By: SAL
In a recent report by Goldman Sachs covering its 2010 economic outlook for the region and specifically Kuwait, Goldman drew a very pessimistic picture of what it perceives the future holds for Kuwait. According to the report Dubai and Kuwait will lag behind Saudi Arabia, Qatar, and Abu Dhabi in any recovery in the near future. It estimated that Qatar would grow the most between 7-7.5% and Saudi Arabia will grow at 4.5%. While both the economies of UAE and Kuwait contracted by around 2.5% this year, UAE is expected to grow at 2% in 2010 driven by Abu Dhabi. After much deliberation, I simply don’t agree with Goldman’s estimates. Why would Kuwait lag?
FACTS:
1. Goldman Sachs forecasts oil at $90 in 2010 and $110 in 2011. According to a report by Reuters, Kuwait’s GDP is forecasted to grow by 17% in 2010 driven by the rally in oil prices and investment in infrastructure projects. With the surge in oil prices from the December 2008 lows of $32, and oil being a main source of revenue for the country, Kuwait’s GDP is expected to grow the most, by 16.9%, followed by Qatar, Saudi Arabia, and UAE at 8.3%, 7%, and 5% respectively. To note, the estimates were based on a conservative oil price projection of $50/ barrel throughout the budgetary period. With the expected surge in oil prices for 2010 and the OPEC consensus of no change in oil production quotas, crude oil for January delivery trading at $73.38 a barrel, I believe that Goldman undermined the effect of the projected “$90” on the country’s GDP.
2. The political victory and vote of support that led to the survival of both Kuwait’s Prime Minister and Interior Minister from a non-cooperation vote in the parliament has been praised as a victory of democracy and turning point in the political field that is expected to bring with it’s a transition in the political system and passage of key economic policy changes and developmental projects. Kuwait is at REST. No ouster, no dissolution of parliament, and hopefully no standoffs between the government and MP’s anytime soon.
3. Global Investment House reaching formal agreements with all of its financiers to restructure $1.7 billion in debt has brought a close to uncertainty and boosted investor confidence and expectations of reaching a similar agreement on Wednesday when the Investment Dar sits down with its creditors. That, coupled with the $1.1 billion or 37% profit the KIA made from its successful investment in Citigroup.
Political rest, surging oil prices, and investor confidence finally kicking-in with the noticeable increase in trading volumes in the stock market will help lead the Kuwait SE to break barriers Goldman set for it.
(1 votes, average: 2.00 out of 5)
Loading ...Tags: Citigroup, GDP, Global Investment House, Goldman Sachs, Investment Dar, Kuwait, Kuwait Bearish Outlook, Kuwait Stock Exchange, Oil, Qatar, Saudi Arabia, UAE
I hope you’re right. But I think your reading of the political stability might be a little off. Moreover, aside from the “standoff” issues that may potentially come up, sadly economic progress doesn’t seem to be the top priority and so long as that’s true we have a problem.
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(p.s. the post’s title was brilliant! I really liked the play on words.
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[...] View original post here: Goldman Sacks Kuwait « Alpha Dinar- talking GCC finance [...]
Thanks. I believe the government did a good effort today in reassuring everyone that everything is under control, calling for the reinforcement of Audio-Visual laws, and taking punitive actions against anyone who undermines the unity of all. Moreover, going forward, more of the uncertainty is fading away as Sheikh Ahmed Al-Fahad said that year 2010 will be “the year of projects” with billions worth of projects and plans currently in the pipeline waiting for deployment.
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Keynesian Reply:
December 22nd, 2009 at 5:54 pm
Excellent post. I guess Goldman should hire someone else to cover the region!
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Saud Reply:
December 23rd, 2009 at 1:12 am
maybe you ;p
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why will kuwait lag? simple: it always manages to shoot itself in the foot!
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i somewhat agree with Goldman…
Kuwait is years behind many other GCC countries and is in desperate need of an intelligent and strong authority that can sway the country’s dependance on crude oil!
i still cant see that happening,keeping in mind when Sheikh Ahmed al Fahad states 2010 is a year of projects, he is stating the issue of housing roads and piping… Nothing foreign investors will be fond of contributing to!
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Keynesian Reply:
December 28th, 2009 at 6:31 pm
Kuwait is a pretty messed up place.. Nevertheless, I would like to have some optimism. I’m sure we can change things, but lets just hope the people currently in charge don’t completely wreck it.
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People please be optimistic, Infrastructure projects are a start. With that comes joint projects between the government, private sector, and international companies
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KuwaitQ Reply:
December 29th, 2009 at 9:57 am
SAL:
are you able to send me the GS report on Kuwait?
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Sal Reply:
December 29th, 2009 at 3:55 pm
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB1gdsqOrwm8
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Keynesian Reply:
December 29th, 2009 at 6:15 pm
I will send it to your email. I guess you want the actual report, not the news story.
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KuwaitQ Reply:
December 30th, 2009 at 12:51 pm
Yes Please..
its very difficult for foreign investors to participate in any joint venture given the bado/hathar mentality we have in the parliament currently (remember the dow chemicals jv?)
i don’t see the economy contracting but i don’t see it going anywhere, a stagnant economy is what we have. even with the surplus from the oil prices, we won’t invest that money wisely or in infrastructure as people will clamor to their MPs and demand for more debts to be cancelled
its a sad state we’re in..
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Keynesian Reply:
December 29th, 2009 at 7:47 pm
Excellent points. A lot of people in Kuwait become excited and over-joyed everytime our newspaper headlines read: “Kuwait budget records a huge surplus.” Well, don’t. This is mostly because we hardly spend a penny on projects in Kuwait! The government needs to go on a spending spree and revive us out of this stagnation.
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Sal Reply:
December 30th, 2009 at 12:44 am
On the same matter.. Out of the preliminary budget OIL revenue was KD 10.55 billion and NON- oil revenue KD 622.3 million, totaling to KD 11.7 billion in revenue verses KD 4.85 billion. How sad is this figure?
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