designed to promote cultural understanding and awareness. These programs are for children from 18 months through high school and, because of the multi-national backgrounds of the participants and the incorporation of the Four Cs in the programming, the children expand their knowledge not just of Islamic art and culture, but also the diverse arts and cultures of their classmates.

DAI launched its 21st Annual Cultural Season in September 2015. What growth have you seen in DAI’s Cultural Season over the years, and what are the main objectives and highlights of the 21st season?

The primary objective of the Cultural Season programming has not changed since our first cultural season launched more than 20 years ago. Our purpose, then and now, is

Comprehensive programming to promote cultural awareness

to provide individuals of all ages with opportunities to discover more about the art and culture that surrounds them. What has changed is the volume and diversity of the participants and the activities included in our cultural seasons. This year’s program includes 32 lectures, 16 classic films, 33 concerts, two theatrical weekends, eight Family Days, and five exhibitions.

There will also be at least three book launches, two festivals, 124 children’s education opportunities, five training sessions for volunteer docents, and many extra events that will be added during the season. There are always many surprises in our lectures and events, so predicting the highlights in advance is a guessing game. Highlights, like beauty, are in the eyes of the beholder.

For some it will be a particular performance, for others a lecture, and for others an exhibition or children’s program.

This is one of the keys to our success. ✖

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INTERVIEW

KEYS TO success TBY talks to Abdul Mohsen Behbehani, Director of the Behbehani Group, on staying competitive in the luxury brand industry and the latest trends in Kuwait.

BIO For Abdul Mohsen Behbehani, the watch industry is part of his DNA. His personal collection of watches is a collectors dream and he can name every model and component. His most treasured memento is his first, which his grandfather gave him. Watchmaking and automotive was always his passion and he would spend his evenings in the family showrooms, helping the sales assistants. In 2004, Abdul Mohsen joined the company to assist with the new strategy—the company had undergone a rapid expansion and the third generation of the Behbehani family had already stepped in. Abdul Mohsen also prides himself on the company’s open door policy, which has fostered an environment of unparalleled loyalty over the generations.

What were the keys to success of Behbehani Group over the past few years?

What trends are you seeing in the luxury brand market in Kuwait?

We have achieved so much in the last few years. We have officially partnered with many luxury brands, expanded boutiques, opened new boutiques to enhance the customer experience, and have maintained our sales by investing and organizing events that strengthen the relationship with our customers. It was my grandfather Morad Yousuf Behbehani’s vision to bring the most luxurious brands to Kuwait, and my father followed the same path by expanding the portfolio of the Group. At this stage we are focusing on enhancing customer experience and providing the highest level of service and after service. It is the trust we maintain with our brands and the strong relationship that we maintain that has kept us in this position in the industry. We know our brands. This has worked for us so far and we intend on working with the same goals and hope that it strengthens our position further.

Customers have become more attentive to details, hence, we realized that luxury brands in Kuwait should provide the same service and experience that customers are getting in Europe or USA. Moreover, customers in Kuwait are following international luxury trends and they are up to date with all the events and activities that are taking place internationally. Kuwaitis are always accepting new trends and they are always eager to try new things and see what fits them best, be it bohemian, artsy, chic, classic or other styles; they are constantly changing with the world, but as always, staying connected with their roots—never straying from their authentic culture.

What are your expectations for 2016?

We have high expectations for 2016. We intend to expand our business further, but it is difficult to predict exact growth levels and

IN NUMBERS Founded in

1952

maintain the same profits, which fluctuate. At the moment, we see a slight set back in the Kuwaiti economy but it is still firm. According to Alpen capital, it is and despite any short-term factors, the retail sector is predicted to remain robust in the long term. I also see long-term potential in the Kuwaiti consumer market, particularly for non-essential items and aspirational purchasing by younger consumers whose incomes are rising. I cannot predict the same for the other GCC countries, but I do wish the same for them. ✖

KUWAIT 2016

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P H O T O ES SAY F A I L A K A I S L A N D

Failaka Island is a candidate for World Heritage Site recognition

Image: Michael Stubbs

MERCHANT’S PARADISE Archaeologists have uncovered a rich past on Kuwait’s Failaka Island stretching back over 4,000 years. From the halcyon days of ancient civilizations to Saddam Hussein’s invasion in 1990, Failaka Island carries with it a rich history, making it a potential candidate for UNESCO World Heritage Site status.

