Under the Kuwait Development Plan (KDP) which runs from 2015 till 2020, the countrys government has injected major investments to energise the national economy. According to Agilitys Emerging Markets Logistics Index 2017, in Kuwait, a steady rise in government spending and a surge in projects over the coming two years is expected as the country starts to implement a number of infrastructure projects.
With the low oil prices across the entire region coupled with global economic stagnation, the Kuwait government has directed major investments into transport and logistics infrastructure and services with the goal of establishing
the country as a commercial hub for the northern Gulf. Anil Khurana, partner, US and ME lead for consumer and industrial products and services, and strategy and innovation, PwC, said: Across the region, weve seen a slowdown
in transport investment projects due to lower oil prices and financial constraints, however, several initiatives still exist within Kuwait. Though Kuwait has an adequate aviation, marine, and road infrastructure especially given it is a relatively small country in terms of land and travel distances are short ongoing investments still create
further opportunities.
We consider that ongoing investments in infrastructure itself in Kuwait creates additional logistics business opportunities to service supply chain managers. These activities will further enhance the capabilities of logistics
companies in Kuwait and create a stronger set of logistics services for the GCC.
In addition to public investments in transport and logistics infrastructure, private firms are playing a growing role in many segments, ranging from airlines and bus services to commercial logistics. Headquartered in Kuwait, one of the
worlds largest integrated logistics providers, Agility, had a strong performance throughout 2016, despite the sluggish economic and trade growth, both regionally and globally. The business reported a net profit of KWD59.1mn in 2016, an increase of 10.6% over the same period in 2015. Ali Mikail, senior vice president for Kuwait and Levant
at Agility, commented: Our profitability has benefitted from the continued financial performance and growth within our infrastructure group and progress within our global integrated logistics business.
A large part of our robust financial performance has been a result of our strategy to invest in disruptive technology and innovation, especially with respect to efficiency in customer supply chains. We are increasingly tailoring shipments to customers individual needs to boost efficiency. The cost structure is also being more closely managed with increased investments in high-growth markets, products, and verticals. But beyond improving our current business, this strategy of disruption is about enhancing our current business; its about anticipating how the
industry will change and invest in the future.
Mikail also highlights the fact that Kuwait will need to keep up the work to reach the goals stated in the KDP to compete and secure growth. From an Agility perspective, we hope to see healthy progress and will continue to
keep an eye on investments that make sense to our business, which we feel, can tap into the potential the market offers.
Operating out of Kuwait, supply chain solutions provider, Globe Express Services (GES), also had a good run in 2016, reporting around 7% increase in net profits for 2016 as compared to 2015. We remain on track in terms of
growth, said Mustapha Kawam, president and CEO of GES. The Kuwaiti governments clear target of developing a highly-sophisticated infrastructure program as part of its economic diversification initiative, set under the Kuwait Vision 2035, is a significant source of economic activity for the transport and logistics sectors. We expect the governments continuing support for infrastructure projects, driving the growth in the construction sector in 2017. All this will significantly contribute to our performance this year supported by the construction of Mubarak Al
Kabeer Port, the $16bn mega container port located in Kuwaits northern border with Iraq, and other industrial projects such as Al Jaber Causeway and the Kuwait International Airport expansion work.
Sector challenges
Despite the positive outlook, Kuwaits transport and logistics industry faces some challenges going forward. The biggest of these come from complexity and delays in cross-border logistics, especially land transport. Khurana said: This includes delays due to border cargo clearance processes (bureaucracy, customs capacity constraints, etc.), harmonisation of standards (trucking standards, HSE etc.), security concerns and processes, and changing rules and
regulations (and even corruption) in the less developed countries.
Even dealing with extreme weather is another challenge, as products are generally shipped through ambient transport where possible due to high cost of cold chain transportation, mentioned Khurana. Due to delays entering and navigating through countries, product quality can deteriorate. Also, for oil and gas and several other industries too, a shortage of warehousing capacity is an issue. Most of the suppliers and maintenance and field services firms have their infrastructure set up in Saudi Arabia and UAE, hence, resulting in lengthy procurement and support cycles.
Industry experts believe that significant infrastructure investments in several areas in Kuwait like the new airport terminal, Kuwait metro, Jaber Al-Ahmad causeway, and the major updates of intersections, especially within the
industrial areas, are contributing to the further enhancement of the transport infrastructure in the country. In the healthcare sector, several hospitals are under construction and a recent global third-party logistics (3PL) has invested to create a logistical backbone to service government hospitals.
In the oil and gas sector, ongoing investments and expansion of several clean fuel projects are currently underway in Kuwait. In retail, expansion of the key malls in the country is also a good sign. Kuwait is also a major retail market
for private shopping and shipments from US and UK, hence thus, almost all international and many local firms provide shipment/re-addressing services including Postal Plus, Shop & Buy by Aramex, DHL, MyUS, etc.
Positive outlook
Uncertainty and volatility characterised many emerging markets in 2016, coupled with the changing political environment in Europe and the US, which has affected the rest of the world. Experts stress on the fact that in 2017, the market will continue to be challenged by oil price fluctuations, likely to impact fuel prices and sea freight offering rates. Mikail added: Agility will continue working with strategic carrier programs focusing on quality of services, project schedules efficiencies, and optimising our volumes and consolidation among carriers based on trade lanes, type of services, and capabilities. We will continue offering specialised services to clients at realistic prices while adding value to the carriers and our customers, delivering their material timely as per project schedule.
We are also increasingly focusing and investing in new and disruptive technologies. We are doing these investments with an eye towards engaging our customers in a better way, either environmentally or from the perspective of improving their businesses. Technology is becoming an increasingly important part of what we are doing as a company.
The GCC, including Kuwait, will clearly continue to have an overhang from the global economic slowdown and lower oil revenues in 2017. Nonetheless, recent indicators suggest that the government and the private sector in the country are actively trying to tackle these issues. Kawam said: At GES, we have set our targets this year to achieve 10% growth despite any challenges that might arise in the oil export sector. We have always been creating new opportunities for development, delivering tailored solutions to achieve the desired growth as part of our continuous efforts to add value to the market.
Though the global economic outlook for 2017 is better than 2016, and it is expected to benefit the GCC in terms of both oil prices and GDP growth, the member states will clearly be more directly dependent on oil revenues and, to some extent, on the ongoing diversification efforts in the region. Khurana expects that spending will continue to be
constrained, with a few critical non-oil and gas projects may be continued or restarted towards the second half of 2017, considering expected improvements in oil revenues.
He added: Both public and private sector investments will be more focused and seek impact and returns. The 2030 Upstream Strategy is expected to continue to require investment and there will be pressure to speed up
procurement. Key oil and gas projects will continue considering the need to continue to prepare the firms for the future challenges and the typical multi-year turnaround cycles.
As in Saudi Arabia and the UAE, Kuwait will need to take a stronger stance on diversification away from oil because a model of running a deficit budget, as it is the case for last three years, is not sustainable in the long-term. Khurana concluded: One aspect of this is ease of doing business like the recently enacted new laws that allow for 100% foreign ownership, reduction in red-tape barriers, and one-stop shop can be expected to lead to higher foreign
direct investment (FDI). Over the last 10 years, FDI and government investment has been constantly growing, even during the time of low oil prices. We believe that Kuwait needs a clear strategy and roadmap for the future direction of the country and to help it grow.