Our vision is to develop Kuwait as a regional financial and commercial centre, and we envisage an active role for the private sector in achieving this goal,” the new Amir, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, said in early May. The only problem with Kuwait’s regional ambitions is that a few days later the launch of Saudi Arabia’s King Abdullah Financial District in Riyadh was announced while Bahrain and Dubai are already slugging it out for financial supremacy along with relative newcomer Qatar with its new Qatar Financial Centre (see page 112).
Despite the oil revenues flowing into the region, the critical questions are how many financial centres in the Gulf region are truly viable, can five countries all claim regional status and what intrinsic advantages does Kuwait offer in its quest for a prime regional role?
“Kuwait has the right features to qualify to become a regional commercial and financial centre,” said minister of finance Bader Al-Humaidhi at a May conference. “It is politically stable and has a geographically strategic location. Also, the security and political circumstances in the region have changed and Kuwait has played an important role in that. The economy, banking and the financial sector are all stable.”
Is stability enough? The country has a reputation for a slow bureaucracy, outdated taxation laws stretching back to 1955 and the IMF’s recent Article IV report in April was critical, saying: “Progress on the structural reform front remains slow. The authorities have adopted some measures to allow for a broader role of the private sector in the economy, but reforms need to be in the context of a comprehensive strategy.” Not a ringing endorsement, but perhaps the new Amir’s vision of a financial centre does represent an important step forward in that comprehensive strategy.
Different strategy
Bankers take differing views on how a successful Kuwait centre can be achieved. Experienced Gulf Bank chief executive Dr Yousef Al-Awadi strongly believes that Kuwait should take a different approach to other states in the Gulf and not replicate what is happening elsewhere. “We should avoid a confrontation strategy in developing Kuwait. We should take a complementary approach. Just as Bahrain, Qatar and Dubai have their particular comparative advantages, Kuwait should use its strengths and take a different focus as a regional asset management centre,” he says.
Dr Al-Awadi emphasises the huge expertise already built up in Kuwait in asset management, not only in the $125bn or more of government funds, but also in the huge private wealth under management. He reckons that asset management and related activities, such as research, offer a distinct and valuable non-confrontational way forward.
The chairman of the Bank of Kuwait and the Middle East, Hamad Al-Marzouk, is optimistic about the solid fundamentals in Kuwait and its solid legal framework, and Commercial Bank chairman Abdulmajeed Alshatti is equally bullish that Kuwait has the infrastructure and the bankers to achieve the Amir’s vision.
Mr Al-Humaidhi says: “The development of Kuwait as a financial and commercial centre needs detailed studies to make it successful. The most important element of succeeding in this project is to simplify procedures and eliminate bureaucratic restrictions. This will attract foreign investment as well.”
Seeking a role
Although the Amir had been working on this financial centre plan for seven months when he was prime minister, and it forms an important vehicle to reinvigorate the financial sector, it is not clear what regional role Kuwait can play and how it could be achieved.
The country’s sound group of commercial banks, led by the premier Arab bank, National Bank of Kuwait, are well managed and profitable but are only now developing regional networks, if at all. And, although foreign banks are now operating in Kuwait, major players such as HSBC are also operational in Bahrain, Saudi Arabia, Qatar and the United Arab Emirates.
Kuwait’s banks do not have the financial muscle to compete head-to-head with the world’s biggest banks. Saudi Arabia has a much bigger economy and is now competing as a financial hub, and Bahrain and Dubai are much more advanced in providing attractive regulatory and working environments for their particular activities.
While Kuwait has real investment expertise and Dr Al-Awadi’s regional asset management centre has considerable merit, Kuwait is starting at the back of the field in the Gulf financial centres race, and has a lot of ground to catch up.