OVER 4,000 YEARS OF HISTORY lie buried on Failaka Island, the second largest offshore island of Kuwait, whose name is thought to derive from the ancient Greek for “outpost.” Pronounced “Failacha” in the local dialect, archaeologists and excavators have discovered evidence of the Dilmun civilization, Greek settlements, Mesopotamian merchants, religious relics from three different cultures spanning over 2,500 years, pirates, and the remains of both ancient and modern wars, solidifying the island’s status as an important heritage site in Kuwait.

For thousands of years, Failaka was the strategic nexus of a lucrative sea trade that plied the Gulf waters. According to Sumerian texts found on the island, Failaka was first known as Agarum, the land of Enzak, named after a god of one of the oldest ancient civilizations of the Middle East—the Dilmun civ-

ilization. At its peak during the Bronze Age, Dilmun controlled trading routes in the Gulf from Failaka to the island of Bahrain, with Failaka as a key stopping point between the Indus Valley and Mesopotamia, areas now known as Oman, Iraq, northern Syria, southern Turkey, and southern Iran. A commercial power in its day, Dilmun was at the heart of economic agrarian activity. Artifacts from Failaka also suggest that island inhabitants worshiped the sun as part of a unique heliocentric religious practice.

The ancient archaeological ruins that make up the historical record of Failaka Island tell the story of the successive civilizations that settled over the subsequent millennia, leaving a trail of cross-cultural remains, buildings, and other artifacts. It is this history that has made Failaka a strong candidate for World Heritage Site recognition.

Tourism & Retail

While Kuwait’s outgoing travel and tourism market is strong and presents tremendous potential for further growth, the country has done little to attract inbound tourists and it falls behind in this area relative to its GCC neighbors. Business tourism is quite high in Kuwait; however, the country lacks appeal for leisure travelers. The proposed development of Failaka Island and the expected admittance onto the UNESCO’s World Heritage Site list should be an added boost to local tourism development in the country.

In a region that has used its oil wealth to catapult into the modern era, Failaka is a historical gem and one of the most important archaeological sites in the Gulf. Kuwait’s National Council for Culture, Arts & Letters (NCCAL), the government body that oversees archaeological excavations and the conservation of cultural heritage in Kuwait, has submitted Failaka Island to UNESCO for review.

It is currently on the tentative list to become a UNESCO World Heritage Site and beginning to assume its historical importance.

A Failaka Island development project has also been announced by the Kuwaiti government to transform the island into an attractive holiday or short-getaway destination for both local and foreign visitors, with the promotion of the island’s history being key aim of the island development project.

The island is open to visitors, with frequent ferry rides from the mainland. It is recommended that visitors visit during spring. ✖

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Local architecture has evolved as subsequent civilizations arrived and made their mark

Image: Michael Stubbs

In a region that has used its oil wealth to catapult into the modern era, Failaka is a historical gem and one of the most important archaeological sites in the Gulf.

The waters of the Arabian Gulf are warm and inviting for much of the year

Image: Thomas Varga

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FORUM

TBY talks to four leaders in hotel management, on trends in the hospitality sector and the outlook for the market.

IMAD ZABOURA

MAGED GUBR

HAKAN PETEK

General Manager, Al Manshar Rotana Hotel

General Manager, Movenpick Hotel & Resort Bida’a, Kuwait

General Manager, Jumeirah Messilah Beach Hotel & Spa, Kuwait

B

etween January and May and then toward the beginning of September until the end of the year is the peak of the business, and our occupancy has been growing. In 2014, we maintained about 69% occupancy versus the market average, which was around 62%. Here, we deal mostly with oil and gas companies, due to the hotel's location.

Oil and gas companies usually have long-term guests, and 20% of our business comes from long-term stays. In 2015, things have changed a little because of the drop in oil prices and companies changing their accommodation philosophy. There are some companies renting out buildings now, and now we are running at 14% for long stay guests. This segment is also being made up of frequent individual travelers. We have witnessed increases from Saudi Arabia and on last year’s activities. They produced a higher average rate for us because of this.

