Blessed with massive financial reserves and backed by ample hydrocarbon reserves, Kuwait is making renewed efforts to keep pace with its neighbouring GCC countries despite being hampered by the long-running standoff between the government and parliament.
New hope has rekindled in the hearts of construction players in Kuwait following a newspaper report in mid-February that the oil-rich Gulf nation has approved an allocation of KD837 million ($2.76 billion) for 110 projects planned during fiscal year 2023-2024, which will start this month.
According to the Arabic language daily Al Qabas, Kuwait’s Finance Ministry has endorsed the projects from various government offices and half of them are expected to be launched this year – with construction projects estimated to be worth around KD235.2 million.
Another earlier report in Al-Qabas stated that the government has plans drawn up to implement about 56 big-ticket projects over the next four years, at a total cost of about KD23 billion – with some 12 projects worth an estimated KD10.2 billion targeted for housing projects.
The latest indication of the government’s commitment to push ahead with its plans is the appointment late last month of a project management consultant for the mega Al Mutlaa City Development (MCD), a residential city to house up to 400,000 people.
This is good news following a year during which the government is reported to have spent only 26 per cent of the budget allocation for development projects.
Kuwait is blessed with massive financial reserves and backed by ample hydrocarbon reserves. It has an ambition to transform into a regional and global financial and trade hub as outlined in its 2035 vision for a “New Kuwait”.
Yet, year after year the wealthy Gulf Arab oil producer continues to be bogged down by political statemate, which has seen its latest cabinet that was sworn in barely three months earlier resign in late January this year due to renewed friction with the elected parliament.
A long-running standoff between the government and parliament has hampered efforts by the GCC nation to push through fiscal reforms, including a debt law allowing Kuwait to tap international markets. While Kuwait has strong fiscal and external balance sheets, frequent political bickering and institutional gridlock have hampered investment and reforms aimed at reducing its heavy reliance on oil revenues, according to a Reuters report.
This state of affairs in Kuwait has been further confirmed by a Fitch Ratings statement: “Kuwait’s key credit strengths are its exceptionally strong fiscal and external balance sheets, while key weaknesses include frequent institutional gridlock and political constraints on reforms that would address fiscal and structural challenges stemming from heavy oil dependence, a generous welfare state and a large public sector.”
Kuwait saw a drop in investment in development projects, spending a fraction of the budget allocation for 2022-23. An Arab Times report issued last month cited official figures that revealed a significant decline in government spending on development projects over more than 11 months of the current fiscal 2022-2023, which amounted to about KD338 million out of a total of KD1.3 billion – an expenditure rate of only 26 per cent, the lowest in 13 years. There are 128 development projects planned for the fiscal year, most of which are in the implementation phase (59 projects), while there are 53 projects still in the preparation phase, and six projects have not yet started, while the total number of projects set for delivery is 10.
Despite the decrease in the number of projects planned for implementation during the fiscal year compared to previous years, and the drop in the total financial allocations set aside for this purpose, the concerned authorities were unable to implement the projects that were earmarked for development, the report said.
Quoting statistics compiled by Al Qabas, it also indicated that the total allocation for development projects decreased from KD5.6 billion in 2010-2011 to KD1.3 billion in the 2022-2023 budget – and in that fiscal year 61 per cent of the projects were implemented.
The slow implementation rate has been blamed on the constant changes in government agencies for legislative, executive, administrative and financial reasons.
Commenting on Kuwait’s performance in the 2022-23 period, the National Bank of Kuwait pointed out that a notable weak spot was the projects market, where new awards have fallen to multi-year lows.
“This is a legacy of the pandemic, cost rationalisation and bureaucratic impasse. Government tenders have been sparse, with adverse effects for a private sector still dependent on them for business. The authorities are preparing a new reform plan (Program of Action) under the umbrella of Kuwait’s Vision 2035 strategy to empower the private sector and spearhead economic diversification. A draft could be presented to the new parliament in the current legislative session, though swift progress will depend upon government-parliament relations being substantially improved,” said the report.
According to Al-Qabas’s report on the 56 big-ticket projects planned over the next four years worth about KD23 billion, 10 of the projects are for the oil sector valued at KD5.8 billion. The bulk of these projects are expected to be carried out with private sector participation.
Among the projects that will be offered to the private sector are the workers city project, Al Saffarin Market, Air Cargo City Project, the educational and cultural centre on Abdullah Al Ahmad Street, development of the Al Jahra waterfront, development of Mubarakiya markets and car parks and the structural plan for Sulaibikhat Bay.
The major projects that have been allocated funds in the 2023-24 budget are residential areas in Al Mutlaa City, South Abdullah Al Mubarak and South Khaitan, infrastructure and public facilities for the southern Saad Al Abdullah housing project. Also planned are infrastructure, buildings, and planning for a number of new residential cities, such as South Sabah Al-Ahmad, the South Sa’ad Al Abdullah cities, Al-Wafra, and West and South Abdullah Al-Mubarak cities.
