kuwait bbw 1-5 sin advertisement · fahad al-rajaan, director general of the public institution for...

In the 19th century, Kuwait was a thriving commercial hub, linkingtrade routes between east and west. Kuwaitis were renowned mer-chants and pearl divers, and as such the small country becameprominently known as the “Pearl of the Gulf.” Kuwait willingly went

under British protection in 1899 to ward off threats from the encroach-ing Ottoman Empire, and following the discovery of oil in 1938—whichconsequently spurred economic growth—it voluntarily terminated itsprotectorate agreement in 1961.

The two decades that followed saw great progress, as the tiny emi-rate (which is smaller than New Jersey in landmass) led the entire Gulfregion in socio-economic growth and development. Soon after inde-pendence the government established a constitution, creating whatis considered today the most democratic and powerful parliament ofany of the Gulf countries. Women were given the right to vote in 2005,and 2009 saw the first women elected to Parliament.

“Kuwait has a rich heritage of open exchange and dialogue. It hasa strong foundation with a good Constitution and afreely-elected Parliament,” observes Deborah Jones,U.S. Ambassador to Kuwait.

As you read this, Kuwaitis are celebrating threemilestone anniversaries. 2011 marks 50 years of inde-pendence from the U.K., 20 years since the country’sliberation from Iraq, and five years since H.H. theEmir ascended to the throne. By coincidence,this year is also the 30th anniversary of the GulfCooperation Council (GCC), which was firstenvisioned and greatly pushed forward by thelate Emir of Kuwait, Sheikh Jaber Al-AhmadAl-Sabah.

“The significance of celebrating Kuwait’snational occasions is that they represent thedecades-long journey of struggle by thepeople of Kuwait to build their modernstate, by which they maintained its inde-pendence and sovereignty through difficultcircumstances and various international

challenges,” says Prime Minister H.H. Sheikh Nasser Al-Mohammed Al-Sabah.

The Iraqi invasion of the early 1990s turned Kuwait’s post-independenceflight into plight, and the country is still struggling to catch up to the rateof development enjoyed by its neighbors. Nevertheless, Kuwait remainsone of the wealthiest nations on the planet, predominantly thanks to itsvast oil reserves, and the government’s commitment to ensure its wealthis redistributed amongst its citizens. This, coupled with a strong democ-ratic tradition, is certainly one failsafe preventing the political instabilitycurrently sweeping across North Africa and the Middle Eastern region fromaffecting Kuwait. It must be noted, however, that in tandem with theuprisings, opposition members in Kuwait’s Parliament placed pressure onthe cabinet with several difficult requests which led to the resignation ofGovernment in March. However, order has been restored under the samePrime Minister, with six new changes to the cabinet.

Despite its vast oil wealth, Kuwait has of late lagged behind its neigh-bors in terms of economic development, and its infrastructure is inneed of attention. In 2010, Parliament unanimously approved a five-year, $104 billion Development Plan (KDP), intended as a potentialplatform to jumpstart and diversify the economy away from hydro-carbons. The plan also aims to achieve H.H. the Emir Sheikh Sabah

Al-Ahmad Al-Sabah’s long-term vision: to reposition Kuwait as acommercial and financial hub for the region.

Yousef Al-Ebraheem, Economic Advisor to the Emir, lists thecountry’s main advantages that will work toward achieving thisvision: its location at the north of the Gulf; the wealth of expe-rience and trust in its legal system and financial institutions that

the private and public sectors have accumulated over thepast 50 years; and lastly, a well-educated population.

“The vision is very clear and the Development Planis a first step towards achieving it. I do not believethat we will achieve this vision in four years, and Ido not think it will be an easy task either,” says Al-Ebraheem. “This is our optimum objective.”

He adds that the Emir’s vision is not about com-peting with other GCC countries, but ratherworking with them. “I think we complement eachother and we are aiming to integrate our economiesin the future,” explains Al-Ebraheem. ■

2011 marks an emblematic year for thisdemocratic state, which has set in motionessential plans for growth and development

H.H. the Emir Sheikh Sabah Al-Ahmad Al-Sabah

This report was produced by IFC REPORTS: Highland House 165, The Broadway Wimbledon SW19 INE Tel: +44 (0) 20 7493 5599, E-mail: [email protected], www.ifcreports.com - PROJECT: Nadine Padron, Lawrence Ireton and Pedro Gonzalez-Haba

Part 1KUWAITThe Rising Pearl of the Gulf

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An oil-rich nation in an oil-rich region, Kuwait boasts oneof the most comprehensive welfare systems in theworld. Based on the principle of sharing the incomefrom the nation’s highly demanded natural resources

with its people, the system effectively guarantees a comfortablelife for every citizen.

