I know I misquoted Clinton’s famous election phrase, “It’s the economy, stupid.” For the US in 1992, it was the economy. In Kuwait, people wonder what is our problem. Some say it is political, others say social, and the financially savvy like to point to the economic side as the culprit. The best answer to that question is, “It’s everything, stupid.” Everything: we are dysfunctional from a political, social, and economic perspective.
Political:
The country is daily riding a roller-coaster of politics orchestrated by a cynical populist parliament and a fragile inefficient government. The political roller-coaster is circulating in a never-ending fashion from impeachment to dissolution. When is it going to end? I don’t want to elaborate on the political side. For more, refer to my previous post titled, “Parliamentary plays derail reform.”
Social:
Why it it that everyone in Kuwait regardless of their wealth live the most lavish lifestyle? The answer is simple: why not? Charge it on a credit card and expect the government to forgive loans. It is sad that a graduating senior from a Kuwaiti high-school’s dream is not to get into Harvard, but to drive a Maserati and upgrade to a Ferrari after college graduation. I remember a time when I was a kid and I used to enjoy going to my family’s weekly gathering to go to the supermarket and buy candy. You know what is a Kuwaiti kid’s dream nowadays? A Blackberry phone and an Abercrombie & Fitch t-shirt. This consumer mentality has to come to an end. More importantly, the parenthood relationship between the government and its citizens has to be abolished. There is severe moral hazard in our nation and its a vicious downward spiral cycle. Our government acts as a free collection agency for businesses. Our parliament sponsors morally hazardous acts such as sending families for tourism in the name of sickness and proposals such as debt forgiveness and “attractive” laid-off employee benefits. Our citizens enlist in unheard of universities in the likes of Zimbabwe and the Philippines to get a high-paying government job doing, well, nothing.
Economic:
We were the first to establish a stock market in the GCC, but today we are the only country without a governing Capital Markets Authority. It hurts, so I don’t want to talk about where we were, coulda, shoulda, and woulda. I wish I could say it in a different way, but what is happening in Kuwait’s stock market is a disaster. The domino effect is unstoppable without government intervention, regulation, and a complete overhaul of the economic system. We desperately need to instill confidence in our stock market. We want to send a message to everyone that what happened during Souq Al-Manakh crisis was a one-time event that isn’t currently in the making.
The government has to take the initiative and push for a new era of economic transparency and development. We need a Capital Markets Authority that acts as a watchdog that punishes all malpractices in the industry. Isn’t it humiliating to see the United States question manipulations by Kuwaiti individuals and companies while no one in Kuwait addresses these issues? Isn’t it ironic that market leaders are currently on the verge of bankruptcy? With added transparency, investors would have enhanced clarity and can potentially make an informed decision as opposed to gamble or leverage on an insider tip. Rest assured that the wounds of burnt foreign investors will take time to heal and it will be challenging to win them back. The establishment of a Capital Markets Authority is pivotal to the critical process of confidence restoration in our financial system. What we lack in Kuwait is priorities. Why don’t we organize and push for passing the Capital Markets Authority in the parliament? Let us prioritize our problems and address them in a one-by-one basis instead of being overwhelmed by their magnitude.
After the Agility controversy last week, people are left wondering what could stop the free-fall of our stock market? As with any solution, there is a short-term and long-term approach that need to be addressed in tandem. Establishing a Capital Markets Authority helps in the long-term, but shorter-term we have to focus on addressing the issue at hand. The reality is that our stock market is made-up of a few Chaebols*. These few Chaebols have numerous companies attached to them. These numerous companies ultimately depend on the success of the few and the few are all in trouble. The biggest four companies by market capitalization in the Kuwait Stock Exchange are Zain, NBK, KFH, and Agility. There used to be Dar and Global, but there are gone. Zain is operationally challenged and its owners want to bail-out (but seemingly can’t), NBK will be hit hard if Zain owners can’t sell their stake, KFH depends heavily on real-estate and with the wealth destruction in Kuwait there is no hope there, and Agility’s sheer existence is being challenged by a complex fraud case.
I believe government intervention should be through recapitalizing banks. The government should simply buy a 5-10% stake through new share issuance by all banks. This will provide banks with much needed cushion for taking write-downs. Instead of the never-ending provisions drama, let us mark down these assets, take the hit, and move on. The US is a perfect example of such successful approach. Establishing a portfolio that buys into stocks and tries to lift the market is a very limited solution. The government is only addressing a symptom when it does that and should do that simultaneously with other solutions proposed.
*Chaebols: large, conglomerate family-controlled firms of South Korea characterized by strong ties with government agencies.
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Loading ...Tags: Agility, bahrain, economic, GCC, KFH, KSE, Kuwait, kuwait finance house, kuwait issues, kuwait problems, Kuwait Stock Exchange, Kuwaiti Banks, National Bank of Kuwait, nbk, political, Qatar, Saudi Arabia, social, UAE, Zain
the cynic says there is no hope but he is also a realist and a pragmatist. the few remnants of fast-diminishing intellect ought to read the writing on the wall and build a new one far away.
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Keynesian Reply:
November 22nd, 2009 at 2:09 am
The first step towards solving issues is identifying them. I believe we can build it together..
peteyb:
Your comments are intriguing and point to an intellectual writer. You are always welcome to submit articles thru our article submission section.
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[...] Here is the original post: “It everything, stupid.” « Alpha Dinar- talking GCC finance [...]