T

he expansion of the airport will have a dramatic impact on tourist traffic. In addition, the creation of more tourist destinations will help the industry, and increase investment into heritage sites, similar to what Abu Dhabi accomplished with its heritage village in 1992. The tourism market is moving towards the GCC countries. This is the target market because they can afford to visit Kuwait, which is an expensive country.

The tourism industry should focus on attracting GCC tourists. Saudis, Qataris and Emiratis want to visit because the weather in Kuwait is much more pleasant than in its neighboring countries. Culturally, Kuwait is similar to Dubai, but more conservative. About 70% of our business is leisure clients, and 30% is business, but during the holidays our main clientele is families. Kuwaitis are the number one travelers visiting us, followed by Saudis, then Emiratis.

T

he Kuwaiti government is committed to welcoming more international hospitality brands into the country and creating a world-class leisure and business destination. The development plan for 2015-2020 focuses on economic reforms and the implementation of several strategic projects such as the metro, a new terminal at Kuwait airport and the development of both Failaka Island and Silk City.

These projects will have a positive impact on the country’s hospitality industry and attract investment. The hotel industry experiences peak occupancy during the public holidays and school holidays in both Kuwait and in neighboring countries are always busy times. Weekends during Kuwait’s cooler months bring about another period of high occupancy. We also experience high demand for corporate, government and group business bookings during March, April, May, September, October and November.

SAIF EDDIN KHALID MOHAMMED General Manager, Safir Hotel & Residences, Kuwait

T

he trend for Kuwait’s hospitality sector is positive, and we aim to capitalize on this same trend when it comes to business and leisure in Kuwait. In 2004, Kuwait had very few hotels, but by 2015 the number of five-star, four-star, and furnished apartments has increased tremendously in order to cater to the demand of both business and leisure travelers. What we have noticed in the last three years is that Kuwait has become an attractive destination for businessmen and families looking for a family environment with attractions and a great place to relax. Every weekend we greet travelers from the GCC. In terms of the occupancy of the market, supply is increasing with the increasing demand. This kind of business is likely to continue growing in this part of the world for a long time. The Kuwaiti government has launched some major projects for 2016, which will help in creating demand for the sector, and we will need to capture this demand.

The content on this page is taken from exclusive interviews. Read the full versions at thebusinessyear.com

HOTEL MANAGEMENT

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Where to stay: a list of some of the top hotels for a successful business trip in Kuwait.

A series of helpful hints and useful tips to get you through your first few days in the country.

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Executive Guide REVIEW DOING BUSINESS

SEIZE THE OPPORTUNITY With an economy dominated by crude oil reserves, Kuwait has recently developed and implemented a number of programs and initiatives that aim to move the country away from its heavy reliance on the resource and diversify into other industries.

In 2015, the government passed a new development plan that not only outlines major economic reforms set to take place between 2015 and 2020, but also focuses on setting into motion several development projects which will open up countless investment and business opportunities.

MARKET BACKGROUND Foreign companies are not permitted to engage in commercial activity within Kuwait unless the Kuwaiti share of the business is equal to or exceeds 51% of the total amount of the capital, though this increases to 60% for banks, investment brokerages, and insurance companies. According to the US Chamber of Commerce, businesses are established in one of several forms, including a Kuwait Shareholding Company (KSC), a company with limited liability (WLL), and general partnerships. However, under the Law for the Promotion of Direct Investment in the State of Kuwait (PDISK), an investor can establish a 100%-foreign owned Kuwaiti company, a licensed branch, or a representative office of a foreign entity so long as they are not involved with the following sectors: crude oil, manufacture and extraction of natural gas, and real estate, among others.

taxed as normal business profits and are taxed at the standard income rate tax of 15%. Deloitte also notes that any losses suffered by an entity may be forwarded for up to three years in order to be offset against any future taxable profits. There are, however, exceptions to this rule, such as if the entity ceases all operations in Kuwait, if a tax return indicates no revenue as a result of the company’s main business activities, if the entity is liquidated, if the legal status of the corporate body has changed, or finally, if a merger has occurred.

