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Promising future awaits Kuwait

Publication Date: 01 May 2018 - By Market Mogul By Market Mogul
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Macro Multi Asset MENA Energy

Situated in the north-east corner of the Arabian Peninsula, Kuwait stands out as a potential powerhouse and a market which is becoming increasingly favourable for foreign direct investment (FDI). With the FTSE’s announcement of upgrading Kuwait to an emerging market status, social and infrastructural progress, and opportunities for market expansion, Kuwait may very well establish itself as an exciting and profitable market to invest in.

Is it Official?

In late March, the FTSE announced that Kuwait is to enter FTSE Global Equity Index Series as a Secondary Emerging Market, with half of its stocks to be listed in September and the other in December. This stemmed from increased efforts in modernizing financial markets and encouraging both local and foreign investments. This makes it the fourth Middle Eastern market to enter the index alongside Egypt, UAE and Qatar. Furthermore, Saudia Arabia is to join the index next March.

Prior to the announcement, Kuwait was unclassified as it failed to meed the index requirements of market stability, materiality, global access and general quality. Kuwait’s entry into the index is a major milestone for gulf markets, increased exposure is a key driver of inflows of investments. Kuwait’s listing demonstrates that the financial sector has developed in terms of regulation and diversity, benefiting both its own market and the potential progress of neighbouring states. Boursa Kuwait plans to IPO to counter decreasing oil revenue in order to continue plans in infrastructural development, making it the potential second IPO within the Middle Eastern markets after Dubai. Mishall Al-Usaimi, the chairman of Kuwait’s Capital Market Authority stated:

“We are working on performing on an operational level in terms of launching new products, highlighting the importance of liquidity, also as preemptive talks towards launching international derivatives and other products important for market development.”

These projects will help the Boursa Kuwait establish itself as a solid market.

Infrastructural & Social Development

Kuwait is undergoing rapid improvement in infrastructure, given its investment in the Northern Gulf Gateway which will add $220bn to Kuwait’s GDP, create up to 400,000 jobs and leverage Kuwait’s geographical location to connect with foreign investors. Moreover, Kuwait has invested $830m in airport expansions, $26m in road constructions, and $3.1bn in healthcare improvements. Not only do these projects benefit the local population and generate local investment, Kuwait aims to attract FDI by opening doors to Asian, American and European investors. Moreover, Kuwait has moved towards liberal socio-political ideas, allowing for increased social cohesion. Kuwait’s accession to CEDAW in 1994 has been followed by progress in women’s emancipation within both the workforce and the political realm. While Kuwait still has several aspects of sociopolitical inequality and discriminatory practices to improve on, it is taking steps in the right direction to do so.

Further Opportunities

Like many Gulf Cooperation Council states, Kuwait’s GDP is largely rooted in oil revenues which would be alarming if there were no signs of diversification. Kuwait’s non-oil GDP grew by 3% and is expected to accelerate this year. Within oil itself, Kuwait recently announced an oil tanker fleet expansion in order to boost revenues within the commodities sector. Within other sectors, Kuwait seems to have potential in healthcare, banking and technology. Kuwait has also decided to invest more into R&D, paving the way for it to move into a more knowledge-based economy. These investments will help incubate innovation and provide the infrastructure and exposure to capitalize on it. This opens doors for real opportunities within these sectors.

Market Overview

Kuwait has proved itself to be an attractive potential market with increased recognition and is making strides towards social and infrastructural development and innovation. While it is still extremely dependent on oil-generated revenue, Kuwait shows signs of innovation-driven diversification ranging from business to consumer sectors. However, Kuwait still has a long way to go. The country has to overcome a deficiency in listing rules, lack of market segmentation and issues with political transparency, social inequality and human rights offences. Kuwait has made significant improvements in FDI and intellectual property regulatory frameworks, allowing it to rise as an emerging market, which the eyes of the world should be trained on.

This post first appeared on The Market Mogul.

 

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