ALSHALL Weekly Economic Report

Volume 24 – Issue 40 – 19th October 2014

This Week Prepared by 1. Public Administration Economic Research Unit 2. Rationalizing Subsidies ALSHALL Consulting Co. 3. The Proposed Housing Strategy Salhiya – Sahab Tower – Floor 9 – 4. Trading Features at Kuwait Stock Exchange (January – September 2014) Tel: + 96522451535 – Fax: +96522422619 5. The Weekly Performance of Kuwait Stock Exchange Email: [email protected] Web site: www.alshall.com Twitter: @ALSHALL_Com

1. Public Administration We stated in a previous report that the by US$ 22.5 per barrel, 21.1%, compared public administration represented by the to the average price for the first half of the Council of Ministers and the National current fiscal year 2014/2015 for the same Assembly failed to pay attention to all Brent oil. The effect on oil revenues in the warnings about a forthcoming weakness in event of weak oil market is usually comes the oil market and they ended the last term doubled as the producing countries cut session by approving a budget with record production to defend price. But they usually allocations and increase by 10.5% over last do not comply with what they agreed on; fiscal year’s allocations 2013/2014. We therefore, they lose a share of production also mentioned that what happened was while prices continue their drop. This contrary to all the declared goals of the occurred twice historically; the first in the development plan which is supposed to eighties and the second in the nineties. commence in April 2015. It is also contrary Some regional countries would have to the agreement with the Higher Council internally exploded before the intervention for Planning and Development which of the in the two instances to includes all the concerned ministers in the limit the oil supply using its power. . Very briefly, each public administration in any country obtains a The situation today is much more serious. general power of attorney which is Western interests are less; western revocable in democratic states but is alliance’s changed; and the entire region is irrevocable in non-democratic ones. The scorching with painful geopolitical events. purpose of such power is to assume the The internal conditions in all the regional responsibility of construction and to avoid states are not quite well, with each and the biggest and most serious risks. What every state being a potential for a happened in Kuwait is the opposite, i.e. forthcoming crisis. Confronting those failure in construction and aggravating circumstances by buying political stability future risks. with money is no more possible and the future risks are doubling. The ability to buy By the middle of the last week -we are time with money has become limited and unable to obtain new figures for Kuwaiti oil the damage will increase if more time is price- the Brent oil average price scored wasted in malice or exchanging blame. It is about US$ 84.1 per barrel which is lower more important to acknowledge the grave 1

ALSHALL Weekly Economic Report

Volume 24 – Issue 40 – 19th October 2014 and serious situation and then to halt expenses to build more power plants to drifting into a no-return position. Examples meet the overconsumption. It also around us such glides are numerous. contributes to increasing environmental pollution levels and perhaps unnecessary In the past few years, the strong oil market, addition to the traffic congestion. On the bought stability period to the oil-rich side of revenues, it helps to expand the gap countries when other countries felled down. of the public finance and the opposite can However, it was not a sustainable stability, be achieved when rationalizing in Kuwait, the opposite happened. Financial consumption. waste hit the foundations of the competiveness of the domestic economy. The government’s orientation towards That was not the fault of the oil market but rationalizing power consumption is 27 that of mismanagement of its revenues. years old -since 1987- which is slightly Nowadays, there are uncomfortable indexes longer than half the age of the declared of oil market weakness which is not government’s orientation to diversify temporary. It is perhaps an opportunity for income resources in its development plans the return of reason to manage its revenues but nothing of which has been achieved. and surpluses. This will not happen unless a The new orientation as published by substantial change occurs in managing that AlQabas newspaper is a proposal that we outcome. do not bet on its inevitable implementation though it is a correct approach. It is the 2. Rationalizing Subsidies outcome of a sample study; it classifies The subsidy invoice in the public budget consumers according to the nature and level amounts to more than KD 5 billion, 22% of of consumption and adopts pricing in the current budget allocations and is higher accordance with ascending brackets. 20% than the allocations of all public budgets in of special consumers are excluded from any the beginning of the third millennium. increase while the cost increases as per About 60% of subsidy expenses go to the three subsequent categories. In other words, power generation, water and transportation there is no increase or 2 fils per KW on the means fuel. Adding the subsidy invoice to first 3,000 KW consumption; 6 fils per KW the direct and indirect salaries and wages, for the second 3,000 KW consumption; 10 both military and civil, the obligation to fils per KW for the next 6,000 KW, and 12 salaries and wages, or their support, will fils per KW for what exceeds that. reach KD 16 billion which is unsustainable Exemption is offered to lower consumption if we take into consideration the newcomers brackets for investment usages which to the labor market. The problem of waste include the commercial and agricultural, or and consumption has indirect 2 fils per KW for the first 1,000 KW for the repercussions. Its domestic investment and 2,000 KW for the overconsumption is deducted from the agricultural. The maximum price, or 12 fils country’s share assigned for export which per KW, is for either of them beyond 4,000 consequently cuts down the general KW consumption. The direct saving result revenue and increases the unnecessary 2 ALSHALL Weekly Economic Report