WITHOLDING TAX According to Deloitte, it considered to be standard that there is no withholding tax on dividends that are paid to a nonresident. The standard 15% withholding tax is levied, however, on dividends distributed by fund managers, investment custodians, and corporate bodies. There are no withholding taxes to on interest, royalties, technical service fees, or branch remittances.

SHAREHOLDING COMPANIES All Kuwait Shareholding Companies (KSCs)—listed or closed— are required to pay 1% of profits earned after the transfer of the statutory reserve, according to Deloitte. However, Kuwaiti shareholding companies that are listed on the KSE must pay 2.5% in an annual tax on net profits. Additionally, all corporate entities with operations in Kuwait must maintain 5% of the total contract value from a contractor or subcontractor until they settle their tax liabilities with the appropriate authorities. The designated contractor or subcontractor must obtain an original certificate the government.

There are no capital duty, payroll, or real property taxes stipulated in Kuwait.

CORPORATE TAXATION

SOCIAL SECURITY

Corporate taxation is determined on residence in Kuwait, and is determined by whether it conducts trade or business in Kuwait, rather than if it has a permanent establishment of place of business within the country. According to Deloitte’s 2015 investment highlights report, the income tax law is applied only "to foreign entities carrying on a trade or business in Kuwait, with the exception of entities that are registered in GCC countries and fully owned by Kuwaiti/GCC citizens. It is important to note that “carrying on a trade or business in Kuwait" is widely interpreted by the authorities and is generally meant as any activity that "give[s] rise to all Kuwait sources of income.” Income tax is levied on net profits, and royalties and franchise, license, patent, trademark, and copyright fees received by any foreign companies are subject to income tax.

In regards to dividend taxes, any dividends paid by investment fund managers or investment trustees to foreign companies are subject to a 15% tax, which is automatically withheld as an advance payment. Any capital gains accrued from selling assets are

Employers and Kuwaiti employees are each required to make social security contributions based upon the employee’s salary, though not to exceed KWD 2,750 per month. The employer must contribute 11.5% of the employee’s salary, while the employee must contribute 8%.

BUSINESS ETIQUTTE While English is widely spoken, especially in business environments, any contracts written will be done so in Arabic; if there is both an English and Arabic version, the Arabic version will take precedence. Like many other GCC countries, building and maintaining personal relationships with business partners is essential.

Business attire is conservative, with men wearing high quality, conservative suits, while women should ensure that any skirts cover the knees and that sleeves cover the elbow and fasten at the neck. Titles are considered important, and it is advised to wait until one is personally invited to move to a first-name basis. ✖

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WHEN IN KUWAIT...

WHERE TO STAY 01 Movenpick Hotel Kuwait PO Box 7306 Salmiya, 22084 T +965 2225 3100 www.movenpick.com

Rooms 100 rooms with free wi-fi, a direct dial phone with voicemail, minibar, tea and coffee making facilities, satellite TV, air conditioning, safe, and 24-hour room service. Guest services Spacious rooms with free wi-fi internet, complimentary airport limousine with free wi-fi internet, meeting rooms, lagoon-style swimming pool, near Avenues Mall. Dining Five themed restaurants and lounges. umeirah Messilah Beach J Hotel & Spa PO Box 3522 Safat, 13036 T +965 2226 9600 www.jumeirah.com

Rooms 73 suites with separate living room and access to executive lounge. They are equipped with free wi-fi, 37� LCD flat panel TVs, in-room safe & minibars, air conditioning. Guest services Full service spa with indoor pool, airport shuttle, fitness center, conference and meeting rooms, executive business lounge.

Dining Four restaurants with wellcrafted menu selections.

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heraton Kuwait Hotels & S Towers Fahd Al-Salem Street, PO Box 5902 Safat, Kuwait City 13060 T +965 2242 2055 www.sheratonkuwait.com 04

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Rooms 316 rooms and suites, 80 serviced apartments and 12 villas. All equipped with wireless internet access, a DVD player with 42'' LCD TV, minibar, tea & coffee facilities, automatic blinds, a writing desk and safe. Guest services Spa and swimming pools, conference facilities and meeting rooms, children entertainment and playground, laundry, dry cleaning and pressing services, airport transfer to the hotel. Dining Seven restaurants and stylish lounges serving international dishes or traditional Arabian cuisine.

