Global Arab Network | Kuwait a significant player in the industrial sphere

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Kuwait a significant player in the industrial sphere

Monday, 16 August 2010 13:31

With a number of competitive advantages, including substantial hydrocarbons reserves, abundant liquidity and proximity to a number of growing markets in the region, Kuwait has the potential to be a significant player in the industrial sphere. However, expansion of the country’s industrial base is currently being held back by certain factors.

The government’s control of oil production and export means that the private sector is mostly focused on financial services and real estate. When both segments suffered hits in the global downturn of 2008-09, the benefits of diversification that neighbours such as Saudi Arabia and Qatar have gained through investment in heavy industry were on clear display.

Home to roughly 8% of the world’s oil reserves, Kuwait has long focused on the export of hydrocarbons. However, the abundance of inexpensive energy could also be used to help develop heavy industry and value-added manufacturing at home.

While the government has the necessary funding and the private sector seems eager to play a part, industrialists cite a lack of suitable land, limited supplies of natural gas and lengthy and expensive application procedures as impediments to growth.

“The government talks about using industry as a tool for the economy, but they are doing the opposite. They don’t give land, and procedures are very long and harsh,” Mohammad M Saleh, the general manager for Kuwait Industries, told OBG.

Analysts say the shortage of industrial plots is not due to scarcity of supply, but the government’s control of 90% of Kuwait’s land, with too little allocated for industrial development. While land in designated industrial areas is offered at lower rates, firms complain that the application process is drawn out.

The limited supply has also encouraged speculators to buy up industrial plots for resale at inflated prices. With space for industrial development increasingly difficult to secure, many Kuwaiti industrial firms have started to look at neighbouring countries for expansion.

In addition to the need for land, industrial players are also concerned over increasing pressures on infrastructure, with the country’s port facilities, a key element in accessing export markets, often near or at capacity. In addition, ensuring a stable supply of natural gas is a particularly important issue for Kuwait’s petrochemicals sector, which relies on the resource as a feedstock.

Petrochemicals are an increasingly important component of Kuwait’s non-oil exports. In 2000, chemical products accounted for 12.3% of manufacturing GDP, while in 2007, this figure reached 34.6%. All four of Kuwait’s local petrochemical producers recorded healthy profits in 2009.

“A secure gas supply is needed to contribute to the expansion of the petrochemical industry,” said Hamad Al Terkait, the president and CEO of EQUATE Petrochemical Company. “During the economic downturn, as real estate and equities in Kuwait plummeted, ours was one of the few industries that continued to make a profit.”

The government signed a technical service agreement with Shell in April to develop its Jurassic natural gas fields, and plans to increase gas production to 1bn cu ft of non-associated gas – gas that does not accompany oil production – a day by 2015. However, daily demand for natural gas in Kuwait is expected to rise to 5bn cu ft by 2020.

“If more gas is produced domestically, not only will this reduce the need for costly imports required to meet local electricity demand, it can also help the local petrochemicals industry,” said Ahmed Mouti, the chairman and managing director of Shell Kuwait. “This will serve as a critical diversification effort for the country by providing a value-added export revenue stream.”

At present, much of Kuwait’s heavy industry, including its petrochemicals facilities, is located in the industrial zone of Shuaiba, adjacent to the state’s three operating refineries. According to EQUATE’s Al Terkait, however, Shuaiba is at capacity, with different firms vying for access to power and limited port facilities.

“Access to the sea is crucial for our industry. Kuwait, while small, has over 250 km of coastline. There is plenty of underutilised land in the north and south. The fourth refinery will be built in the south, so why not build an industrial zone there?” asked Al Terkait.

Sheikh Mubarak Abdullah Mubarak Al Sabah, the chairman of Qurain Petrochemicals Industries Company, echoed the call for a new industrial area dedicated to petrochemicals.

“Industrial land with adequate industrial infrastructure is a major requirement for the petrochemical industry,” he told OBG. “To encourage a sustainable industry the government needs to consider setting up a complex adjoining the proposed fourth refinery.”

To take best advantage of its vast hydrocarbons reserves and proximity to growing export markets, Kuwait needs action to reap the benefits of industrial diversification. Provided the government moves forward with efforts to ease business procedures and improve the availability of land and utilities, the country’s substantial competitive advantages should give it a leg up in developing its industrial sector.

Global Arab Network

This article is published in partnership with Oxford Business Group

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