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A Gulf Cryo installation in Kuwait

A Gulf Cryo installation in Kuwait



More promise than despair

Kuwait’s wealth has brought it much economic stability but there is also anxiety that subsidies and spending on a large bureaucracy will be obstacles to greater growth

April 2014

An ongoing debate in Kuwait is whether it can sustain for long high levels of spending on subsidies and maintaining a large and well-paid bureaucracy that have made it one of the most generous welfare states. But while it has been pampering its citizens with goodies that most of the world considers a largesse, there is criticism from some quarters within its populace of what they consider as serious shortfalls. They point out, for example, that the quality of education is poor and there are long waits for housing. And even as the Government declares it is keen to cut subsidies it is also seen to be considering moves that will grant citizens even greater and more costly benefits at a time when some think it should be investing in industries with potential to perk up the economy and diversify it.

Some of the urgency in the campaign to cut subsidies gets pulled back with Kuwaitis affirming in  the shrill  tempo of debates  that Kuwait is an affluent state and will  remain so for many decades if not centuries, notwithstanding its main revenue-earning product is oil whose prices are volatile and can send shock waves now and then.

They are backed by analysts who contend there are no grounds for despondency, at least not right now. The prophets of doom they believe are exaggerating. They take heart in Standard & Poor’s Kuwait long and short term foreign and local currency sovereign credit rating of AA/A-1 with a stable outlook. The agency said Kuwait’s rich resources made it wealthy, enabling it to build strong external and fiscal balance sheet positions. It also said the stable outlook balanced its view of Kuwait’s very strong fiscal and external positions against its confrontational and non-transparent political system, the geopolitical tensions in the region and the undiversified economy in which real GDP per capital growth has been weak. The agency also observed that Kuwait’s wealth has been managed prudently.

According to its estimate, the Kuwaiti government will have a surplus of about 30 per cent of GDP for the budget year ending March 31, 2014. Its ratings are influenced by the assumption that oil prices will remain high, averaging $96 per barrel in the next three years and that oil output will increase to about 3.5 million barrels per day by 2015 from 3.2 million in 2013. The agency expects Kuwait’s economic risk position to deteriorate compared with faster-growing economies.

Furthermore, it expects only marginal diversification of the economy over the next two years.

Kuwait, blessed with abundant oil, has overall capitalised much on that resource, but some observers would say still falls short when compared with other oil-rich Gulf economies that have diversified well or are diversifying at a reasonably brisk pace. Kuwait has fewer mega plants and projects that similarly blessed Gulf states have. While it has large petrochemical companies, it is far behind when one considers the gigantic manufacturing operations in various sectors that have arisen elsewhere in its region. One by one, for instance, the Gulf states have set up aluminium smelters.  Alone in the GCC area, Kuwait has no plant to produce primary aluminium.

One area where Kuwait has made a huge impression internationally is logistics. Agility, as its chief executive Tarek Sultan pointed out recently, is the only major logistics player to have started outside Western Europe and North America. The company has reported net profits for full-year 2013 of KD46.2 million ($164.1 million), up 37 per cent over the previous year. The company is not being complacent and has announced it will pay special attention to lifting  performance in its core Global Integrated Logistics (GIL) business and to giving individual companies within its Infrastructure portfolio some special nurturing.

 

THE GREEN VIEW

A production unit of Kuwait Catalyst Company

A production unit of Kuwait Catalyst Company

Kuwait’s long expertise in the hydrocarbons industry has encouraged GlassPoint Solar, a leader in solar enhanced oil recovery, to bring in an old and senior hand in the state’s upstream oil and gas industry, Abdul Hussain Shehab. He will lead the company’s expansion in the state.

GlassPoint Solar is stepping in at a time when Kuwait’s oil industry is looking increasingly at greener options and is willing to make huge investments to be cleaner. The Kuwait National Petroleum Company has a project to update eco-friendly production systems at the Mina Al Al Ahmadi and Mina Abdullah facilities. It wants sulphur content of petroleum products to fall under 5 per cent. The $12 billion Clean Fuels Project also calls for the expansion of combined oil refining capabilities from 715,000 barrels to 800,000 barrels per day.

The ‘go green’ movement has also impacted Equate Petrochemical Company, which is the single operator of Greater Equate that includes three other petrochemical firms. Equate has selected Gulf Cryo, the international producer of industrial gases, to help it lower its carbon emissions through a carbon dioxide recovery project. CO2 recovery is required because flue gas is emitted from Equate’s ethylene glycol plant adding carbon to the atmosphere. Equate looked to Gulf Cryo for an innovative way to convert the waste flue gas into pure carbon dioxide which is a valuable commercial product. Gulf Cryo will take the raw gas and move it by pipeline to the new CO2 plant in Shuaiba. At the plant, a very sophisticated clean up system removes all the impurities so pure CO2 gas is produced. It is then liquefied into food-grade CO2 compliant with internationally recognised standards. As well as food and beverage, liquid carbon dioxide has applications in welding and cutting and in the manufacture of dry ice.

 

ENTREPRENEURSHIP

Away from large state-owned companies that have become the hallmark of Kuwait’s economy, Kipco, the Kuwait Projects Company, was again in the limelight following the announcement its net profit jumped 27 per cent in 2013, reaching some $142.2 million. Remarked its vice chairman Faisal Al Ayyar: “Very positive performance trends in all our core sectors, including banking, media, real estate and insurance, were evident in the growth and profitability of our companies.” Kipco, Kuwait’s largest private holding firm, has significant ownership in a portfolio of more than 60 firms operating across 24 countries.

The lobby advocating entrepreneurism and greater business investment was encouraged by the news that Kuwait-based conglomerate Rosette Group had partnered with Swiss import and export firm GoExport. The two companies will aim to achieve high levels of fast moving consumer goods business services in the region. Rosette Group will be bringing to the partnership financial expertise and Middle East distribution knowledge.




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