Basic services such as electricity, water and fixed telephone linesare heavily subsidized by the government, whilelocal cooperative soci-eties provide food at avery reduced price.Meanwhile, medical careand education are free,and a job and a homeare considered constitu-tional rights.

As a result, 90% ofKuwaitis are in the mid-dle class and the Ginnicoefficient is 21.8, oneof the lowest in theworld.

“The strength ofKuwait lays in our constitution, our democracy, our lack of debt, thecountry’s small population and of course the oil reserves,” explainsFahad Al-Rajaan, director general of the Public Institution for SocialSecurity (PIFSS). “If you look at these five elements it is evident thatwe are in a much better position than many countries in the world.”

Established in 1977, PIFSS is one of the oldest institutions in theMiddle East. Despite being a public institution its success lay partly inits independence, which allows it to operate much like a private pen-sion fund.

There are three main unique characteristics in the structure ofKuwait’s social pension system. Firstly, it receives financing fromthree different entities, namely, the contributors and the employ-ers—who jointly pay 60%—and the government,which pays the remaining 40%. According toAl-Rajaan, this is the main reason why theKuwaiti pension scheme has the highestbenefits for its people in theentire Gulf region, the Arabworld, and most of the Westernworld.

Second, PIFSS is a fully fund-ed institution, meaning theincome it receives from today’scontributors does not directlyaffect the funds available topay its policy holders, thusensuring the sustainability ofthe scheme in the forthcomingyears, given its greater liquidi-ty for investment. This is incontrast to state pension fundsin many other countries, where

Kuwait’s government makes smart investmentsto ensure a comfortable future for its citizens

An enviablewelfare state

Kuwaitis enjoy excellent services through the state pen-sion fund, which invests premiums in world marketsthrough the privately owned investment firm, Wafra


the money currently injected is going directly back out to the pre-sent policy claimers, creating a degree of uncertainty for futuregenerations.

Finally, the pension fund pays out generously. “After the age of 30our coverage goes up to 95% of their salary which is the highest cov-erage. Most pension schemes pay a maximum of 65% after 30 years.The minimum we can pay out is 65% so these are tremendous bene-fits for Kuwaitis in comparison to the rest of the world. In addition,people can still retire at the age of 50,” comments Al-Rajaan.

PIFSS is also a powerful investor both nationally and internation-ally. Once it collects the premiums, PIFSS invests the money throughinstitutions like Wafra Investment Advisory Group (Wafra).

Based in New York City, Wafra was established in 1985 by Al-Rajaan(along with other partners), specifically to give PIFSS access to experienced investment professionals who specialize in a diverse group of asset management activities that allow for efficient management of the institution’s funds abroad. Today,

Wafra has expandedand has approximately$10 billion in assets(including unfundedcommitments) undermanagement, of whichjust 30% is from PIFSS.The remainder stemsfrom other institution-al clients from aroundthe Gulf region.

A privately owned sub-sidiary of Wafra InterVestCorporation, Wafra man-ages structured products,alternative investment

products, commingledinvestment vehicles, and Islamic products for its clients. It invests in pub-lic equity and fixed income markets across the globe, as well as in directequity, alternative investments and real estate markets.

Although PIFSS and other Kuwaiti institutions such as KuwaitInvestment Authority (KIA)—established in 1953 and the world’soldest sovereign wealth fund—have investments all over the world,the government considers the U.S. market to be an attractive des-tination.

According to Mustafa Al-Shamali, the Minister of Finance andChairman of KIA, “The U.S. continues to remain an importantinvestment destination, even considering the current crisis, basedon the fact that it continues to remain technically attractive with

large market capital-ization as a percent ofthe global market cap.There is, however, arecent trend in emerg-ing markets becomingmore attractive.Nevertheless, thesemarkets face limita-tions due to theamount of stocks avail-

able to invest in as well as appropriate market regulations. “The U.S. also continues to remain a leading source of R&D as it

still dominates absolute spending in R&D globally at a level which iswell above its share of global GDP.”