The Silk City Development Program (Subiya), Boubyan Island, Failaka Island Resort and Entertainment City projects are key projects that have not made progress.
Over the past few years, Kuwait has been focusing on housing projects and investing substantially in infrastructural projects related to electricity and water to meet the demand of a rising population.
Work is also ongoing on the ambitious Kuwait International airport expansion, port redevelopment and other strategic projects such as universities, hospital and the road network.
In the real estate sector, the scene is expected to remain stagnant this year due to the lack of interest in private housing, investments, and speculation over land prices, according to experts. Speaking to Kuna, the experts pointed out that investors were not interested in purchasing real estate in interior areas due to the lack of affordable lands, construction cost, and other factors.
One real estate major predicted that market value of real estate housing would drop by 10 to 15 per cent this year after deals within the sector fell by 45 per cent in 2022.
Airport
Work on the ongoing Kuwait International Airport expansion project continues to make progress with its third package – involving the construction of a new control tower and runway as well as the revamp and modernisation of the eastern runway and infrastructure services – around 76 per cent complete.
Tenders are now expected for the selection of an investor to operate the T2 terminal to manage and operate cargo and the terminal for private aircraft.
Besides the T2 terminal, the airport expansion includes the much-awaited Kuwait City Cargo Project, which is expected to improve the air freight system in terms of increasing trade from the airport and port.
The first phase of the Kuwait City Cargo Project is planned to cover an area of 3 million sq m and feature 67 cargo stations, making it among the largest of its kind in the region.
Railway & Metro
Early this year the Public Authority for Roads and Land Transport (PART) issued tenders for consultancy services on Phase One of its ambitious railway network project, indicating its will to proceed with this strategic development. The rail network is designed to run 110 km extending from the country’s southern border to the Shaddiyah region.
The scope of work on the consultancy work includes detailed study and design work for the rail network as well as preparation of documents for the tender of Phase One of the railway project.
According to sources, the winning consultant will be appointed by May-end and the studies and final designs for the project are likely to be completed within one year.
Following this, PART will offer contracts for the construction of the railway line for Phase One, they stated.
Housing
Housing is a top priority for the government with some 667,000 citizens waiting for social housing. In line with Kuwait’s 2035 Vision, the government has recently allocated some 18 sites for about 160,000 units to address the housing crisis, and what is now a priority is the speedy completion of the infrastructure to facilitate their development.
The Public Authority for Housing Welfare (PAHW) last month awarded Egis, a global player active in the consulting, construction and engineering sectors, a project management consultancy (PMC) contract for its mega Al Mutlaa City Development (MCD) project. Located 38.3 km northwest of the Kuwait Metropolitan area, MCD is a residential city that is expected to house up to 400,000 people.
The city, which will come up on a 104-sq-km area, boasts a mix of residential, social, commercial and light industrial areas. Under the terms of the agreement, Egis will offer programme-level service management, construction logistics and interface management, cost management, and digital programme management system and project management information system (PMIS) for the MCD project.
Among other projects, a contract award is imminent for the infrastructure works for the South Sabah Al Ahmad project. The PAHW had announced at the end of January that the lowest bid for the project was KD112.797 million.
Work is nearing completion on the Jaber Al Ahmad residential city. Other housing projects that have marked significant progress are the suburb of South Abdullah Al-Mubarak, which is targeted for completion by the end of 2025. In the early stages of development is south of Saad Al-Abdullah which is slated for handover in 2029.
Outlook
According to the NBK, Kuwait’s near-term outlook is generally positive, thanks to the expectation of elevated oil prices and continued gains in private consumption, which should help see the country through the challenging external economic environment.
“Nevertheless, medium-to-longer term growth prospects hinge on the capacity to deliver structural reforms to lessen reliance on oil prices and shift the locus of economic growth to the private sector. These will need to encompass doing business, the labour market, education and fiscal sustainability among others. Measures to raise nationals’ private sector participation rates are also essential, as are incentives to stimulate both domestic and foreign investment,” the report stated.
According to a key industry player, Pace, a leading multidisciplinary consultancy firm which has been active in the Kuwait construction market for more than five decades, future for the industry is bright.
“The forecast for Kuwait’s construction industry in the coming years is bright, with expectations for it to register an annual growth of three to four per cent up until the year 2026,” says its CEO Tarek Shuaib, adding that the government’s programmes to support the development of economic zones, transport infrastructure, and renewable energy will bolster the construction industry.
“We fully expect the government to spend more on vital infrastructure projects across the board in the coming years, with a focus on diversified project portfolios that deliver on the functional and economic needs of Kuwait’s growing population on the one hand, and its growing commercial aspirations on the other … I believe that plans are robust and diverse – and we expect a lot of movement in the upcoming years,” he says.
