Kuwait: Investing in Malaysia

Conscious that its economy is currently highly dependent on oil and closely tied to markets that continue to face economic uncertainty, Kuwait’s government is looking further afield to new investment destinations as well as to moves to stabilise oil prices.

In the International Monetary Fund’s (IMF) recent Article IV consultation with Kuwait, the fund said that it expected economic recovery to strengthen in 2012, with non-oil economic activity projected to grow by some 5.5% over the course of the year. While the country’s overall economic growth continues to expand on the back of hydrocarbons revenues, this non-oil economic expansion bodes well for Kuwait’s continued economic diversification efforts.

Other indicators reported by the IMF appear favourable as well – inflation is expected to moderate slightly, to about 4.4%, while banks reported better liquidity conditions compared to 2010.

The IMF did note in its report, however, that Kuwait remains dangerously exposed to the European debt crisis. The government is already taking action to address this point in an attempt to further diversify the country’s revenue streams.

In the largest move since it invested $800m in an initial public offering (IPO) by the Agricultural Bank of China in 2010, the Kuwait Investment Authority (KIA) announced in June it would be investing $150m into a Malaysian IPO. This move is expected to take advantage of growth in south-east Asia. The IPO by IHH Healthcare, a Malaysian health care firm, is set to launch in July. Predicted to raise around $2bn, it will be the country’s second-biggest IPO for 2012.

Reuters reported that the KIA “has been lately keeping its powder dry amid volatile markets”, noting that this investment shows a new tone for the authority. KIA will be IHH Healthcare’s largest foreign investor and the second-largest overall, after EPF, a Malaysian pension fund.

Kuwait’s efforts abroad appear not to be stopping at Malaysia, however. In mid-June the Kuwait-based Arab Fund for Economic and Social Development said it would likely invest in a number of alternative energy projects within Jordan, according to local media.

While visiting Kuwait in June, Jordan’s prime minister, Fayez Al Tarawneh, praised the role of Kuwaiti investments in the Jordanian economy, currently valued at around JD10bn ($14.1bn). Tarawneh also met with Sheikh Jaber Al Mubarak Al Hamad Al Sabah, the prime minister of Kuwait, to discuss continued economic cooperation. Jordan’s trade minister, Shabib Ammari, said during the visit that he hoped further investments from Kuwait would finance small- and medium-sized businesses in Jordan.

While the government continues to explore investment opportunities overseas, it is also acutely aware of its economic dependence on hydrocarbons revenues. Hani Hussein, Kuwait’s minister of oil, has highlighted the need for OPEC ministers to examine the latest developments in the oil market. The price of oil deteriorated significantly in the first part of June, with Kuwaiti crude losing more than $4 a barrel in a single session, and futures contracts for US oil hitting their lowest level in eight months.

“Some of the [OPEC] members are concerned about the prices and what's happening," Hussein told local press before an OPEC ministerial meeting in Vienna in early June. "There are some concerns about what direction prices are taking and production.”