Interestingly, through KIA and investment vehicles such as Wafra,Kuwait has internationalized its presence and assets by acquiring impor-tant stakes in many leading multinational enterprises ranging fromBP to Citigroup and Daimler AG, which as Al-Rajaan puts it, is because“we are all part of an increasingly globalized world”. ■

“Today [Wafra] managesapproximately $10 billion;only 30% from ourinstitution [PIFSS] and 70%from others.”

–Fahad Al-Rajaan, Director General of PIFSS

* Wafra and its affiliates’ recent valuations of assets andcommitments under management as of 12/31/10. All figures are estimated.


As far back as the 19th century when the country was known as a thrivingcommercial hub, Kuwaitis have been an outward looking people, learn-ing languages for trade and collaborating with other countries for securityand commerce.

This worldly view was behind the creation of the Gulf CooperationCouncil (GCC) in 1981. “The GCC is not just a security pact, but also a cul-tural and economic pact because we share the same culture, and we havethe same economic concerns as resource-based economies,” says SheikhDr. Mohammad Sabah Al-Sabah, Kuwait’s Deputy Prime Minister andMinister of Foreign Affairs.

Even before the establishment of the GCC,Kuwait was looking beyond its borders, yet notso much with a watchful eye as with a benev-olent one. Just four months after declaring itsindependence in 1961 and several monthsbefore drafting a constitution, Kuwait estab-lished the Kuwait Fund for Arab EconomicDevelopment (KFAED). This was notKuwait’s first institution of thiskind.

“The concept of aid was notnew in 1961. It formed part ofKuwait’s goodwill way beforethat,” explains Adbulwahab Al-Bader, director general of

KFAED. “In the 1950s, when Kuwait was not yet independent, there wasan institution for social assistance which provided grants in the Arab penin-sula. It used to be called the Authority for the South, and it provided our[neighboring countries] with grants for building hospitals and schools. TheKuwait Fund was then established to assist in economic development,including infrastructure projects.”

The second fund of its kind ever created (after the World Bank) and thefirst one established by a developing nation, Kuwait’s contribution to theworld’s poorest countries amounts to 1.4% of Kuwait’s GDP. This is dou-ble the target the United Nations sets for Official Development Assistanceto developing countries, impressive given Kuwait is still a developing nationitself. Since 1961, KFAED has provided loans totalling $16.3 billion for avariety of projects including infrastructure, transport and energy.

“We have more than 100 clients around the world, and if you look atthe World Bank’s list of countries ranked by GDP per capita, the bottom50 are our customers,” explains Sheikh Dr. Mohammed.

“I think that providing assistance to countries is an investment in rela-tionships with others. You shouldn’t look at this from a return of investment

point of view. This institu-tion has used its ownresources to assist othercountries, and we’ve usedour liquid assets in the inter-national markets to earnmoney to help us reinvestin our main lending oper-ation, which sustains ourdevelopment cooperation

with our partners in the developing world,” says Al-Bader.“Kuwait is not just about oil resources; it is much more than that.

We want to live in a peaceful world that is free of hunger, poverty anddisorder, so we as a development institution try our best to help.” ■

Half a century catalyzingthe growth of countries in need

“The GCC is not just asecurity pact, but also a cultural andeconomic pact.”–Sheikh Dr. Mohammad Sabah Al-Sabah, Deputy Prime Minister and Minister of Foreign Affairs


Kuwait’s potential to compete globally asa regional commercial and financial hubhas gone unexploited since the Iraqiinvasion stalled growth and damaged

the country’s infrastructure. Some developmentprojects have been in the pipeline for up to 20years but have been hindered by the combina-tion of bureaucracy and lack of technical expertise.Also, as a country with a dominating public sec-tor, a much-needed entrepreneurial zest has beenmissing.

This is changing, however, thanks to theDevelopment Plan 2010-2014 (KDP), the purpose ofwhich is twofold: to diversify the economy away fromthe oil sector—while also investing in greater oil andnatural gas production—and to increase the role ofthe private sector.