I support your call. As it is I am afraid for the big Zain. They cannot sell because there is a lot of rot in the system. 4 Chiefs have resigned this year and they behave as if all is well. They cannot get a buyer because it smells when due diligence is done. With a strong regulatory body key questions would be asked. Where else in the world will 4 chiefs resign and nobody is asking what is going on. They are hiding things.
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Keynesian Reply:
November 24th, 2009 at 1:51 am
I didn’t know chiefs were resigning from Zain. I guess most of the problems are because of the high ask price.
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Everything someone gets an award, it smells trouble
http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=265046
Zain named best mobile operator in Middle East
Posted on » Sunday, November 22, 2009
MANAMA: Telecom giant Zain was named the best mobile operator in the Middle East.
It won three of the most prestigious prizes at the Third Annual Telecoms World Awards Middle East in Dubai, organised by Terrapinn.
The company won the prize for best operator, best brand and was deemed to have the best technical innovation for its ground breaking, borderless ‘One Network’ service.
“Zain is at the very top of its game in many ways. It has robustly addressed customer needs in terms of quality, reliability and service,” said the four-member judging panel.
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Keynesian Reply:
November 24th, 2009 at 1:52 am
Now that I thought of it, it might actually have some truth to it!
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Have you seen Moore’s new documentary? It basically calls for the destruction of capitalism. I don’t agree with his beleifs entirely but I can see why capitalism might be blamed as a lot of what you mentioned is not a KUWAITI problem, it’s a lot more international than that.
1)In your political section I agree it is a Kuwaiti problem.
2)In your social section, using credit cards to buy things you shouldn’t be allowed to buy is by no means a Kuwaiti problem. Same thing happened in the US. Why does everyone believe they should be a homeowner? Why can’t people understand that for the rest of their lives RENTING is more appropriate and sustainable given their financial means?
3)In your economic section you mention the need for regulation. I agree. BUT it can’t be seen as the KEY to economic stability as it didn’t save the US. There’s all kinds of regulation and rules on transparency and legal action actually taken against insider trading. Despite that, well you saw what happened. Your question, isn’t it ironic that market leaders are on the verge of bankruptcy, definitely applies to what happened in the US as well.
And last but not least, in the last part with the write-offs when you say the US is a perfect example of such an approach, you’re speaking as if you already saw the ending of that story. We’re not there yet. Last I heard and correct me if I’m wrong unemployment is still insane in the US.
I guess what I’m trying to say is that although I agree with a lot of what you said I disagree strongly with the insinuation that other more developed markets are using perfectly affective approaches and solutions. And while I am nowhere near knowledgeable enough to propose a new economic system, I do wonder if we should be questioning some of the tenants of capitalism as a whole.
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Keynesian Reply:
November 24th, 2009 at 2:20 am
1001 Nights,
Moore is an idiot. He just wants the spotlight. Kuwait isn’t a capitalist country we are socialists.
2. Excellent point. I totally agree that it is the same thing happening in the States when it comes to credit card usage and we should idolize the US just for the sake of it. However, my point is that our government as opposed to the US bails out its citizens and creates moral hazard. Do you know what happened to people who couldn’t afford homes and bought them in the States? They got foreclosed on! Out.
3. True to a pioint, but not entirely. Transperency regulations and laws are a cornerstone to any economy.. Regulations couldn’t save the US because Wall street is much smarter than the SEC and for every SEC employee there are thousands of bankers finding loopholes (such as the off-balance sheet stuff). However, don’t confuse this with insider trading. There were no cases of insider trading during the crisis, and if there were the people responsible are in jail because there are laws here. Martha Stewart is a perfect example. Another would be ponzi schemer Madoff and the latest added to the list insider trading Galleon hedgefund head. Anyways, my point is regulations are important. They are not perfect, but decent. Imagine you have an open space between 2 walls. Regulations can’t put in a steel door on it, but could put a strong glass window. It will save us most of the time and is better than having the space open. Sorry for the long example.
Last part:
Taking write-downs cleans balance sheets. True, unemployment is above 10% and it will take time for it to go down, but it is a lagging indicator. Nevertheless, I don’t believe we will have much employment. However, banks are clean now and are all making profits.
I don’t believe more developed markets are using perfectrlt effective methods, but at least they have methods.
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Interesting takes on a vital subject.
In addition to what was said, one could add other issues as important if not not more important on all levels.
I hate to say it but we live in a “la la land”. The Government/Parliment acts like a child in a candy store and it don’t know when to stop and take responsibility!
We don’t have a true open market. We actually have an “open socialist” system depending on the government from birth to death.
Sadly, we have an old saying (in arabic) that goes something like that “if you don’t learn then, life will teach you”. We are reaping what we sow.
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Keynesian Reply:
November 24th, 2009 at 1:53 am
I second “la la” but will work on changing it.
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Yes, I agree we all should strive for positive change !
Kuwait “our land” gave us alot, people should realize its time to pay back before its too late.
Keep up the positive spirit and determination, people like you make the difference.
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The root of your writing whilst sounding reasonable in the beginning, did not sit well with me after some time. Somewhere within the sentences you actually managed to make me a believer unfortunately only for a short while. I nevertheless have got a problem with your jumps in assumptions and you might do well to fill in all those gaps. In the event that you can accomplish that, I will definitely be fascinated.
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