Have construction investors forgotten Kuwait?
While Kuwaiti projects may not attract the same acclaim as their GCC counterparts, steady construction investments continue to be made in the country, reports Jamie Knights
Kuwait was booming in the run-up to 2007. Buoyed by national sentiment following the fall of Saddam Hussein, market confidence was on the rise, and construction contracts were enthusiastically handed out. Then, 2008’s economic downturn hit the country hard and increased pressure on value, especially within its real estate sector.
But unlike many other states in the region following the crash, Kuwait hasn’t remained downbeat for long, as Jeff Badman, senior vice president at Hill International Middle East, explains.
“Kuwait is probably one of the only countries in the GCC that is spending money,” he tells Construction Week.
“Saudi Arabia has suspended a lot of projects, and the UAE isn’t launching many new ones. Qatar is trying to save money, because it knows it has to push the projects associated with the 2022 FIFA World Cup, and Oman has battened down the hatches,” he continues.
But Kuwait is different. Badman asserts that the country’s construction industry is driven by oil and gas, and these sectors continue to receive funds.
“It is evident that money is being spent not only on infrastructure and buildings, but on things like the Kuwait National Petroleum Company’s (KNPC) Clean Fuels Project (CFP),” he says.
KNPC plans to construct a 615,000-barrels-per-day (bpd) world-scale refinery near Kuwait City, making it the largest chemical plant in the world when it opens. This is in addition to the efforts of Kuwait Petrochemical Refining Company, a subsidiary of Kuwait Petroleum Corporation (KPC) and a special-purpose outfit that is rolling out the Al Zour Refinery and a mega-petrochemical complex.
“There is also a lot of highway work underway to improve infrastructure under the Ministry of Public Works, as well as nine big hospitals under construction at the minute,” Badman continues.
“The main players in Kuwait are government-connected, and then there are a handful of private guys, but it is Kuwait Oil Company (KOC) and KNPC spending the money.
“The Kuwait University mega project is going on, and the Ministry of Electricity and Water also has a large number of projects underway.”
It is clear that the main drivers of Kuwait’s construction industry are the country’s government entities, besides large local contractors such as Mushrif, Kharafi & Sons, and Al Mulla Group.
However, Korean companies, such as Samsung C&T, Samsung Engineering, GS Engineering, Hanwha, SK Engineering, Daelim, HHI, Hyundai E&C, ABB, and CCC are also visible in the market.
Contracts, disputes, programming, commercial management, quantity surveying and project management company, Driver Trett, has been actively working in Kuwait since 2014. It has been involved in projects such as CFP, Small Boats Harbour, Kuwait University, and Jaber Al Ahmed Housing City, and will be opening its Kuwait office shortly.
Anthony Crowley, Driver Trett’s country manager for Kuwait, believes the future for its construction industry “looks very promising”.
“The objective of the Kuwait National Development Plan is not only to boost infrastructure spending, but to bring in a private sector mindset and efficiencies to government projects,” he tells Construction Week.
The hope is that this will generate new jobs and create long-term investment opportunities for the country.
ROOM FOR IMPROVEMENT
While optimism is prevalent, there are still areas in which improvements can be made, according to analysts.
For Crowley, “attracting the right personnel to work with us here in Kuwait was seen as a particular challenge”. Driver Trett has grown its team to seven full-time staff, all of whom are located in Kuwait.
Crowley adds: “Challenges, such as the lack of local companies’ operational capabilities, private sector contribution to economic activity, contract enforcement, and dependence on foreign workers, still exist in Kuwait, despite efforts to address such issues.”
While Badman explains that “money flow is okay according to contractors,” he explains some challenges faced by local contractors, based on his experience with one such firm working on a hospital project in the country.
“There has been a lot of interference in terms of design changes and that has stalled some construction works,” he reveals.
Of course, delays can lead to disputes and the current situation needs to be reviewed, according to Badman.
“The system for dispute resolution could be upgraded to improve the understanding of what the remedies are when they get into difficulties,” he asserts.
