Kuwait trade finance– mega projects and oil wealth
How healthy is the trade finance industry in Kuwait, what are its prospects for the future and what kind of trade finance services are available? That's what fME wanted to find out but after doing some digging around, we found information wasn't readily available.
The reason, according to a source in the Kuwaiti banking industry who doesn't want to be identified, was that when attempting to collate any meaningful information on trade finance in Kuwait, the major obstacle is the lack of consolidated data. "In Kuwait, we do not have a centralised database from where information on trade finance can be retrieved," the source said. "All the information I've provided to your questions has been gathered from various different official and unofficial sources and this information is given without prejudice or any responsibility on our part."
In essence, says the source, Kuwait's trade finance industry is holding its breath until the commencement of the highly anticipated mega projects on which the Government has planned to spend about KWD 37 billion ($125 billion) by 2014.
The plan aims at decreasing the country's dependence on oil but also includes investment on raising oil and natural gas production. It also aims to turn Kuwait into a regional trade and financial hub through sustaining economic development, economic diversification and GDP growth. The private sector would be involved in such projects mainly through BOT schemes. Consequently, the banking sector will be needed to provide credit lines for such projects.
For more specific detail on the sector though, fME asked the following questions of the banking industry source:
fMe: What's the size and health of the trade finance industry in Kuwait?
a: A summary of foreign trade is as follows:
a. Total imports in 2010 were $23,508 million (out of this, imports through bank transactions in 2010 were $10,663 million)
b. Total exports in 2010 were $70,105 million (oil exports: $64,575 million, non-oil exports: $5,530 million) (Figures on exports through banks are not available).
fMe: is there much of a demand for trade finance products?
a: The demand for the last two years has remained static due to a delay in infrastructure projects.
Kuwait is poised to spend over $100 billion on the country's infrastructure, related mega projects and BOT (Build-Operate- Transfer) contracts.
fMe: is this demand growing? if so, from what sectors and why?
a: There's no sign of demand growing at this stage but 2012 is expected to be robust due to the planned execution of infrastructure projects
fMe: if not, again why?
Due to the delays in executing the Kuwait Government's ambitious development projects.
fMe: What do you see as trends in the trade finance industry in Kuwait?
a: Positive. Kuwait is poised to spend over $100 billion on the country's infrastructure, related mega projects and BOT (Build-Operate-Transfer) contracts. All this is expected to start in full swing any time now as soon as the Kuwait Government gives final affect to establishing holding companies to overseas and own these projects.
fMe: are there any obstacles or legislation tweaks needed to help things along?
a: Not to our knowledge.
Kuwait's riches and mega projects:
The Mega Projects Agency (MPA), the executive arm of the Kuwaiti Ministry of Public Works leads the charge to design and implement most of the country's infrastructure projects.
The plan includes many mega projects to be implemented by 2014, namely:
- The new business hub (Silk City) with an estimated cost of $77 billion
- A major container harbour and a 25km causeway
- A railway and metro system
- Additional spending on new cities, infrastructure and services; particularly health and education
- Around KWD 25 billion ($90.9 billion) of oil sector investments to raise production capacity and modernise current facilities.
Why has Kuwait got so much money to spend on these mega projects? Masses of oil money, basically. Kuwait's budget surplus rose to 8.1 billion dinars ($29.2 billion) in the first five months of the 2011-12 fiscal year. This was much larger than a year ago due to higher than expected oil revenue and lower spending, according to Finance Ministry data.
The surplus accounted for 22 percent of Kuwait's gross domestic product, according to Reuters' calculations. Revenue of the world's sixth-largest oil exporter was KWD 11.9 billion ($43.2 billion) in April-August, while spending came at KWD 3.7 billion ($13.4 billion), the data showed.
Oil revenue reached 11.3 billion dinars in April-August, accounting for 95 percent of the total. The 2011-12 budget is based on an oil price of $60 per barrel.