KUWAIT: Kuwait must not only change its financial model, but also build legislative, administrative and social capacity to manage this change, said Richard Banks, Director, Emerging Markets, Euromoney Conferences, taking a critical look at the sustainability of the public finance model in the country.
Talking to Kuwait Times in an interview, Banks spoke at length about the current economic situation in Kuwait in the context of fast-changing geopolitical developments in the region and across the globe. Ruling out the danger of a bubble economy taking shape anywhere in the region soon, Banks, however, cautioned against returning to pre-crisis economic models, particularly in Dubai.
"There are still issues which have yet to be resolved - in Kuwait as well. Some of the investment companies have yet to sort out their balance-sheets," Banks pointed out. Excerpts:
KT: How do you look at the current economic situation in Kuwait in the context of the still unfolding Arab Spring turbulence? What are the possible implications on the domestic economy?
Banks: I believe that the risk premium stemming from the Arab Spring has decreased recently. Nations in the GCC have seen the negative social and economic impacts that disorderly transition brings. It is less likely that they will follow such a route. However, the pressures for reform remain and must be addressed.
Business climate
KT: Kuwait has taken some crucial steps in recent years to improve its business environment, most important being the approval of the new Companies Law. Do you think the new law will help encourage more FDI inflow into the country and bolster the private sector growth?
Banks: In theory, yes. But it is not a sufficient condition to return Kuwait to a healthy non-oil-based growth path. The slow pace of development over the past decade has eroded the capacity of public-sector administrators. This capacity must be rebuilt and the regulators empowered. That will not happen quickly. There is still more to do.
KT: Do you see a more stable business environment in Kuwait after the elections in Kuwait? What are the impediments that hold up economic growth in the country?
Banks: The business environment is certainly more attractive than before the election. It is not however attractive enough. Private sector businesses must feel that there is a will to get things done - rather than review decisions that have already been made. Change necessitates decisions. Decisions often result in losers and winners. Politicians don't like that. But this can be managed.
KT: Do you see the danger of a bubble economy anywhere in the region?
Banks: No. We do see, with some incredulity, a return to pre-crisis economic models. Particularly in Dubai. There are still issues which have yet to be resolved-in Kuwait as well. Some of the investment companies have yet to sort out their balance-sheets. They will continue as zombies until they do so. This will provide a cap to asset bubbles for some time yet.
Euromoney conference
KT: The fifth Euromoney Kuwait Conference titled, "Financial Sustainability, Regulatory Capacity - the Challenge of Change" will take place in Kuwait City on April 8, 2013. What will be the thrust areas of the Conference this year?
Banks: We're looking at the sustainability of the public finance model in Kuwait. We'll argue that it isn't but should be sustainable. Even if oil prices remain high (which they will) this is the time to put the economy on a sounder footing for future generations. Fix the roof while the sun is shining. In order to do this, Kuwait must not only change its financial model but also build legislative, administrative and social capacity to manage this change. How this can be done and over what time-frame are our key questions.
KT: What are prospects of the oil market both in the near and long-term?
Banks: We do not see major shifts in the oil markets. Non-conventional sources of hydrocarbons (fracking, oil sands and the like) are expensive. So whilst supply constraints may ease globally, the cost of the resources will be set at a higher level and underpin global prices. Demand should continue on trend.
KT: The ongoing global economic crisis, especially, euro-zone crisis, continues to affect the regional economy. What will be the possible fallout of the crisis on Kuwait and regional economy?
Banks: The crisis seems to be moving towards some form of conclusion. The crisis, but not the underlying problems. Structural issues will continue to dominate European policy-making for many years to come. But we believe that the downside risk of a severe market dislocation have diminished. That's good for markets generally and by association good for the region. It won't be enough, however, to push Kuwait into rapid growth. That requires domestic reforms.
KT: Talk of a potential currency war continues to unnerve the global markets? What is your considered view?
Banks: It's happening. But it will be a cold, not a hot, war. We don't see radical shifts in the relative value of currencies in 2013.
*Richard Banks is Director, Emerging Markets, Euromoney Conferences. Banks manages the Euromoney Conferences' business in the MENA region. He is also the editorial director for Euromoney Conferences in the region and in other emerging markets. He is responsible for setting conference agendas and working directly with Euromoney's group of high-level government and private sector speakers, moderating many of the conference sessions personally.
© Kuwait Times 2013