The plan encompasses myriad infrastructure pro-jects, ranging from a new business city, known asSilk City, to the Boubyan Port project, intended toservice the growing markets of Iraq and Iran.

While the government aims to increase privatesector participation, rather than capital investment,Kuwait seeks transfer of knowledge and technolo-gies, especially from future U.S. partners.

“We have a very good cash flow situation. We aredoing this to change our economic model, notbecause we need money,” comments the man whois overseeing the implementation of the DevelopmentPlan, Sheikh Ahmad Al-Fahad Al-Sabah, Deputy

Prime Minister of Economic Affairs, Minister of Statefor Development Affairs, and Minister of Housing.

Working under the auspice of the Ministry ofCommerce & Industry, the Kuwait Foreign InvestmentBureau (KFIB) works to improve conditions for for-eign investors. For example, the KFIB passedlegislation that slashes tax paid on net profits by for-eign companies from up to 55% down to a flat 15%.

“KFIB works to streamline the business environ-ment and reduce bureaucracy,” explains SheikhMeshaal Al-Jaber Al-Sabah, chief of the KFIB. Headds, “KFIB serves as the first entry point for for-eign investors in Kuwait.”

To date, KFIB has approved $1.2 billion in invest-ments into Kuwait, of which 90% are in themanufacturing industries—especially petrochemi-cal—and 7% in services. The latter are mainly forbranches of major international banks.

To help future potential investors along, KFIB iscurrently preparing an “investment map” and isengaged in the development of three economiczones in Abdali, Wafra and Shagaya.

KFIB concentrates its efforts on ensuring a moreconducive business climate for both domestic andforeign investments, whether these come throughKFIB, PTB (Partnerships Technical Bureau), NOC (theNational Offset Company), or others, says SheikhMeshaal. Coordination Committees have been estab-lished to coordinate activities between these threeinstitutions.

The KFIB, PTB and NOC all share the mutualgoals of ensuring the availability and developmentof modern technology, as well as job creation toabsorb the increasing number of qualified Kuwaitigraduates. ■

In 2010, Kuwait unanimouslyapproved a $104 billionDevelopment Plan through 2014

Turning a vision into reality Some of the mega projects under the KDP: the new “Silk City”, Metro link and the airport expansion

Facts &figuresKuwait Development Plan

�� Exchange rate: KD1=$3.63

�� Estimated cost of KDP:$104bn

�� Completion time: 2010-2014

�� Total number of projects:1,100

�� Guaranteed Return onInvestment (ROI) for all pro-jects: 16%

�� Total number of non-oilmega projects: 14

�� Government pledge inbank guarantees for fundingof KDP: $36.3 billion

�� Private sector’s contribu-tion to non-oil investments:40% (2009) to 65% (2014)

�� Average private sectorinvestment contributionto non-oil GDP: 4.7% (2009)to 12.5% (2014)

�� Total private sector con-tribution to GDP expected by2014: 44%


New laws strengthen Kuwait asgateway into regionWithin the scope of the KDP—the first plan of its kind since 1986—Kuwait aims to increase private sector participation and overallcompetition. In order to expedite this, the government has passed thePrivatization and the Build-Operate-Transfer laws and is encouragingprivate-public partnerships (PPPs), specifically through the PartnershipsTechnical Bureau (PTB).

PTB’s vision is to encourage the private sector’s participation indevelopment projects considered vital for the national economy.

“Most of our projects are services that the government used to pro-vide directly, but we are now providing these services throughpartnerships with the private sector,” explains Adel Al-Roumi, presi-dent of PTB.

Prime Minister Sheikh Nasser Al-Mohammed Al-Sabah stresses theimportance of the private sector in shaping the new Kuwait. “The Kuwaitiprivate sector is highly efficient and has proven its strength at homeand abroad,” he says.

When referring to the attainment of the H.H. the Emir’s Vision heemphasizes the role of foreign players: “This step requires opening upto the world from east to west, attracting foreign investment, learn-ing from the experiences of different countries, and exchangingexpertise, especially in the field of technological development.”

PTB has launched 23 projects in wastewater and solid waste man-agement, electricity, and renewable power, among others, to bothforeign and local investors, yet the greater the value of the project,the greater the preference Kuwaitis receive.