Volume 24 – Issue 40 – 19th October 2014 in the power subsidy expenses will be about report is an ’s Housing 20% or KD 570 million if this proposal is Conference held last March. It began implemented. correctly according to professional convictions but ended with dominance of We emphasize that the invitation to the politicians’ orientations and the rationalize public spending, whose present endorsement of the 12,000 housing units level is unsustainable, is a due call. Starting per annum, or the horizontal expansion to rationalize subsidy to give it only to from border to border. Out of 10 items in those who deserve it is a right start. Its the report introduction that summed up the timing at the beginning of a weakening oil main elements of the strategy, we believe market may facilitate its marketing that except for item (2) relating to the politically. The problem, as we stated in sustainability condition, everything else another paragraph of the report, is that the about power consumption, the public administration does the opposite of infrastructure costs, and even the financing what it advocates. It is difficult for it to and the excessive land prices is the understand it from a holistic perspective. outcome of the impossibility of that Take for instance the contradiction in sustainability and it has no great value. adopting the horizontal expansion in The report provides abundant information; housing to coincide with the talk about the hence, we recommend reading it. It begins necessity of rationalizing power by asserting the astounding failure of the consumption. Marketing of these due housing strategy which was endorsed half a policies should coincide with apparent century ago under quite different conditions measures to confront the widespread in terms of population density, land prices corruption and halting waste in other and building costs. Remaining as is without spending items. The rise in the per capita change in the present times and in future share in the health expenses to the highest cannot be achieved. global levels is unacceptable taken against its deteriorating services and associating Some valid examples that the report them with populist projects for medical contained like the rise in the number of tourism and the special medical insurance. Kuwaiti families from 153.6 thousand in 2000 to 250.4 thousand in 2013 due to the We stand firm with any correct beginning expansion in the demographic pyramid implying some hope in reform though it is a reaffirms the impossibility of continuing feeble hope without remedy of the core of the horizontal expansion. Under better the problem, or forming the exemplary financial conditions and lower demand, the public administration in its approach and shortage in housing units increased from policy. 47.8 thousand in 2000 to 110.4 thousand in 3. The Proposed Housing Strategy 2013 and the waiting period to obtain a The Realtors Association thankfully home is 18 years. Until 2006, there was a prepared a volume containing aspects of a noticeable cancellation of applications due proposed housing strategy in Kuwait. The to the possibility of obtaining a piece of 3 ALSHALL Weekly Economic Report

Volume 24 – Issue 40 – 19th October 2014 land at an affordable price and building it 4. Trading Features at Kuwait Stock with a loan. This is no more possible now Exchange (January – September due to the incredible rise in land prices. 2014) Kuwait Clearing Company issued its report The housing situation seems more titled "Trading Volume According to impossible in the future with continued Nationality" covering the period horizontal expansion. The report estimates 01/01/2014 to 30/09/2014 (three quarters of the accumulated number of applications for the year) which was published on Kuwait new housing units would score about 234.6 Stock Exchange (KSE) official website. thousand by 2033 and the waiting period to The report indicated that individuals are obtain a home would extend to 43 years. still the prevailing group though their share The report estimates the required support is declining. They captured 53.1% of total for about 343,000 homes with 600 square value of sold shares (59.9% for the first meters area is for 95% of them and with nine months of 2013) and about 47.7% of 400 square meters is for 5% at about KD total value of purchased shares (57.3% for 102.5 billion excluding inflation, with KD the same period 2013). Individual investors 43.9 billion thereof for power and water sold shares worth KD 2.482 billion and subsidy only. purchased shares worth KD 2.234 billion, We do not want to go on as we know that with a net trading, more selling, by KD the summary, which is the belief of the 248.269 million. report writers, is the impossible Corporations and companies sector continuation of adopting the current captured 26.9% of total value of purchased housing strategy. If we add some shares (18.5% for the same period 2013) complexity to it and calculate what remains and 19.6% of total value of sold shares after its implementation for salaries and (18.3% for the same period 2013). The wages, education, health and infrastructure, sector purchased shares worth KD 1.259 etc. we will find out that the strategy billion and sold shares worth KD 917.578 victims are not the decision makers but the million with a net trading, more purchasing, overwhelming majority of the people. by KD 341.850 million, indicating a rising Therefore, there must be a return to the core share. of the problem as we stated in two other The third contributor to market liquidity is paragraphs of our report, namely, reforming the clients’ accounts sector (portfolios) the public administration especially as we which captured 19.5% of total value of sold are living in an era with weakening oil shares (17% for the same period 2013) and market whose strength in the past allowed 15.3% of total value of purchased shares the concealment of all grave sins of the (18.9% for the same period 2013). The financial policy. sector sold shares worth KD 910.557 million and purchased shares worth KD

