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What bankruptcy? Kuwait construction firms’ 2018 outlook looks much brighter

It was recently reported that construction firms in Kuwait are facing bankruptcy due to lack of liquidity in market.

While that may still be so, recent data shows that a major construction revival is taking place.

Real Estate accounts for 6% of Kuwait’s non-oil GDP with the impressive scale of real estate activity showing a new city in the country’s south being reclaimed from the sea over the course of 15 years.

With just a little more patience, things will take a turn to the better in 2018.

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Bad news first

Lack of liquidity and an inability to meet Kuwaiti construction firms’ financial commitments for completing projects, which had been suspended for more than three years, has put them on the verge of insolvency.

Al-Shahed Daily said “Kuwait’s Ministry of Commerce and Industry (MoCI) has refused requests for liquidation from 13 companies, so as to protect the rights of the shareholders and the funds of small investors.”

It said, citing sources, that weak cashflow led some creditors to ask the ministry to liquidate certain companies because their profit margins have dropped by 80% over the last three years.

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The National Bank of Kuwait (NBK), said lately that the total value of awarded projects in Kuwait fell by 28% to $13.3bn in 2017, yoy.

According to ResearchGate, both the Ministry of Public works (MPW) and National Housing Authority (NHA) are taking leading roles in building and housing projects.

“Some of these residential projects have an estimated budget of $50 million and the annual allocated budget for building and housing projects is estimated at $1.2bn,” said a 2018 ResearchGate report.

“The design and construction are performed by local design and construction firms but during the last decade, many of the building and residential projects have not finished on time.”

According to NHA records, it is estimated that a family has to wait 14 years to receive a housing  unit.

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Good News

According to a 2018 report by the Oxford Business Group (OBG), Kuwait is beginning to clear a backlog of major projects in energy, infrastructure and housing.

“The government’s five-year National Development Plan committed to spend $112.5bn over the 2015-20 period,” said OBG.

“The country has seen its first successful construction project completed on a public-private partnership (PPP) basis, and according to NBK there is a further$33.1bn in PPP projects in the pipeline for schemes ranging from power and water to education, health and transport.”

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OBG said several new communities are being built by the government to provide homes for more than 100,000 Kuwaiti married couples, and will provide ample new opportunities to develop residential, retail and commercial property in the years ahead.

“State-funded building activity will receive a major injection of funds under the draft budget, which was approved by the Cabinet on January 29, with 18% of outlays earmarked for capital expenditure,” added OBG.

Nayef Al Hajraf, minister of finance, told media that while the budget will remain capped at $66.7bn, “We believe that reform starts with curbing spending while maintaining a healthy rate of capital expenditures on infrastructure,” he said.

Much of the funding is expected to flow directly into the construction sector when the budget comes into effect at the beginning of FY 2018/19 on April 1.

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The Kuwaiti private sector will be given a tremendous boost in national infrastructure projects, using the PPP model.

In early December the Kuwait Authority for Partnership Projects (KAPP) announced a contract to develop and operate the new Al Hayman wastewater treatment plant.

Located south of Kuwait City, the $1.3bn project will be carried out under a build-operate-transfer (BOT) agreement with the Ministry of Public Works.

“The initiative represents one of several public-private partnership (PPP) projects that KAPP is rolling out under a BOT model,” said OBG.

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Rail off the ground

Kuwait is similarly looking to involve the private sector in the relaunch of a landmark $17.7bn rail network project orginally slated for completion in 2017.

The project involves a new metro between Kuwait City and its airport and seaports, and a freight and passenger railway linking major logistics hubs with the GCC-wide rail network.

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More good news

In early February international credit ratings agency Standard and Poor’s (S&P) said higher levels of spending on construction work should feed into stronger economic growth this year and beyond.

The agency said it expected GDP growth to average around 3% between 2019 and 2021, rising from an anticipated 2.5% this year, on increased outlays on investment projects and higher energy revenue.

Meanwhile, BMI Research says Kuwait is likely to see 3.5% growth this year after estimated 1.1% contraction in 2017

BMI’s infrastructure keyprojects database listing showed over 50 publicly funded non-oil projects that are either underway or at planning stage.