Kuwaiti Construction Industry Will See Very Little Growth In 2009

With the Kuwaiti parliament having been dissolved amid questions about Prime Minister Sheikh Nasser Mohammad al-Ahmad al-Saba’s handling of the economic crisis, the current climate is still yet far from stable. Kuwait’s ruler, Emir Sheikh Sabah Al-Ahmed Al-Sabah, issued a decree dissolving parliament in March. This was in response to Islamist lawmakers’ disapproval of the Prime Minister. The Emir last dissolved parliament a year ago to end a row between MPs and the cabinet.

Corruption has become a major factor in many infrastructure deals and this has had knock on effects in terms of investment and construction. Plans to build the al-Zour refinery, for example, were scrapped by the government on March 16. The US$15bn refinery is the second major foreign investment project that Kuwait has scrapped since December, when it put a stop to a US$17bn joint venture (JV) with Dow Chemical following parliamentary pressure. Parliament decided to cancel al-Zour after allegations of corruption in the award of contracts The decision to cancel al-Zour will have several implications. Firstly, it is a major blow to the companies from Japan, South Korea and the US that have signed preliminary deals to participate in the project.

Secondly, without al-Zour, Kuwait's ageing Shuaiba refinery will have to be kept in service rather than scrapped in accordance with current plans. Thirdly, Project Kuwait (the plan to invited foreign oil majors to invest in the Kuwaiti upstream) looks even more unlikely to proceed in the near term, as parliamentary opposition to the project is likely to prevail against the government's moves to progress it.

The government of Kuwait has also deferred the issuing of 300 new business licences to combat fraudulent businesses that it believes are creating turmoil in the country's financial markets. This highlights ongoing concern over corruption in Kuwait. Its score of 61.3 in the Institutions component of the Business Environment Index is particularly poor.

The report forecasts that the Kuwaiti construction industry will see very little growth in 2009, and will stay virtually flat in 2010. Industry value will be US$2.39bn in 2009, but will see growth from 2011 onward, reaching US$2.95bn by 2013. For 2009, the real y-o-y growth in the construction industry value is expected to be only 0.80%.
Given the current economic difficulties in Kuwait, the construction industry has grown in importance as a proportion of GDP, accounting for an expected 2.24% of total GDP in 2009.

- Official Wire