03 JW Mariott PO Box 26302 Safat, Kuwait City 13124 T +965 2245 5550 www.marriott.com

Rooms Rooms and suites (smoking or non-smoking) equipped with wi-fi, LCD television, fresh fruit basket, mineral water bottles, local daily newspaper, tea and coffee station, minibar, electronic safe box. Guest services Laundry and pressing

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services, Sheraton Tower Lounge, business center, health club, outdoor swimming pool, free valet parking, airport shuttle, banquet facilities, eight meeting rooms, rooftop event space, sea views.

Dining Seven restaurants and lounges.

05 Safir Hotel and Residences PO Box 775 Fintas, 51008 T +965 2545 5555 www.safirhotels.com

Rooms 150 spacious rooms. The hotel tower includes 48 deluxe rooms, seven executive rooms, six junior suites, 14 executive suites, two diplomatic suites, one Safir suite; while the hotel apartment tower is comprised of 20 studios, 34 one-bedroom apartments, and 18 two-bedroom apartments with kitchenette for short and long stays. Each is equipped with TV, direct internet access, daily local newspaper, minibar, and mini fridge. Guest services Free airport transfer, free high speed wi-fi access, free daily local newspaper, rooftop swimming pool, rooftop gym, five meeting rooms, ballrooms, kids playground, free daily shuttle bus service from the hotel to Gate Mall, Al Bairaq Shopping Mall, and Al Kout Mall, 24-hours room

Executive Guide

service, laundry, panoramic view of the Arabian Gulf. Dining Five restaurants.

06 Al Manshar Rotana Hotel PO Box 47008 Fahaheel, 64021 T +965 2393 1000 www.rotana.com

Rooms The hotel features 198 luxurious rooms and suites, all

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rooms are equipped with IP telephony, high speed internet, LED TVs, and kitchenettes.

Guest services 24-hour in-room dining, fitness center, rooftop swimming pool, massage service, spa, business center, free airport shuttle, laundry and dry cleaning facilities, valet parking, private car park. Dining An all-day dining restaurant, rooftop pool snack restaurant, and a library lounge.

07 Symphony Style Hotel Arabian Gulf Road, Salmiyah, 22012 T +965 2577 0000 www.quorvuscollection.com

Rooms Guest rooms, four types of suites, and a prestige residence. Guest services Spa, fitness center, rooftop pool, kids playground, ballrooms, a business center with 18 meeting rooms, boardrooms, and executive lounge. Dining Four restaurants – Cucina, Luna, Symphony Gourmet, and ChococafÊ.

08 Crown Plaza PO Box 18544 Farwaniya, 81006 T +965 01818 111 www.ihg.com

Guest services Fitness and wellness centers, 20 meeting, conference, and reception areas, business center, a ballroom, in-room dining, car parking, valet parking, childcare services, housekeeping and laundry services. Dining Restaurant and lounge.

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09 The Regency Al Tawoon Street, PO Box 1139 Salmiyah, 22012 T +965 2576 6666 www.theregencykuwait.com

Rooms 203 luxury guest rooms and 51 suites. Guest services Two secluded beaches, five swimming pools, fitness and wellness centers, business center, an executive lounge, six syndicate rooms, four ballrooms, and a sea view of the Arabian Gulf. The suites have a separate dining/ living area, and a jacuzzi. Dining Restaurants, indoor and outdoor

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cafes, and lounges with the possibility to eat a la carte or from the buffet.

10 Hilton Kuwait Resort PO Box 7887 Fahaheel, Kuwait City 64009 T +965 2225 6222 www.ar.hilton.com

Rooms Rooms, suites, chalet, studios, and villas with views of the Arabian Gulf. The villas and studios are accommodated with a dining area, living room, kitchenette, and a second bathroom. Guest services Free airport shuttle bus, two outdoor pools, 24-hour fitness center, a tennis court, 1,500m-long private beach, spa, business center, 11 meeting rooms and banquet facilities, ballroom, child friendly rooms and services, executive lounges, private parking. Dining Eight restaurants, from elegant dinners to late night snacks made by the finest international chefs.

