Forgot your password?

Back to login

Mega constructions continue despite financial constrictions
June 17, 2017, 5:08 pm

Kuwait’s tightened monetary position and its second consecutive budget deficit in fiscal year 2016/17, has not dampened the tempo of Kuwait’s infrastructure development plans. According to the latest economic report from the National Bank of Kuwait (NBK), the country leading private lender, Kuwait issued contracts worth KD1.4 billion in the first quarter of 2017. A further KD6.2 billion in projects are in the bidding stage and could be awarded in 2017.

Though the contracts awarded in 1Q-2017 marked a year-on-year decline of 12.5 percent and reflects the continued tightening of government finances. Kuwait’s continued compliance with OPEC-mandated oil production cuts is projected to see a drop in overall GDP by 2.4 percent in 2017. The six-month production cuts agreed by Kuwait in conjunction with other OPEC-members came into effect in January 2017 and were extended by a further nine-month period to March 2018, at the OPEC meeting in May. The approximately 1.8 million barrels per day supply cut by OPEC and non-OPEC members is intended to deplete global oil stock surpluses and raise prices.

As a result of oil production cuts, Kuwait’s average crude output is expected to shrink by 7-8 percent in 2017. Accordingly oil revenues, which account for nearly 90 percent of the government’s income and nearly half of the country’s GDP, are once again set to fall in this fiscal year. With oil prices continuing to languish in the narrow US$50 – 55 range, analysts believe Kuwait’s challenging economic situation is likely to remain for much of this year, and probably well into 2018.

Despite these financial constrictions, the government has continued with its construction projects, especially its mega strategic constructions. Capital spending has increasingly been driving non-oil economic activity in recent years. And, last year’s budget deficit notwithstanding, capital expenditure is expected to exceed KD80 billion in 2017, up from around KD70 billion in the previous year. Expenditures on gross capital formation grew by 13 percent in 2015 and could see real growth of 8-9 percent on average in 2017 and 2018. This could further push up the share of investment in the economy to 23 percent — the highest level recorded in over 20 years — says the NBK report. 

New oil and gas tenders accounted for KD672 million of the total contracts awarded in 1Q-2017, but it is project initiatives in the construction, power and water sectors that account for much of the KD6.2 billion in contracts currently out for tender. Meanwhile, the Ministry of Public Works (MPW), which contracts out the government’s construction and mega-projects, is set to award a further KD2.3 billion, or 37percent of total contracts, between the second and fourth quarters of 2017.

With the government’s commitment to its ambitious Kuwait National Development Plan (KNDP) which was renamed in early 2017 as ‘New Kuwait’ or ‘Kuwait Vision 2035’, the projects pipeline appears to be bright. The  New Kuwait plan, which envisions transforming the country into a regional financial, cultural and trade hub, will bring together a number of ongoing initiatives into a renewed and more comprehensive vision for the country’s development, which includes structural and fiscal reforms, as well as capital spending plans.

The development plan targets investment of KD34 billion through 2020, about a third of which will come from the private sector. While the MPW acts as the government’s general contractor, the building work itself is subcontracted to the private sector. Thirteen major construction contracts, valued at over KD2 billion are currently being implemented through the ministry’s construction division, while an additional set of projects, valued at KD1.8 billion are at the design stage. A number of schemes are also being implemented as public-private partnership projects (PPP), including the Al-Zour North and the Khairan Integrated Power Generation and Water Desalination projects.

Some of the mega-projects under implementation by the MPW include the Sheikh Jaber Al Ahmad Al Sabah Causeway (SJSC), the Mubarak Al Kabeer Port in Boubiyan Island and a major airport expansion at Kuwait International Airport.

The Sheikh Jaber Al Ahmad Al Sabah Causeway (SJSC), which is scheduled for completion in November 2018, is currently one of the largest infrastructure ventures in Kuwait and the region. Once complete, the route will span 37.5km in length making it the fourth-largest causeway in the world. The SJSC, which will start from Al Shuwaikh Port in the capital, has two spans — a larger one extending across Kuwait Bay to Al Sabiyah region in the north-east, and a shorter span linking to Doha region, lying to the west of Kuwait City.

The causeway’s link to Al-Sabiyah is of strategic importance to the country, as the government has approved the master-plan for developing its futuristic Silk City in that area. The mega-city is projected to accommodate 700,000 residents within a designated urban area of 250 km, with the first phase expected to be completed by 2023. According to the original blueprint, the city is planned to be a vital hub in attempts to revive the ancient Silk Route linking Asia to Europe.

Another project aimed at bolstering Kuwait’s marine transport and infrastructural capacity is the KD3 billion, Mubarak Al Kabeer Port. The 2-square kilometer commercial container facility is aimed at supporting Kuwait’s future economic growth by acting as trade and transport hub in the northern Gulf.

A major airport expansion project is also being implemented at Kuwait International Airport aimed at boosting Kuwait’s global connectivity. In May, a consortium led by Turkish construction company Limak Insaat began construction work on the KD1.3 billion passenger terminal. Simultaneously, a KD149 million project for the construction of new runways and related work at the airport was awarded in the first quarter of 2017. On completion, slated for 2023, the expanded airport will cover an area of over 700,000 square meters and have the capacity to handle 25 million passengers annually.

With the government’s renewed commitment to ‘New Kuwait’, the projects pipeline looks upbeat, but future funding could become challenging, unless oil prices pick up or fiscal adjustments are introduced.

Share your views

"It is hard to fail, but it is worse never to have tried to succeed."

"Envy comes from wanting something that isn't yours. But grief comes from losing something you've already had."

Photo Gallery