“We’ve divided the projects into three areas,”says Al-Roumi. “First, there are projectsvalued at $217 million and under.Depending on the technical natureof these projects, they will be ten-dered on a competitive basis andif there isn’t a huge requirementfor a technical background, it willbe a purely financial competition.For projects between $217-906 mil-lion the law states that Kuwaiticompanies must own at least 40%and for projects of $906 million andover, they have to be fully Kuwaitiowned.”

The KDP’s implementer, SheikhAhmad Al-Fahad encourages U.S.investors to enter Kuwait, though hecautions patience. “I know it will bea little slow at the beginning, butthe best opportunities will beobtained by those who come first,”he says. “I think this is the right timefor American companies to comeover and partner with us.”

Sheikh Meshaal, chief of the Kuwait Foreign Investment Bureau(KFIB), highlights various sectors where U.S. investors could partic-ipate. “There are several opportunities that present themselves forAmerican companies in widespread activities relating to utilities,environment, renewable energy, R&D, electronic industries, metro,railway, airport and ports development, healthcare, and logistics,among others,” he says.

Currently under development, the 106-mile Kuwait Metro Rail megaproject is intended to reduce escalating traffic problems in Kuwait City.

Kuwait’s metro andrailway project willhelp decongestKuwait City andconnect the countryto the rest of theGCC countries.


At a cost of approximately $9 billion, the metro will have three linesand 40 miles of underground tunnels. Tenders for each individual linewill be released in 2012.

Kuwait is also planning a cross-country railway that will link it withthe other GCC countries, thus creating an entire railway network acrossthe six states.

“There are three main rail projects: Eurasia, Mishref and GCC,”explains Hussain Al-Sayegh, chairman of the leading real estate com-pany Aknan Global. “Kuwait is in the center of the plan; it is extremelyimportant. In fact, one of the main depots is in Kuwait, so we are alllooking forward to this as an indirect way of increasing revenue.”

In order to ensure relationships betweenforeign investors and Kuwait are beneficialand endure in the long run for local business-es and industries, the Kuwaiti governmentpreviously established the National OffsetCompany (NOC).

The concept of “offset” is an investmentobligation, estimated at 35% of the net mon-etary value of a supply contract signed betweena foreign company and Kuwaiti governmententities. Offset directly helps in job creation andthe transfer of technology and knowledge through long-term part-nerships between foreigners and locals. Benefits are twofold: armedwith knowledgeable partners, Kuwaiti companies are able to diversi-fy the country’s economic base and strengthen local production capacityas a result of enhanced research and development potential andimproved technical and managerial skills.

Conversely, foreign contractors gain the advantage of establishingand developing new business relations, growing a better understand-ing of the domestic market, and strengthening international productionchains in Kuwait, and through the latter, the emerging GCC.

Although NOC is a government owned institution, it is run like a pri-vate sector business in the capable hands of Anwar Abdul RahmanAl-Jawdar, appointed chairman in early 2010.

Al-Jawdar introduced various changes upon entering NOC, the mostimportant of which was to give foreign investors the upper hand in man-aging the Kuwaiti company they invest in.

“I want the foreign company, even if the amount it invests is less thanthe Kuwaiti partner, to be the leader of the company, not the Kuwaitis.This is the Offset’s objective—that Kuwaitis can learn,” he explains. “Also,nobody will put money in if someone else is going to run his or her busi-ness. Foreign companies have the know-how and the technology, and if

they run the business themselves theywill be satisfied that their investmentis in good hands.”

Al-Jawdar is earnest in his commit-ment to form long-term, win-winrelationships: “I am willing to make thesepartnerships successful. I aim to do this,and if I do not, I will resign.”

For KFIB, PTB and NOC, technologytransfer, job creation and training areof utmost importance. Changes in the

legal framework reflect Kuwait’s willingness to allow foreign investorsto play a bigger role in the country’s development.

When explaining the facilities that KFIB provides to investors, whichinclude protecting the right to transfer capital and earnings, SheikhMeshaal says: “KFIB is entrusted with powers to grant several incentivesto investors including tax holidays for 10 years, full or partial customsexemptions, the opportunity to set up a Kuwaiti company without alocal partner with up to 100% foreign ownership, help with obtainingland, facilitating procedures and allowing hiring of needed foreignemployees for the project.” ■

“I want theforeign companies to havethe upper hand.”

