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KUWAIT OUTWARD INVESTMENT SURGES

Encouraged by low oil prices, Kuwaitis are diversifying their investments both at home and in overseas markets.

November 2015

Over the last decade outward foreign investments by Kuwaitis have helped boost the Gulf country’s economic leverage in both the region and in the world. It’s an advantage for the country as a whole, with industry experts stressing the need to maintain such an approach to benefit from the leading Kuwaiti investments abroad.

The figures speak for themselves; Kuwaitis invested nearly USD 14.2 billion abroad in 2007 alone. Almost ten years later, Kuwaitis are still looking at opportunities abroad. Kuwait is the Middle East’s largest and the world’s seventh largest foreign investor, according to the World Investment Report of 2015, released by the United Nations Conference Trade and Development (UNCTAD). Hong Kong, China, Russia, Singapore, South Korea, Malaysia and Kuwait topped the list of countries investing overseas, added the report.

The report noted that Kuwait also came first in terms of outward foreign direct investment (FDI) in the Middle East region with total investments of USD 13 billion. Qatar and Turkey placed second with total outward FDI of USD 7 billion each, followed by Saudi Arabia and the United Arab Emirates with USD 5 billion and USD 3 billion respectively.

CAPITAL OUTFLOWS

As it stands experts maintain that Kuwaitis are aggressive in their outward direct investments. Ramy Echo, Chief Investment Officer at ALARGAN Real Estate Investment Company, based in Kuwait, says that it’s not a new trend as Kuwaitis have historically looked to international markets. “I’m not surprised that Kuwaitis rank high in foreign investment, they are probably the most proactive investors in the Middle East. After the first Gulf War, Kuwaitis and Kuwaiti companies made the decision to diversify their investments outside their own country.”

Echo says that while the GCC is the prominent investment hub for Kuwaitis, there is major investment from both the private and public sector into UK real estate among other European countries. “We are seeing inflows into France and especially Germany, which has been substantial, given that it is offering a better return on investment compared to other European countries.”

Turkey is another major investment destination for Kuwaitis. Echo says that when the Turkish government legalised real estate ownership for GCC nationals in May 2012, Kuwaitis were among the first to purchase real estate and secure projects with Turkish developers.

“We are exposed to a lot of real estate events and projects in Kuwait that promote attractive investment opportunities outside the country, due to the culture of Kuwaiti outward direct investment. Appetite for real estate outside the region is probably at its highest,” he says.

FOCUS ON THE AMERICAS

According to Iryna Pylypchuk, Director, Global Research, CBRE, there is a shift in the target of Kuwaiti investments, with Kuwaitis now turning their attention towards the Americas region.

“The focus of Kuwaiti investors has turned towards the Americas, opposed to what was the case back in 2012 and 2013. This can be mainly attributed to the fact that in 2012 and 2013 the key buyers from Kuwait were St Martins Properties buying on behalf of the Kuwait Sovereign Wealth Fund – with a small number of very large London assets – such as More London and Canada Square 5 – significantly skewing the results, particularly in 2013,” she says.

For Pylypchuk, the key focus in the short to medium term will continue to be on the UK and the U.S. “This is especially true if we are thinking about the relatively newer/non-institutional capital looking to invest abroad. Investors, who are new to global markets and exposure, will most certainly target the largest and most liquid markets at the start of their expansion.”

She adds that over the last year Kuwaitis have exhibited strong buying and selling power in Europe. “The recent sale activity by Kuwait investors is just under USD 900 million in Europe alone in the last 18 months – with about half being in London and the other half in other UK locations. Considering that Middle Eastern investors tend to sell on to other buyers from the region – what appears to be a ‘supply’ of product in the UK – may lead to more buying activity as a result.” Although, she’s quick to add that while it may be a broad generalisation, it is one worth highlighting.

BEYOND OIL

The UN ranking is a step in the right direction for Kuwait, especially considering that in August this year the Kuwaiti government underlined the need to press ahead with investment spending and the diversification of revenue sources, following the global plunge in oil prices.

The state-run Kuna news agency reported that Finance Minister Anas Al-Saleh briefed the cabinet on the market turmoil following the drop in Brent prices (below USD 45) for the first time since 2009. The drop has resulted in Kuwait’s benchmark index dropping 1.6%, the lowest since 2012.

The fourth-largest producer in OPEC (Organisation for the Petroleum Exporting Countries), Kuwait pumps about 2.8 million barrels of oil per day and oil income has contributed to more than 90% of public revenue.

According to a diversification report by Mahmoud Galal of Asiya Investments – an Asian focused investment company – Kuwait is already showing signs of recovery (especially in its housing sector). “Furthermore, leading indicators started to pick up, suggesting more spending and positive sentiment going forward.”

“Overall, oil continued to be the one factor driving economic performance in the GCC. Economic diversification is a key element for the Gulf countries to ensure future healthy growth. It is necessary for GCC governments to diversify their sources of income away from fossil fuels revenues,” the report said.

Echo agrees. After the Arab Spring ALARGAN were in discussions to invest in real estate outside the country, although nothing materialised. “This was reconfirmed following the geopolitical unrest in the region and the fall in oil prices. Our new strategy moving forward is initiating a portfolio of income generating assets outside the region in order to diversify. We are looking at the U.S., UK and Germany. Many companies are also doing this.”

It is common knowledge that a day will come when oil resources will run out and alternative solutions are required. In order for Kuwait to be able to secure economic growth in the future and for investors to be able to remain profitable, Echo advises continually building a portfolio of assets –both domestic and international – and directing it back into the economy.

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