By Courtney Trenwith
Lack of gov't projects leave liquidity-rich lenders with little options for investment, say bankers
Banks in Kuwait are so rich in liquidity they are crying out for opportunities to invest in the country, but a lack of government projects has left them stifled, they claim.
The heads of multiple financial institutions expressed their frustration during a recent financial conference in the capital, calling on the government to move ahead with infrastructure projects, privatise services and create more opportunity for creative investments.
The country announced a KD30bn ($105.19bn) infrastructure and economic development plan in 2010 but little has progressed, mostly due to political instability within the parliament.
Kuwait Banking Association secretary general Hamad Al-Hasawi said financial institutions were desperate to plough money into roads, new cities and services but there were no opportunities.
“When the banks have high liquidity that means that they either don’t have a place to put the money into to work or they are enjoying having the money there and watching it, and I believe [the latter] is not the case,” he said.
Kuwait urgently needs to divest its economy away from its dependence on oil revenues, which make up a significant majority of the entire budget.
The International Monetary Fund (IMF) has forecast that by 2017 oil revenues will no longer cover the country’s spending, leading it to record its first deficit since 1999.
Kuwait Finance House CEO Mohammed Al-Omar said there was enormous potential to develop Kuwait but it was prevented by zoning that favoured oil exploration.
“[We want to] create new centres, create new districts, new downtowns. The banks will have the liquidity to finance, to do more,” Al-Omar said.
“You will see the retail businesses, carpet stores, aluminium stores, then you’ll have to have services [such as] private health [and] education. You create a whole economy.
“Kuwait is almost breaking even with expenditure and [revenue]. We don’t want to see Kuwait [record] surpluses, we want to increase the expenditure of the government of Kuwait.”
Chairman of Ahli United Bank and Kuwait Banking Association Hamad Al-Marzouq said the country’s lack of vision was hindering its growth, while he was concerned infrastructure projects that had been initiated were poor investments.
“The reliance on oil is quite dangerous. I think we have completely failed in addressing this imbalance,” he said.
“We need a long-term vision to address structural imbalances. This is something we’ve been talking about probably since the 1970s or even the ‘60s but nothing has been done.
“[Also] the government’s dominance in the local economy is quite destructive to any real economic growth. I would like for the government not to take the leading role... in terms of economic initiatives.
“The economic development plan, I think, was a complete disaster and the infrastructure projects which were included, I really have doubts regarding their return on investment.”
Al-Marzouq said a major road connecting Kuwait City and Al-Jahra City, estimated to cost more than $1bn, was unnecessary because there already was a road between the cities. Instead, it should have led to a newly created centre, he said.
KIPCO Asset Management Company (KAMCO) acting CEO Faisal Sarkhou said he believed awareness of the issue was increasing.
“You can see it, you can feel it. That awareness has to be [acted on],” he said.
IMF deputy division chief of the Middle East and Central Asia Department, Ananthakrishnan Prasad, said much of the country’s investment delays were due to political instability within the parliament.
It was expected that projects would move ahead following the December election.
Speaking at the beginning of the conference, Kuwait Minister of Finance Mustafa Jassim Alshamali said the government planned to spend KD4.5-5bn on development projects in the 2013-14 financial year.
Kuwait recorded a budget surplus of KD17.2bn in the first 10 months of its fiscal year, preliminary data showed at the end of March.
Kuwait is hopeless. Forget it. Wait and see what happens when the oil runs out... Can't wait to see that and smile.
All talk and no action, that is Kuwait at present and for past 10 years and will be the same for next 10 years, having submitted many prices for affordable housing over past decade only to be told time is not right