OBG talks to Bader Al Saad, Managing Director, Kuwait Investment Authority (KIA)

Interview: Bader Al Saad

How big a role will the KIA play in funding the construction of infrastructure and mega-projects under the National Development Plan (NDP)?

BADER AL SAAD: If you look at the bylaws of the development plan, the role of the KIA has been clearly defined. Our job is to assist in the establishment of entities that will implement the strategic plan. Examples include the health sector services company and the logistic cities in the north and west. The KIA is in charge of the formation of these firms. The bylaws state that KIA’s participation will be 24%, with 40-50% coming from the initial public offering (IPO) and the rest from investors, of whom up to 26% can be foreign. The bylaws are clear, the shares are set per project. We feel this is an appropriate way to finance and expedite projects.

To what extent is the KIA reinvesting money back into Kuwait in a bid to boost investor confidence?

AL SAAD: The KIA will continue to invest in the domestic economy, but we do not want to compete with the private sector nor deepen the structural imbalance in the economy – where GDP continues to be dominated by the public sector. The NDP lays out an increasing role for private firms. The necessary capital to be reinvested is already available. In the 2008 crisis the KIA felt that asset prices dropped, so it created the national portfolio – of KD1.5bn ($5.4bn) – to invest in firms listed on the Kuwait Stock Exchange (KSE). KIA also established a KD1bn ($3.6bn) real estate portfolio to invest in domestic properties. Thus, we need to differentiate between support, injecting liquidity and investments, as the KIA’s bylaws prevent us from providing direct support. The KIA is mandated to participate only in commercial and profitable investments.

The KIA reduced investments into the eurozone several years ago, but do you see new opportunities arising in Europe in the future?

AL SAAD: The consensus forecast for the eurozone is pessimistic over the medium term, so the challenge is to figure out where growth in Europe will be. The eurozone needs many reforms, however, the KIA feels that certain sectors may offer attractive investment opportunities, especially for entities that have global exposure, rather than being concentrated in the EU market.

Is enough attention given to privatisation? What role will the KIA play in privatising Kuwait Airways?

AL SAAD: The more attention given to the privatisation process, the more the private sector will be able to play its role in the economy. Now, everything is dominated by the public sector, but there is a real need for the private sector to take the lead to create jobs, diversify GDP and strengthen the economy. The fact that privatisation has not been given the required attention has created a drag on the economy. The privatisation of Kuwait Airways is a step in the right direction. Kuwait Airways needs to be capitalised, restructured and then prepared for the market. Once all necessary actions are taken, Kuwait Airways will be immediately privatised.

What role will the Capital Markets Authority (CMA), the KSE and the secondary market play in making Kuwait more attractive for international investors?

AL SAAD: The CMA is an essential requirement for taking Kuwait from a frontier market to an emerging market. Kuwait’s rating in the World Economic Forum index has improved. Rating agencies have also restated the credit rating of the country, which is important in this transition. Kuwait has many advantages such as a well regulated financial sector, a reputable central bank, a highly capitalised banking industry, free capital flows and transfer of capital, so it is only a matter of time before the country moves into the emerging market index. Privatising the KSE will play a key role in this as well. In my experience, developing a frontier market’s corporate governance, anti-corruption measures, proper infrastructure and bylaws, and an independent legal system are major indicators facilitating the shift, and all of the requirements have already been met by Kuwait.