11 C Club Bida Cooperative Street, PO Box 8904 Salmiyah, 22060 T +965 22253 190 www.cclubkuwait.com

Guest services Fully equipped fitness center, private coaching lessons available, group classes for spinning, pilates, yoga, aqua gym, aqua spinning, and body pump, indoor and outdoor swimming pool, squash and table tennis facilities, sauna, hamam, jacuzzi, and spa facilities with relaxing massages. Dining Indoor and outdoor restaurant with fine and healthy cuisine, snacks, juices, sandwiches, meat and fish dishes. Barbecue organized on weekends.

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HELPFUL HINTS INSHA'ALLAH GOD WILLING

1

Learn the Arabic term Insha'allah, meaning “God willing,� as you will hear it frequently.

3 4

Talabat.com is a popular food delivery service in Kuwait with hundreds of restaurants and cuisines to try.

Consider attending a Diwaniya if invited. An integral part of Kuwaiti social life, this nightly event where men gather to discuss politics, current events, or play games has even begun including women in recent years.

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Tourist visas are valid for 30 days.

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The working week runs from Sunday to Thursday, with weekends on Friday and Saturday.

You ' Invi re ted!

KuwaitUp2Date.com and 248am.com are local websites updated daily with useful news, blogs, and event information.

Expect shortened working hours during the Holy Month of Ramadan. Eating, drinking, chewing gum, smoking, or engaging in any kind of intimacy are all forbidden in public during daytime hours. Shopping malls are open past midnight, and traffic increases leading up to the Iftar when locals rush home to break their fast.

Taxis are not well-regulated in Kuwait and often do not use fare meters. Ask for the price before your journey.

9

Consumption of alcohol is prohibited in Kuwait.

Sorry,

WE'RE CLOSED

Bumper years, growth years, record-breaking years, challenging years. The key players and their stories are all in The Business Year.

The Business Year is also available on tablet, giving you an insider track into the country’s most dynamic sectors—in the palm of your hand. w ww. th ebu sinessy ea r. com

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VISIT US ONLINE FOR MORE INTERVIEWS, NEWS & UPDATES For every edition, we interview over 100 leaders from the worlds of business and government.

Many of the interviews published here have been abridged. The original, full-length versions can be read online, alongside a selection of unabridged, digital-only interviews.* Read more at the www.thebusinessyear.com, where you’ll also find our full archive of publications, TBY updates, and news of events that are happening where you are. Register with us, and we’ll send you the latest VIP interviews and news from the countries you’re interested in direct to your inbox.

*Digital-only interviews in this edition include: Chawki Barakat Managing Director, Barakat Foods

Musaed Al-Hajery CEO, MNH Al-Hajery

Fady Jawad CEO, Eurotech Training & Consulting

Dr. Nasser B. Abulhasan Co-owner and Principal Architect, AGi Architects

Dr. Mohammad H. Al Mutairi President, Kuwait Medical Association (KMA); Chairman of Cardiology Dept., Kuwait Heart Center

Rasha Khaled Saleh Al Ghunaim CEO, Future Kid Entertainment & Real Estate Co.

Mövenpick Hotel & Resort Al Bida’a Kuwait is the city’s most preferred five-star business and leisure resort, boasting an exquisite 200-metre private, sandy beachfront location, just minutes from the heart of the city, Kuwait’s biggest malls, Kuwait Exhibition Centre and Kuwait International Airport. Discover a wide range of rooms, suites and furnished apartments with stunning views, perfect for long stays. The resort’s facilities include three high quality dining outlets, a business centre, 11 superbly equipped meeting venues, five swimming pools, a state-of-the-art gym and luxurious spa, and a children’s playground.

Mövenpick Hotel & Resort Al Bida’a Kuwait P.O. Box 7306, Salmiya, 22084, Kuwait Phone + 965 22 25 3100, Fax +965 22 25 3199 resort.albidaakuwait@moevenpick.com www.moevenpick-hotels.com/kuwait-al-bidaa Moevenpick.Resort.AlBidaa MovenpickBidaa MovenpickBidaa

www.moevenpick-hotels.com

The one destination for business

Leisure.

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