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Comparative Analysis
State of Kuwait
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Kuwait economy overview:
Kuwait is a small rich country with an economy depending mainly on oil. It enjoys
oil reserves about 105 billion barrels, 9% of the world reserve.
Oil source is presenting around half of Kuwait GDP, 95% of export revenues and
95% of national income. Therefore, any increase in world oil price or the crude of
oil will have an additional surplus on the Kuwaiti economy.
Kuwait has been affected indirectly by the financial crisis at the end of 2008.
However, the government and CBK have taken some steps to overcome negative
effect of this crisis.
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Scope and Objective:
This report is fully dedicated to discuss the performance of Kuwait economy over
the period from 2005 to 2009.
First of all, it will present the indicators affecting the momentum of this economy
followed by an analysis of these indicators and how much they contributed to the
performance of the economy during this period of time.
The analysis will also highlight the relationship and the co-reaction between all
economic factors in order to draw the economic image of Kuwait.
This report will be concluded with list of recommendations and corrective actions
that could be adhered in order to secure better future for Kuwait economy.
Population of Kuwait
2,500,000
2,000,000
1,500,000
Kuwaiti
Non Kuwaiti
1,000,000
500,000
Non Kuwaiti
0 Kuwaiti
2005 2006 2007 2008 2009
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Kuwait Population According to Age
2005 2006 2007 2008 2009
90.0%
80.0%
70.0%
60.0%
50.0% Under 15 years
40.0% 15 to less than 60
30.0% 60 years plus
20.0%
10.0%
0.0%
2005 2006 2007 2008 2009
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000 Kuwaiti
800,000 Non Kuwaiti
600,000
400,000
200,000
0
2005 2006 2007 2008 2009
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Kuwait GDP ( KD Million )
30,000.0
25,000.0
20,000.0
Consumption
Investment
15,000.0
Import
Export
10,000.0 Governmental
5,000.0
0.0
2005 2006 2007 2008 2009
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Consumption
Consumption
14,000.0
2005 7,585.9
12,000.0
10,000.0
2006 8,419.4
8,000.0 2007 9,917.6
6,000.0
2008 11,139.0
4,000.0
2,000.0 2009 11,724.7
0.0
2005 2006 2007 2008 2009
Investment
Investment
8,000.0 2005 3,875.7
7,000.0
6,000.0 2006 4,761.7
5,000.0
4,000.0 2007 6,664.8
3,000.0
2008 7,364.7
2,000.0
1,000.0 2009 4,383.5
0.0
2005 2006 2007 2008 2009
Governmental
Governmental
45,000.0 2005 23,593.2
40,000.0
35,000.0 2006 29,469.6
30,000.0
25,000.0 2007 32,580.5
20,000.0
15,000.0 2008 39,990.5
10,000.0
5,000.0 2009 31,500.1
0.0
2005 2006 2007 2008 2009
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Export
Export
30,000.0
2005 15,094.0
25,000.0
2006 19,316.0
20,000.0
2007 20,661.0 15,000.0
Import
Import
2005 6,669.0 12,000.0
10,000.0
2006 7,122.0
8,000.0
2007 9,226.0 6,000.0
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Interest Rate
Interest Rate
7.00%
2005 6%
6.00%
2006 6.25% 5.00%
4.00%
2007 6.25%
3.00%
2008 3.75% 2.00%
1.00%
2009 3%
0.00%
2005 2006 2007 2008 2009
Unemployment
Unemployment
2.00%
2005 1.35% 1.80%
1.60%
2006 1.37% 1.40%
1.20%
2007 1.81% 1.00%
0.80%
2008 1.82% 0.60%
0.40%
2009 1.64% 0.20%
0.00%
2005 2006 2007 2008 2009
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Co-relation between
Interest Rate, Inflation and Unemployment
12.00%
10.00%
8.00%
Interest Rate
6.00%
Inflation
Unemployment
4.00%
2.00%
0.00%
2005 2006 2007 2008 2009
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Economic Analysis Details:
Through the last decade, Kuwait Economy has registered a continuous positive
growth in its Gross Domestic Product (GDP); however, its economical statistic
curve dropped down rapidly in the year 2009 as a result of the world financial
crisis that occurred at the end of 2008 and its vast negative effects on all
economies.
It will not be strange to witness acceleration in the GDP for a country like Kuwait
especially if its main source of economy is “OIL”. This acceleration is reflected out
of the development in the world oil market, the oil prices and the increase in the
crude oil production rate.
Kuwait GDP, over those five years of analysis, started with an increase to reach
23,593.2million in 2005 due to the growth in the oil market from one side, the
increase in the total value added at the current prices of the non oil sectors and
the raise in the surplus of the export trade. Price index rose in parallel with an
inflation that reached 4.1%. and labor force 11.1%.
In 2006 GDP continued its increase to reach 29,469.6 Million. This was again due
to the same main reason of the oil source from one hand and the growth in the
total value added at current prices in the non oil sectors specifically the financial
institutions.
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It was notable that although the GDP increased in 2006, its growth rate declined
by 9.8% in comparison with 2005. This was due to the change in the inflation rate
that decreased from 4.1% to 3.1 % as a reflection of the deceleration in the
growth rate of the consumer price index.
The objective of CBK during 2006 was to increase the interest rate from 6% to
6.25% as a step to mend the decrease in the inflation rate. Moreover, by
implementing this raise, CBK was supporting the local banks to maintain and
increase the capability of pulling more K.D deposits. Eventually local banks
achieved record profit levels in 2006.
Moreover, CBK increased the exchange rate of the Kuwaiti Dinar against US
Dollar in order to maintain its relative stability during 2006 as the exchange rate
policy was still pegging Kuwaiti Dinar to US Dollar.