–Anwar Abdul Rahman Al-Jawdar, Chairman of NOC


The KDP encompasses H.H. the Emir’s vision to transformKuwait into a regional trade and finance center by 2035. Italso envisions greater private sector input that will directlyaffect the banking sector, as these projects will require

increased financial backing. As a result, banks play a major role inKuwait’s growth strategy.

“Kuwait’s banking sector will be given ample opportunities to par-ticipate in the financing of projects. This will have a direct positiveimpact on Kuwait’s GDP. The expansionary monetary policy will increaseliquidity and further develop the economy,” comments Mustafa Al-Shamali, Minister of Finance.

Fortunately for the KDP, the financial sectorrecovered comparatively quickly from the globalfinancial crisis, thanks to quick government res-ponses that included liquidity support, theintroduction of a financial stability law, and theCentral Bank’s requirement that banks make pre-cautionary provisions.

Al-Shamali says that the actions taken to minimize negative falloutin the face of the financial crisis will also help Kuwait withstand thegeopolitical crisis that various Middle Eastern and North African coun-tries are undergoing.

While banking and finance are playing an ever-more important rolein Kuwait’s development, so is the insurance sec-

tor. Article 50 of the country’s InsuranceLaw states that all assets in Kuwait must

be insured from within Kuwait. Consequently, “insurance companiesoperating in Kuwait will have to be

involved in the Development Plan

by law,” says Tawfik Al-Bahar, managing director of Warba Insurance.“Kuwait’s insurance market is poised for major development and the pre-mium is likely to be doubled within three to five years,” he adds.

This growth is already underway. Kuwaiti insurance companiesgrew 15.9% in the first half of 2010, as opposed to an 8.3% rise inthe same period in 2009. Although there are presently 33 insurersoperating in Kuwait, the market is dominated by four main play-ers: Gulf Insurance, Kuwait Insurance, Al-Ahleaia Insurance andWarba Insurance.

The KDP, the Privatization Law and the possible passing of anInsurance Reform Bill are due to boost expansion in the sector, as they

will make insurance mandatory in certain areas. “We welcome the new reform bill, which might

impose compulsory insurance if the property isused by the public, such as shopping malls, amuse-ment parks, and so forth,” says Al-Bahar.

Other factors, such as an emerging youngerpopulation, increasing awareness of the wisdom

of insurance (until recently, insurance was simply not a common partof the Kuwaiti culture), and prospects beyond Kuwait’s borders, arecontributing to the growth of this industry. Moreover, special“Takaful” insurance products are being promoted by the Takafulcompanies, which comprise about half of all insurers in Kuwait.

“Takaful insurance represents a way of investment based onShariah law. There is no interest and money comes back to the con-tributors. Takaful means cooperation,” explains Nasser Al-Omar ofGulf Takaful Insurance Company.

Al-Bahar says, “If the right types of Takaful products are offeredwith good marketing techniques, then there is a bright market forthese products. As the majority of the Kuwaiti population—some95%—are Muslims, Takaful insurance products have a very promis-ing future.”

Warba, the company that first insured both Kuwait Airways’ andthe Ministry of Defense’s aircraft as well the oil industry as a whole,was established by Amiri Decree in 1976 and privatized in the late1990s. It is the only company in the Gulf region to have eight allianceswith international insurance companies, a factor that enables Warbato offer a wider range of products with specialized features. ■

The country’s financial institutions will play a greater role in financing new projects andmove the sector significantly closer to achieving the Emir’s goals

Positioning Kuwait as a regionalfinancial and insurance hub

A change in Kuwaitimentality is resulting ina youthful surge ininsurance.

Tawfik Al-Bahar, Managing Director of

Warba InsuranceCompany


The Government of Kuwait is expected to carry out 50% of the KDP fund-ing, with the remainder looking to be contributed by the private sector.In turn, banks will play a leading role in the KDP, as private sector par-ticipation is spurred. To encourage banks’ participation, the governmenthas pledged $36.3 billion as a sign of good faith and to encourage banklending.

Because approximately half of theprojects to be developed under theKDP will require financing, there willbe big opportunities as banks vie toprovide credit lines. The Kuwait StockExchange (KSE)—the second-largestin the Gulf—will mirror the new eco-nomic activity, says Hamed SalehAl-Saif, director general of the KSE.

