Infrastructure development in Kuwait

The decline in oil prices that started around 2014 prompted Kuwait to look at various alternatives to contain the budget deficits that it was experiencing for the first time in nearly two decades. Some of these measures were short term, like exiting from investments in stocks and other assets, which were made over the years from annual budgetary surpluses, to generate liquidity. Other initiatives have been somewhat controversial, like reducing subsidies on essential items and (contemplating) introducing corporate and personal income tax, both of which have their own political and social ramifications.

Oil prices have since recovered (although nowhere near their 2011-2014 level) and the fall in GDP was reversed post 2016. However, the stop gap measures taken did not risk proof the economy from future oil shocks, as they were aimed primarily towards financing deficits and not towards building capacity or sustainable infrastructure. This realization led the Government to put the focus back on diversifying the economy away from the oil sector. 

“One of the key outcomes of which was the new Kuwait Vision 2035, released in January 2017, which seeks to transform the country into a regional financial and cultural hub through investment in several development areas.”

The provision of adequate infrastructure services to meet the growing needs of its citizens and businesses remains among the foremost challenges of developing economies across the world. The scale, technical requirements, long gestation and economic characteristics of infrastructure projects puts governments at the forefront to play an essential role for its provisioning. However, government’s limited ability to commercialize principles of infrastructure provision often result in a lack of efficiency or responsiveness in the envisaged delivery of services.

Further, as projects are becoming mega and more complex in nature, they are inherently becoming more risky with higher investment requirements making it increasingly difficult for project sponsors to keep their nerve in the face of potential uncertainties.

While we agree that the government must maintain (and the public expects it to maintain) a level of control and oversight over the provisioning of infrastructure, the reality is that the pace of technological and social change has been faster than the pace of regulatory change.

Historically, governments have used public money or some form of debt security issued by the state to fund developments. However, with the increase in the scale of required investment and limited public purses, many governments are increasingly turning towards various funding solutions that include accessing private equity and debt finance for infrastructure projects that have scope for commercialization in order to get them implemented.

In order to make infrastructure projects commercially viable, Kuwait will need to put focus on improving the ‘bankability’ of emerging infrastructure opportunities by creating more rigor in the way projects are prioritized, selected, developed (by undertaking more robust technical and financial feasibility analysis), de-risked and procured.

Governments are providing the necessary support to service providers to design, build and operate the assets over a period of years, and receive in return an agreed revenue stream, with penalties or rewards for under/over-performance to encourage efficient operations. 

In order to make infrastructure projects commercially viable, Kuwait will need to put focus on improving the ‘bankability’ of emerging infrastructure opportunities by creating more rigor in the way projects are prioritized, selected, developed (by undertaking more robust technical and financial feasibility analysis), de-risked and procured. This will generate the required interest from the private sector (including internationally) to embrace the increasingly important role in financing and delivering critical projects. Ultimately, this should lead to better infrastructure, higher quality of life and improved global competitiveness.