From 2006 to 2007 the GDP continued in increase at a decelerated rate to reach
32,580.5 Million. This year the non-oil sector has the largest section in the GDP
(61.1%). So although the world oil price changed to US$ 58.24 in 2006 compared
to US$ 65.51 per barrel in 2007, the decrease in Kuwait crude oil (as per OPEC
resolutions) had an opposite impact.
Domestic demand has increased rapidly in 2007 which led to a noticeable raise in
inflation rate from 3.1% in 2006 to 5.5%; nevertheless, CBK maintained the
interest rate at 6.25%
CBK remarkable action in 2007 was pegging the Kuwaiti Dinar to a currency
basket system. This was a very efficient step especially after the decline in the US
Dollars exchange rate. CBK tried to find a more stable system in which they can
safeguard the economy of Kuwait.
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In 2008 the gross domestic product had an accelerative increase of 22.1% to
reach 39,990.50 Million. This was a reflection of the leap in the crude oil growth
which dominated 86.9% of the GDP. Moreover, the increase in the value added at
current prices of the oil and non-oil sectors had another positive influence.
The boom in Inflation rate in 2008 was the highest since the year 2000; it rose
rapidly from 5.5% to 10.6%. Eventually, CBK, in it steps to maintain the stability of
Kuwait economy, reduces the discount rate from 6.25% to 3.75%.
Although the unemployment was supposed to increase due to the increase of the
inflation rate; however, the Kuwaiti Government has taken some corrective
actions by encouraging the private sectors and implementing Kuwaitization
concept that forced lots of companies to increase the Kuwaiti labor.
The deterioration in oil prices by 11.4% and the decrease in the crude oil
production by 15.5% pulled down the GDP intensely in the year 2009 by 4.8%. It
was astonishing to see that in Kuwait the GDP of the oil sector fell behind the
non-oil sector.
The financial sector was in a big need for an intervention from CBK to minimize
the losses and stabilize Kuwait economy. The crisis stunned all financial sectors
with a new unexpected factor of low oil prices and production.
As a result, CBK cut down the discount rate for two times during 2009 to reach
3%in order to reduce the cost of domestic credit and strengthen the foundations
of growth in the national economy. Therefore, 2009 witnessed partial recovery
due to governmental intervention.
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Inflation rate dropped significantly in 2009 from 10.6% to reach 4.0% as the level
of domestic prices decreased noticeably in housing, food, household goods and
services sectors.
SWOT Analysis:
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Recommendation:
The facts and results of 2009 should be a contemplate point for the Kuwaiti
Government who should start to diversify its economy and decrease its
dependence on oil. They should urge the initiation of different development
plans that would strengthen the economy and improve its infrastructure.
It is crucial for the government to expand its project development through local
and foreign companies and to start easing regulations for new businesses.
Consequently, Kuwait will expand the scope of its non-oil sector by enhancing
and attracting all types of local and foreign investment to its market.
On the other hand, the government should give more access to lands in order to
enhance development and infrastructure. So although Kuwait is a small country,
lots of its land is not used yet.
The role of the private sector should be accentuated. Like the plan of
privatization of Kuwait Airways the national carrier of the country. This will
motivate competition in the private sector which will have a positive impact on
the whole economy.
The government should also improve the educational system towards new
concept and objectives. Their aim should focus on raising a self-made generation
independent from the idea of “Possessing Oil”. The new generation should be
strong enough to face a case like 2009 or better to say the new generation should
not allow 2009 to happen again if it is armored with multi diverse economy.
Page 14
References:
Annual & Economic Reports of the Central Bank of Kuwait ( 2005 – 2009 )
IMF ( International Monetary Fund ) Executive Board Conclusion about Kuwait.
Economic Report of Capital-Standards Agency
http://www.capstandards.com/CSR_Kuwait-Economic-Report_December-2009.pdf
Market analysis: Kuwait. 2009. International Securities Finance, June 1. [Online]
available from: http://proquest.umi.com/pqdweb?
did=1777732271&sid=3&Fmt=3&clientId=80800&RQT=309&VName=PQD(viewed
7thApril, 2011).
Kuwait economy: Market opportunities. [online] available from:
http://proquest.umi.com/pqdweb?
did=2085902721&sid=4&Fmt=3&clientId=80800&RQT=309&VName=PQD(viewed
7thApril, 2011).
'Executive Summary' 2010, Kuwait Defense& Security Report, p. 5, Business Source
Complete, EBSCOhost, viewed 9th April 2011.
'ECONOMIC OVERVIEW' 2005, Kuwait Country Review, p. 25, Business Source Complete,
EBSCOhost, viewed 9thApril 2011.
'ECONOMIC OVERVIEW' 2006, Kuwait Country Review, p. 33, Business Source Complete,
EBSCOhost, viewed 9thApril 2011.
'Outlook for 2006-07' 2006, Country Report. Kuwait, pp. 7-12, Business Source
Complete, EBSCOhost, viewed 9thApril 2011.
'ECONOMIC OVERVIEW' 2008, Kuwait Country Review, p. 63, Business Source Complete,
EBSCOhost, viewed 9thApril 2011.
'Outlook for 2009-10' 2009, Country Report. Kuwait, pp. 4-9, Business Source Complete,
EBSCOhost, viewed 9thApril 2011.
'SWOT Analysis' 2009, Kuwait Oil & Gas Report, pp. 7-9, Business Source Complete,
EBSCOhost, viewed 13th April 2011.
'Data and charts: Annual data and forecast' 2009, Country Report. Kuwait, p. 15,
Business Source Complete, EBSCOhost, viewed 15 thApril 2011
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