“The Development Plan will mod-ernize the country and this will greatlyaffect the stock exchange. Industrial,real estate, and services companies will be involved in this project eitherdirectly or indirectly, and that will be immediately reflected in the KSE.Importantly, foreign investors can also get involved in this huge five-yearspending drive, which in turn will also be reflected,” he explains.

There have been significant changes to Kuwait’s Stock Market in recentyears, with the introduction of a new NASDAQ OMX automation sys-tem, which brought the system up to international standards.

Most important in the capital markets was the introduction of the CapitalMarkets Law, and the resulting establishment of the Capital Markets

Authority (CMA), which began operating in March. Described by AhmadAl-Haroun, outgoing Minister of Commerce & Industry, as “a major pushfor Kuwait’s comprehensive economic development,” the CMA acts as aregulator of the exchange and bonds market, leaving the managementduties to the KSE and increasing overall efficiency.

“Everyone was asking for this for a long time,” comments Majeed EssaAl-Ajeel, chairman of Burgan Bank, one of Kuwait’s fastest-growingbanks. “This is the part of the new legislation which is needed in orderfor Kuwait to develop into a financial center.”

According to Michel Accad, CEO of Gulf Bank, the second-largest conventional bank in Kuwait, the CMA“is an attempt to bring a bit moregovernance, transparency and regu-lation. I think this is to the advantageof the minority interests in variouscompanies that will be listed. This isextremely positive and it should attractmore people into the Kuwaiti market.”

The KDP aims to inject an estimat-ed $104 billion into the economy, andinstitutions such as Gulf Bank andBurgan Bank are fine-tuning their ser-

vices to cater to incoming investors and partners.“A lot of the development work will be undertaken by foreign com-

panies that have the expertise, like foreign construction companies,” saysAccad. “They will need local partners both on the technical front and onthe financial front. We’re developing our project finance and corporatefinance team right now; we’ve hired world-class talent to lead this newunit in Gulf Bank. We can contribute a lot in terms of advisory and cor-porate finance.”

Banking: the backbone ofthe development plan

Kuwait’s banksstand behind theKDP, financing theprojects that willtransform thecountry into aregionalcommercial hub.

Continued on page 10


So far, Gulf Bank has already invested in many of the newly award-ed projects, raising its market share from the bank’s standard 13% to30%.

In 2008, Gulf Bank suffered a run-on-the-bank after a derivatives tradelost it approximately $1.3 billion. With government support and a cleverrestructuring deal, however, the bank has made a comeback. It post-ed nine-month profits in 2010 of KD10.4 million, owing to improvedloan and investment portfolios and better market conditions.

Today, Gulf Bank’s strategy revolves around four pillars. “Oneis to refocus on our core retail and commercial banking compe-tencies. Another is to strengthen our balance sheet by being more

aggressive on the provision side and having strong capital and liq-uidity,” explains Accad.

“A third is to ring-fence our legacy problems and manage the ‘badbank’ separately from our profitable business. Lastly, we want to pro-vide superior services to our customers by empowering our people andimproving our business processes.”

The lender has long prided itself on its strong customer focus, whichAccad attributes to the bank’s concentration on a single country witha limited set of products.

In contrast, Burgan Bank is rapidly expanding abroad and is themajority shareholder in four banks in the Middle East and North Africa(MENA) region: Jordan Kuwait Bank (with branches in West Bank andCyprus), the Bank of Baghdad (the leading private bank in Iraq), GulfBank Algeria (with nearly 20 branches) and Tunis International (alsolicensed in Malta). This has raised its number of branches in the MENAregion to more than 130 and has placed Burgan at number four in termsof price-earnings ratio and investments in Kuwait.

“The vision of the group as a whole is to take Burgan to the nextlevel and to develop it locally and internationally,” says Al-Ajeel. Whilethe bank’s expansion falls right in line with the Emir’s vision to reposi-tion Kuwait as a regional financial hub, it is also contributing to thegrowth of the Kuwaiti economy. So far, it has financed over $725 mil-lion for the first phase of projects related to the KDP, and the bank’smain focus for the following years will be to increase finance and facil-ities for its clients taking part in KDP projects.