716.167 million, with a net trading, selling, by KD 194.391 million. 4 ALSHALL Weekly Economic Report

Volume 24 – Issue 40 – 19th October 2014

The last contributor to liquidity is the GCC Investors’ share out of total purchased investment funds sector which captured shares formed 3.4% (2% in the same period 10% of total value of purchased shares 2013), worth KD 156.855 million, while (5.3% for the same period 2013) and 7.9% percentage of their sold shares scored 2.8% of total value of sold shares (4.8% for the (2.3% in the same period 2013), worth KD same period 2013). This sector purchased 131.876 million. As such, their net trading, shares worth KD 468.802 million and sold purchasing, by KD 24.980 million. shares worth KD 367.993 million, with a net trading, purchasing, by KD 100.809 Relative distribution among nationalities million. This means corporations, changed from its predecessor (86.8% for companies, and funds gained a trading Kuwaitis, 10.1% for traders from other share in the market at the expense of nationalities and 3.1% for GCC traders) individuals. versus (91.8% for Kuwaitis, 6.1% for traders from other nationalities and 2.1% KSE continues to be a domestic stock for GCC traders), for the first nine months exchange with Kuwaiti traders forming the of 2013). This means Kuwait stock biggest trading group and sold shares worth exchange remained domestic though with KD 4.178 billion, capturing 89.3% of total more trading by foreign investors and sold shares, (92% for the same period investors from outside the GCC than their 2013), and purchased shares worth KD GCC counterparts with trading prevalence 3.947 billion capturing 84.4% of total value to individuals. of purchased shares (91.6% for the same period 2013). As such, their net trading, the Number of active trading accounts between only ones selling, scored KD 230.782 the end of December 2013 and the end of million. September 2014 dropped by -76.3% (compared with 420.2% rise between the Other investors’ share, out of total end of December 2012 and the end of purchased shares, scored 12.2% (6.5% for September 2013 as a result of the impact of the same period 2013), i.e. doubling the listing Warba Bank on active accounts share of investors from outside Kuwait, during the period). Number of active which is another positive indicator. And trading accounts in the end of September purchased shares worth KD 573.809 2014 scored about 31,669 accounts, or million while value of their sold shares 9.4% of total accounts, compared to 32,141 scored KD 368.006 million, 7.9% of total accounts in the end of August 2014, i.e. value of sold shares, (5.8% in the same 9.6% of total accounts for the same month, period 2013). Thus, their net trading, more declining by -1.5% below August’s level in purchasing, scored KD 205.803 million. one month.

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Volume 24 – Issue 40 – 19th October 2014

5. The Weekly Performance of Kuwait Stock Exchange The performance of Kuwait Stock Exchange (KSE) for the last week was mixed, where the indices of the trade volume, number of transactions, and the general index showed a decrease, while the trade value showed an increase. AlShall Index (value weighted) closed at 498.9 points at the closing of last Thursday, showing a decrease of about 11 points or about 2.2%, while its increase of 44.2 points or about 9.7% compared with the end of 2013.

The following tables summarize last week’s performance of KSE Week 40 Week39 Diff Description 16/10/2014 02/10/2014 % Working days 5 5 AlShall index (39 Companies) 498.9 509.9 -2.2% KSE index 7,410.3 7,648.0 -3.1% Value Trade (KD) 145,518,884 137,790,967 Daily average (KD) 29,103,777 27,558,193 5.6% Volume Trade (Shares) 1,205,298,796 1,317,026,817 Daily average (Shares) 241,059,759 263,405,363 -8.5% Transactions 26,072 27,274 Daily average (Transactions) 5,214 5,455 -4.4%

Most Active Sectors & Companies Description Value Traded % of Total Sectors KD Market BANKS SECTOR 51,313,425 35.3% FINANCIAL SERVICES SECTOR 38,741,729 26.6% REAL ESTATE SECTOR 20,377,345 14.0% INDUSTRIALS SECTOR 15,446,839 10.6% TELECOMMUNICATIONS SECTOR 10,423,648 7.2% Description Value Traded % of Total Companies KD Market 16,686,323 11.5% NATIONAL BANK OF KUWAIT 16,190,713 11.1% MOBILE TELECOMMUNICATIONS COMPANY K.S.C 8,865,728 6.1% BURGAN BANK 6,838,439 4.7% AGILITY PUBLIC WAREHOUSING COMPANY 5,828,687 4.0% Total 54,409,890 37.4%

