assignment1_v0.3

8/6/2019 Assignment1_v0.3

1/15

Page 1

Kuwait GDP (2005 to 2009)

Comparative Analysis

State ofKuwait


2/15

Page 2

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.

As a result of this crisis, a big homework should be done by the government in

order to control any further deterioration that might take place in the future.

Therefore, any development plan of Kuwait economy should focus mainly on the

diversification of the national income sources.


3/15

Page 3

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 economyfollowed 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 factorsin 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

2005 2006 2007 2008 2009

Kuwaiti 992,217 1,023,316 1,054,598 1,087,552 1,118,911

% 3.8% 3.1% 3.1% 3.1% 2.9%

Non Kuwaiti 1,998,972 2,159,644 2,345,039 2,354,261 2,365,970

% 11.2% 8.0% 8.6% 0.4% 0.4%

Total Population 2,991,189 3,182,960 3,399,637 3,441,813 3,484,881

% 8.6% 6.4% 6.8% 1.2% 1.3%

Kuwaiti0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2005 2006 2007 2008 2009

Kuwaiti

Non Kuwaiti


4/15

Page 4

Kuwait Population According to Age

2005 2006 2007 2008 2009

Under 15 years 21.5% 21.1% 20.6% 21.0% 21.3%

15 to less than 60 75.6% 76.0% 76.5% 76.0% 75.5%

60 years plus 2.9% 2.9% 2.9% 3.1% 3.2%

Labor Force of Kuwait

2005 2006 2007 2008 2009

Kuwaiti 286,154 304,334 324,304 336,298 351,452

% 16.1% 15.8% 15.5% 16.1% 16.8%

Non Kuwaiti 1,495,581 1,621,770 1,768,205 1,751,714 1,741,731

% 83.9% 84.2% 84.5% 83.9% 83.2%

Total 1,781,735 1,926,104 2,092,509 2,088,012 2,093,183

% 11.1% 8.1% 8.6% -0.2% 0.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2005 2006 2007 2008 2009

Under 15 years

15 to less than 60

60 years plus

0

500,000

1,000,000

1,500,000

2,000,000

2005 2006 2007 2008 2009

Kuwaiti

Non Kuwaiti


5/15

Page 5

Kuwait GDP ( KD Million )

2005 2006 2007 2008 2009

Consumption 7,585.9 8,419.4 9,917.6 11,139.0 11,724.7

Investment 3,875.7 4,761.7 6,664.8 7,364.7 4,383.5

Import 6,669.0 7,122.0 9,226.0 10,271.0 8,829.0

Export 15,094.0 19,316.0 20,661.0 26,450.0 17,755.0

Governmental 3,706.6 4,094.5 4,563.1 5,307.8 6,465.9

Gross Domestic Product 23,593.2 29,469.6 32,580.5 39,990.5 31,500.1

0

10000

20000

30000

40000

50000

2005 2006 2007 2008 2009

Gross Domestic Product

0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

2005 2006 2007 2008 2009

Consumption

Investment

Import

Export

Governmental


6/15

Page 6

Consumption

2005 7,585.9

2006 8,419.4

2007 9,917.6

2008 11,139.0

2009 11,724.70.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

2005 2006 2007 2008 2009

Consumption

Investment

2005 3,875.7

2006 4,761.7

2007 6,664.8

2008 7,364.7

2009 4,383.5 0.01,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

2005 2006 2007 2008 2009

Investment

Governmental

2005 23,593.2

2006 29,469.6

2007 32,580.5

2008 39,990.5

2009 31,500.1 0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

2005 2006 2007 2008 2009

Governmental


7/15

Page 7

Export

2005 15,094.0

2006 19,316.0

2007 20,661.0

2008 26,450.0

2009 17,755.00.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

2005 2006 2007 2008 2009

Export

Import

2005 6,669.0

2006 7,122.0

2007 9,226.0

2008 10,271.0

2009 8,829.0 0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

2005 2006 2007 2008 2009

Import


8/15

Page 8

Interest Rate

2005 6%

2006 6.25%

2007 6.25%

2008 3.75%

2009 3%0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2005 2006 2007 2008 2009

Interest Rate

Inflation Rate

2005 4.1%

2006 3.1%

2007 5.5%

2008 10.6%

2009 4.0%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2005 2006 2007 2008 2009

Inflation Rate

Unemployment

2005 1.35%

2006 1.37%

2007 1.81%

2008 1.82%

2009 1.64%0.00%

0.50%

1.00%

1.50%

2.00%

2005 2006 2007 2008 2009

Unemployment


9/15

Page 9

Co-relation between

Interest Rate, Inflation and Unemployment

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2005 2006 2007 2008 2009

Interest Rate

Inflation

Unemployment

Interest Rate Inflation Rate Unemployment Rate

2005 6.00% 4.10% 1.35%

2006 6.25% 3.10% 1.37%

2007 6.25% 5.50% 1.81%

2008 3.75% 10.60% 1.82%

2009 3.00% 4.00% 1.64%


10/15

Page 10

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 financialcrisis 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%.