“A lot of disputes end up in Kuwaiti court, so the introduction of a more modern arbitration process would encourage more investment.”
However, in no way have these concerns dented confidence in the country, and Driver Trett notes “significant opportunities” in Kuwait, according to Crowley.
“The Kuwait government announced a five-year, $116bn (KWD40bn) spend for 2015-2020 in the oil, healthcare, and information technology sectors, with substantial investment planned for airports, roads, bridges, ports and rail,” he points out.
Hill’s Badman says that despite a few hurdles for the construction industry in Kuwait, “overall, it is an upbeat sector that is trying to encourage foreign investment” into the country.
Kuwait Direct Investment Promotion Authority (KDIPA) has also been set up to secure interest from abroad.
The Gulf state wants to establish manufacturing plants and encourage a transfer of knowledge as well as an increase in import and export activities, according to Badman.
“You can now have a wholly-owned foreign company with tax breaks, which leads to more investment,” he explains.
Furthermore, GCC states are looking into – and implementing – public-private partnerships (PPP) in a bid to encourage investments, and a number of law firms have also employed PPP lawyers.
However, Badman believes that the search for Kuwaiti manufacturing opportunities in the future “will be mainly centred around oil”.
He adds: “We see an opportunity for Hill International in Kuwait, particularly on contract consultancy and the resolution of disputes. It will save all involved a great deal of time and money.”
THE COMMERCIAL PERSPECTIVE
Ian Gladwin, international head at Cluttons, says he has witnessed the dramatic changes in Kuwait’s retail sector, which has seen the highs and lows that shaped the construction sector’s fortunes.
Speaking to Construction Week, he recounts the decline of Saddam Hussein, and how Kuwait “went mad on the construction side”.
He explains: “There was a real appetite to invest in Kuwait City and real faith in the future of the country.
“For a city that had 35,000 sqm to 40,000 sqm of core, grade-A office space, within two to three years, we had vast office space on the build.”
This “vast oversupply” met head on with the GCC downturn in 2007 to 2009 and rental values in Kuwait City were halved in the space of six months. Properties that had been renting at $56.4 (KWD17) per square metre a month were now valued at $26.5 to $30 (KWD8 to KWD9).
Limited property demand and “a vast tsunami of grade-A supply on the back of over-inflated sentiment, due on the fall of Saddam and oil values at $140 per barrel”, took a toll on Kuwait’s real estate sector, according to Gladwin.
Since then, there has been a “little bit of a recovery phase”, and in terms of asset values, “we are back to where we were in the late 1990s”, he laments.
However, barring any regional unrest, Gladwin predicts a “reasonably steady growth pattern” for Kuwait’s property market.
He adds: “The retail sector is very strong in Kuwait and a number of well-known retailers will declare [the country] a strong ‘number two’ to Dubai, because the spending power is very high here.
“The Avenues, for instance, has potential to expand into its next phase, which will see a further retail offer,” Gladwin adds.
The Avenues Mall on the Fifth Ring Road has garnered attention away from the Salem al Mubarak street in Salmiya. As one of the largest malls in the world, it boasts 800 stores spread over the seven districts.
With national funding for major infrastructure projects, a booming retail sector, and a real estate sector with growth prospects, there’s plenty of reasons to be excited about Kuwait’s construction sector.
So what would be the one piece of advice for companies looking to claim a slice of the Kuwaiti construction pie?
“Patience is a virtue,” Crowley says, adding that Driver Trett is very well known in the GCC ,“but in Kuwait, nobody was particularly aware of us or the services we could provide”.
He adds: “This has certainly changed, but everything in Kuwait takes time.”
Hill’s Badman says it’s important for companies to do their due diligence before entering the Kuwaiti construction market – more so given the stringent procedures implemented by governments, and the rise of home-grown private sector firms eying local expansions.
“The Kuwaitis are very well educated and their contracts are fairly robust,” Badman asserts.
“They have been involved in complex projects for a number of years, so people need to walk into agreements with their eyes wide open, and fully understand their risks and obligations.”