Kuwait Business Forecast Report Q2 2008

Publication Date	March 2008
Publisher	Business Monitor
Product Type	Report
Pages	51
ISBN Number	1745-0624
Product Code	BMI00758

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Summary

Inflation Dominates Otherwise Sanguine Outlook

Although our core scenario remains one of broad stability for Kuwait, both political and economic, the risks to both categories are rising thanks, primarily, to inflation. With latest CPI (7.3% yearon- year [y-o-y] in October) having demonstrated clearly that the basket peg/revaluation strategy was no panacea, the danger now is that the extensive easing we have seen (and are yet to see) in the US Fed Funds rate will force Kuwait to follow suit, to a point where liquidity starts to feed through both to political unrest and an economic decline. The government has enough cash to intervene and mitigate the effects, but at the moment the amount of cash in the system is precisely the problem.

On the political front, Kuwait is still relatively turbulent, compared with the rest of the region, albeit not to an extent that should worry investors at present. Parliament seems to be recognising the need to push through reforms and attract private investment, but in the current inflationary climate, we do have some concerns that more populist policies may prevail going forward. Indeed with Sunni-Shi'a tensions having resurfaced of late, as well as the potential for economic discontent and certain parliamentary factions agitating for more democratic representation, the government is likely to pay out rather than risk instability.

Economically, inflation is the only blip on an otherwise very positive horizon: Kuwait looks set to record very strong real GDP growth this year and next, with only a mild cyclical slowdown anticipated further out in the forecast period. Current account and fiscal surpluses will remain in the double digits, and the Kuwait Investment Authority will continue to accumulate cash, acquiring assets around the world which should ensure good returns over the coming years, keeping the balance of payments outlook sanguine.

The business environment is not as unquestionably favourable to investors as that of, say, the UAE, thanks to the ongoing nationalism that has historically stood in the way of reform. Latest developments are encouraging though: parliament approved a much-delayed government plan to cut the corporate tax rate on foreign firms from 55% to a flat rate of 15% and also exempt profits made by foreign companies from trading in stocks listed on the Kuwait Stock Exchange back in December. Still-abundant liquidity and economic activity is also good news for the investment climate.

Content

Executive Summary
- Inflation Dominates Otherwise Sanguine Outlook
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Ratings Down, (Small) Economic Risks To Stability
- The Kuwaiti political scene remains turbulent by Gulf standards, and although the outlook has improved of late,
- this continues to pose a risk to the business environment.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic activity
- Shrugging Off Global Slowdown Fears
- We continue to forecast strong growth amid abundant liquidity, government spending, investment, consumer
- spending and net exports. However, we are increasingly concerned that inflation could start to hurt.
- Exchange Rate Policy
- Further KWD Upside Ahead
- We expect continued gradual appreciation of the dinar against the euro, although a dollar bounce may reverse
- some of its gains against the greenback thanks to the new basket regime.
- Fiscal Policy
- Surpluses Assured, Consolidation Unlikely
- Kuwait will remain comfortably in surplus for the remainder of the forecast period, with oil prices needing to
- drop to US$32.50/bbl before it would enter deficit.
Chapter 3: Special Report
- Looking Beyond 2008
- The Future Of The World, In Three Acts
- US: The Rebalancing Act
- Unwinding The Imbalances
- We believe that a substantial, multi-year shift in the US external accounts is under way. A weak US dollar and
- subdued domestic consumption should lead to a narrowing in the US's structural current account deficit.
- China: What If We're All Wrong?
- Our Core Scenario For China
- We are retaining our positive headline growth projections for China across the forecast period to 2012, with our
- expectations of the continued success of the urbanisation process and export-driven growth model underpinning
- our assumptions.
- Japan: Immigration Key To Long-Term Growth
- Demographic Woes Portend Long-Term Decline
- Immigration remains the only realistic way that Japan can overcome its long-term economic challenges.
Chapter 4: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook - Q2 2008
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 5: Key Sectors
- Autos
Executive Summary
- Kuwaiti automotive sales are likely to stagnate over the next five years, but the revaluation of the Kuwaiti dinar
- gives Japanese and European brands hope of competing in this price-sensitive market.
- Defence
Executive Summary
List of Tables
- Table: Cabinet List
- Table: Economic Activity
- Table: Exchange Rate policy
- Table: Fiscal Policy
- Table: BMI Business & Operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Table: Middle East & Africa, Annual FDI Inflows
- Table: Kuwait, FDI Annual FDI Inflows
- Table: Top Export Destinations (US$mn)
- Table: BMI Trade Ratings
- Table: Kuwait Automotive Sector Historical Data And Forecasts
- Table: Kuwait Defence Sector - Historical Data & Forecasts