Central Bank of Kuwait played a remarkable role in many directions.Development in domestic interest rates reflects CBK efforts to enhance the

competitiveness of the Kuwaiti Dinar by increasing the appetite towards the

Dinar as a store of the national savings. Therefore, there was a progress in the

margin between KWD and US$ deposits especially after increasing the discount

rates to 6%. Moreover, CBK was successful in maintaining the stability of the

Kuwaiti dinar by pegging it to the exchange rate of the US Dollar within specific

margins.

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.


11/15

Page 11

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 ratepolicy 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.

Treasury Bonds continued to be issued by CBK as a way of preserving domestic

liquidity level.


12/15

Page 12

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 Kuwaitizationconcept that forced lots of companies to increase the Kuwaiti labor.

It is necessary to mention that despite the obvious instability in the exchange

rate of major currency in the world in 2008, Kuwaiti Dinar maintained a relative

stability. This would be always from an observing point of view as the currencies

in the basket to which the Dinar is pegged are not known, so calculating the risk

is not possible.

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.


13/15

Page 13

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:

KUWAIT ECONOMIC SWOT

Strengths y Kuwait is the only GCC state with an independent monetarypolicy.

y Oil wealth typically enables the state to run a fiscal surplus andthis should resume from 2010 although the large size of the

public sector hampers the development of the non-oil private

sector.

Weaknesses y Oil accounts for almost 50% of GDP, more than 80% ofgovernment revenues and over 90% of total export earnings,

with the non-oil economy still relatively underdeveloped. This

makes Kuwait highly vulnerable to exogenous shocks, especially

in relation to world oil prices.

y Attempts to 'Kuwaitize' private sector employment have metwith limited success.

Opportunities y Although security risks across the border have so far minimizedthe potential for investors in Kuwait to benefit from

reconstruction work in its neighbor, the situation is now

improving and Kuwait remains an attractive staging point for

companies and businesspeople with dealings in Iraq.

y Inflation has come down, mitigating the risks to consumerspending.

y The government has ample assets in sovereign wealth andreserve funds to keep the economy afloat in spite of lower oil

prices.Threats y The pace of economic reform is being hampered by vested

interests within both the National Assembly and the ruling al-

Sabah family, with the government having to look for ways to

push through changes without recourse to parliament.


14/15

Page 14

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 onthe 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.


15/15

Page 15

References:

y Annual & Economic Reports of the Central Bank of Kuwait ( 2005 2009 )y IMF ( International Monetary Fund ) Executive Board Conclusion about Kuwait.y Economic Report of Capital-Standards Agency

http://www.capstandards.com/CSR_Kuwait-Economic-Report_December-2009.pdf

y 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&RQ

T=309&VName=PQD(viewed 7th

April, 2011).

y Kuwait economy: Market opportunities. [online] available from:http://proquest.umi.com/pqdweb?did=2085902721&sid=4&Fmt=3&clientId=80800&RQ

T=309&VName=PQD(viewed 7th

April, 2011).

y 'Executive Summary' 2010, Kuwait Defense& Security Report, p. 5, Business SourceComplete, EBSCOhost, viewed 9

thApril 2011.

y 'ECONOMIC OVERVIEW' 2005, Kuwait Country Review, p. 25, Business Source Complete,EBSCOhost, viewed 9

thApril 2011.


thApril 2011.

y 'Outlook for 2006-07' 2006, Country Report. Kuwait, pp. 7-12, Business SourceComplete, EBSCOhost, viewed 9

thApril 2011.


thApril 2011.

y 'Outlook for 2009-10' 2009, Country Report. Kuwait, pp. 4-9, Business Source Complete,EBSCOhost, viewed 9

thApril 2011.

y 'SWOT Analysis' 2009, Kuwait Oil & Gas Report, pp. 7-9, Business Source Complete,EBSCOhost, viewed 13

thApril 2011.

y 'Data and charts: Annual data and forecast' 2009, Country Report. Kuwait, p. 15,Business Source Complete, EBSCOhost, viewed 15

thApril 2011

assignment1_v0.3

Documents