Founded as a government bank in 1977, Burgan Bank was privatizedin 1998. Its majority shareholder is now KIPCO Group, one of the biggestdiversified holding companies in the MENA region.

With all said and done, Burgan Bank’s strategy and vision is takingthe company forward in a positive way. “We’ve increased profits eleven-fold in the first quarter of 2011, compared to the same period in 2010,”remarks Al-Ajeel. ■

The new Capital Market Authority is bringing greater transparencyand regulation to the KSE.

Continued from page 9


Kuwait’s regional leadershipand pioneering spirit alsoextends to the telecom sec-tor. It was the first Gulf

market to open itself to competitionin the mobile services sector when,in 1999, the monopoly held by Zain(formerly MTC) was ended with theissue of another license by Parliamentthat led to the establishment ofWataniya Telecoms. A third opera-tor, Kuwait Telecom Company (VIVA)broke this duopoly by entering themarket in 2008, resulting in greatercompetition, driving prices downand service quality up.

“With the entrance of the thirdtelecom operator, VIVA, competi-tion has definitely become evenfiercer,” says Scott Gegenheimer,CEO of Wataniya.

“Our call charges and post-paidsubscriptions aren’t expensive.Kuwait is the second cheapest basedon GDP among the Gulf countries,”comments Khalid Al-Omar, CEO ofZain Kuwait. “There’s a tug-of-warto get the subscribers among us all.”

With the first two operators firm-ly established, VIVA had to worktwice as hard to make headway incapturing market share, which it didwith aggressively innovative offers.

“The successful number book-ing campaign permitting customersto choose their own mobile num-ber, initial free on-net calls for threemonths and the market identifica-tion of VIVA as the enabler of free

incoming calls, have establishedVIVA as a successful market com-petitor from the very beginning,”explains Salman Albadran, CEO ofVIVA Kuwait. “VIVA’s customer-

centric plans continue to sustain itas a successful competitor.”

In less than three yearssince operations

commenced, VIVAclaims to hold an

impressive 18.6%market share in this sector

where cellular phone pene-tration has already surpassed 125%.

VIVA is backed by SaudiTelecommunications Co. (STC) andrepresents one of its largest sub-sidiaries. Such is the success of STC’sVIVA as a pilot project that theSaudi company was motivated tointroduce the same model last yearin Bahrain.

For Albadran 2011 and 2012 arecritical years during which all theoperators must plan and build up thebase for this new decade. “Mobilebroadband (MBB) technique, ser-vices and applications will play thecritical role in shaping the future ofthe operators. No operator can af-ford to miss this opportunity but the methodology of meeting theMBB targets could differ from oper-ator to operator,” he says.

The Ministry of Communications,however, continues acting as regu-lator for lack of an independentregulatory authority. This is some-thing which all three companieswould like to see established soon,since the ministry is the sole providerof fixed line services, and as such, con-trols the international gateway,resulting in the highest internationalcalling tariffs in the region. ■

Who can offer new, exciting and innovativeservices in this competitive market?

Spurring growth in the telecoms market

MNP points to an interesting change in market shareIn Kuwaiti telecoms, big dinarsare spent on numbers—phonenumbers, that is.

With a population of just 3.2million, telephone numbers areeasier to recognize, more appreci-ated, and highly valued. A strongsense of competition, and not tomention elitism, is attached to

certain numbers. Once a cellularsubscriber has managed to attainhis or her desired phone number,he or she is unlikely to changeoperators, simply for the sake ofkeeping those digits.

Plans to introduce MobileNumber Portability (MNP) to themarket, as early as this year, will

allow customers to switch toanother cellular phone providerand keep their own numbers,which they’ve possibly had formore than 20 years.

This move will make the sectorvery interesting to watch: MNPcould possibly rearrange marketshare figures for the three opera-

tors, as the companies vie fornew customers with even morecompetitive prices and products.

“MNP…will govern the futuremarket growth and develop-ment. Each operator has equalchances in the new scenario,”says Salman Albadran, CEO ofVIVA.

IFC Reports would like to extend a special thank you to Faisal Mohammed Al-Hajji Bukhadhour and Mohammed Abul for their invaluable guidance and support. Watch for Part 2 of IFC Report’s Kuwait coverage, coming out next week.


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