The government of Kuwait is hoping to diversify the economy through industrial expansion, targeting double-digit growth on the back of its petrochemicals and plastics segments.
New industrial target
In late September Mohammad Al-Ajmi, director-general of the Public Authority for Industry (PAI), announced plans to boost Kuwait’s industrial output by 25 percent in the coming years, telling industry stakeholders at a conference that the sector’s current contribution to GDP stands at 9 percent.
Industrial expansion is particularly critical in light of persistently low global oil prices, which are expected to result in a record budget deficit for Kuwait in fiscal year 2016/17, beginning on April 1. Oil revenues – which are forecast to comprise more than 78 percent of government revenues this year – are predicted to fall by 46 percent in 2016/17, leading the deficit to swell to KD12.2 billion ($40.3 billion), roughly 50 percent higher than the previous year.
The situation has prompted the government to launch a host of economic reforms aimed at reducing state subsidies, in addition to intensifying its efforts to expand non-oil sectors. The Kuwait Development Plan (KDP) 2015-20, for example, targets 4 percent non-oil growth this year, before accelerating to 5-6 percent per annum in the following years.
Though the KDP’s $100 billion infrastructure agenda is forecast to comprise the bulk of non-oil growth, boosting industrial output – particularly in the high-potential chemicals and plastics segments – will also form a crucial component of economic diversification.
Petrochemicals and plastics to lead expansion
To this end, in August Equate Petrochemical Company – a joint venture between US-based Dow Chemicals and local firms Petrochemical Industries Company, Boubyan Petrochemical Company and Al Qurain Petrochemical Industries Company – announced plans to build a 200,000-sq-metre industrial complex in Al-Shuaiba.
This facility will buttress operations already being carried out by state-owned oil producer Kuwait Petroleum Company (KPC). At present, KPC produces 1.8m tons per annum (tpa) of ethylene, 825,000 tpa of polyethylene, 1.2m tpa of ethylene glycol and 829,000 tpa of paraxylene.
More recently, the Ministry of Commerce and Industry announced in mid-October that it had approved a request from KPC to establish a new subsidiary, Kuwait Integrated Petrochemical Industries, to carry out refinery and petrochemicals projects. The company, which will launch with $6bn of capital, is expected to execute major downstream projects including the greenfield Al-Zour refinery complex, with a production capacity of 615,000 barrels per day and an associated petrochemicals complex. The Al-Zour refinery is slated for completion in 2019.
Overall, the Kuwait Direct Investment Promotion Authority forecasts the country’s petrochemicals output will increase from 7.57m tpa in 2014 to 10.54m tpa in 2019.
Production should also go some way to boost export revenues, with organic chemical exports valued at KD77.9 million ($257.4 million), or 2.2 percent of total exports between April and June, followed by plastics and plastic products, at KD60 million ($198.2 million) or 1.7 percent.
Investment in industrial zones
New industrial projects coming on-line are also expected to support increased production, including the KD160 million ($528.3 million) Al-Naayem Industrial Zone, launched by the PAI last year for heavy industries.
The new zone joins Kuwait’s Sabhan Industrial Zone, which recently benefitted from a KD12 million ($39.6 million) investment to establish Block 11 of the industrial zone. More recently, in October the Kuwait Industries Union (KIU) announced plans to release 1056 industrial plots in the KD80 million ($264.1 million) Al-Shadadiyah Industrial Zone to kick-start development in the area.
The KIU has already approved over 230 applications for new industrial projects – primarily concentrated in West Shuaiba, Amghara and Subhan – in the past two years, Al-Ajmi said at an industry conference in October. West Shuaiba, for example, will be home to 35 new industrial investment projects worth some KD1 billion ($3.3 billion).
This announcement follows on KIU’s partnership with the Public Authority for Manpower to roll out a single-window electronic portal to facilitate project registrations. The KIU has already completed 150 transactions under the new system, according to Al-Ajmi.
Regulations introduced as part of Kuwait’s new foreign direct investment law from 2013 will make it easier to find foreign tenants for the expanding industrial zones. The law enables a local company with up to 100 percent foreign equity or a branch of an international company to invest in the country, though 100 percent foreign ownership is restricted in some regulated sectors, such as oil and banking.
Note: This Kuwait economic update was produced by Oxford Business Group.