ALSHALL INDEX Week 40 Week39 16/10/2014 02/10/2014 Increased Value (# of Companies) 0 11 Decreased Value (# of Companies) 29 12 Unchanged Value (# of Companies) 10 16 Total Companies 39 39

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ALSHALL Weekly Economic Report

Volume 24 – Issue 40 – 19th October 2014

THU THU DIFF CLOSE DIFF Company Name 16/10/2014 02/10/2014 % 2013 % 1 The National Bank Of Kuwait 475.7 480.7 (1.0) 404.9 17.5 2 The Gulf Bank 270.9 274.7 (1.4) 276.4 (2.0) 3 Commercial Bank Of Kuwait 539.1 563.2 (4.3) 536.4 0.5 4 Al-Ahli Bank Of Kuwait 278.3 284.8 (2.3) 288.1 (3.4) 5 Kuwait International Bank 328.3 333.5 (1.6) 307.4 6.8 6 Ahli United Bank 473.0 487.5 (3.0) 476.3 (0.7) 7 Burgan Bank 490.0 490.0 0.0 466.4 5.1 8 Kuwait Finance House 1529.2 1569.7 (2.6) 1282.4 19.2 Banking Sector 515.9 525.1 (1.8) 461.5 11.8 9 Commercial Facilities Co 205.7 209.3 (1.7) 198.5 3.6 10 International Financial Advisors 470.1 510.6 (7.9) 802.4 (41.4) 11 National Investments 221.5 229.0 (3.3) 201.3 10.0 12 Kuwait Investment Projects 1582.2 1604.5 (1.4) 1315.8 20.2 13 Coast Investment & Development 109.4 109.4 0.0 90.2 21.3 Investment Sector 483.5 493.7 (2.1) 446.7 8.2 14 Kuwait Insurance Company 68.4 69.5 (1.6) 63.9 7.0 15 Gulf Insurance Company 313.6 313.6 0.0 313.6 0.0 16 Al-Ahleia Insurance Company 176.5 185.9 (5.1) 180.2 (2.1) 17 Warba Insurance Company 116.3 122.9 (5.4) 93.4 24.5 Insurance Sector 140.5 143.8 (2.3) 137.4 2.3 18 Kuwait Real Estate Company 126.4 136.2 (7.2) 159.2 (20.6) 19 United Realty Company 212.1 216.2 (1.9) 240.6 (11.8) 20 National Real Estate Company 324.5 341.1 (4.9) 305.1 6.4 21 Salhiah Real Estate Company 1473.8 1514.2 (2.7) 1615.1 (8.7) 22 Pearl Of Kuwait Real Estate Co 20.7 21.4 (3.3) 40.1 (48.4) Real Estate Sector 231.0 240.5 (4.0) 252.5 (8.5) 23 The National Industries 196.6 203.7 (3.5) 199.1 (1.3) 24 Kuwait Cement Co 663.3 678.4 (2.2) 550.2 20.6 25 Refrigeration Industries Co 116.4 116.4 0.0 103.2 12.8 26 Gulf Cable & Electrical Industries 311.7 319.7 (2.5) 339.7 (8.2) 27 Contracting & Marine Services Co 79.4 80.7 (1.6) 98.7 (19.6) Industrial Sector 246.4 252.9 (2.6) 237.3 3.8 28 Kuwait National Cinemas 615.2 703.0 (12.5) 621.4 (1.0) 29 Kuwait Hotels Company 88.0 88.0 0.0 82.5 6.7 30 The Public Warehousing Co 3215.6 3326.5 (3.3) 2428.8 32.4 31 Mobile Telecommunications Co - ZAIN 1290.3 1352.8 (4.6) 1415.2 (8.8) 32 Safat Energy Co 31.1 34.0 (8.5) 47.6 (34.7) Services Sector 1371.6 1435.5 (4.5) 1306.9 5.0 33 Livestock Transport & Trading Co 160.0 160.0 0.0 208.3 (23.2) 34 Danah Aalsafat Foodstuff Company 81.8 93.1 (12.1) 88.0 (7.0) 35 Kuwait United Poultry Co 64.0 64.0 0.0 52.7 21.4 36 Kuwait Food Co 3034.9 3034.9 0.0 2483.1 22.2 Food Sector 1031.4 1032.7 (0.1) 865.3 19.2 37 Sharjah Cement Co 396.2 396.2 0.0 354.0 11.9 38 Gulf Cement Co 435.5 467.7 (6.9) 427.4 1.9 39 Umm Al-Qaiwain Cement Industries 735.8 735.8 0.0 676.9 8.7 Non Kuwaiti Companies 260.1 265.7 (2.1) 250.2 4.0 General Index 498.9 509.9 (2.2) 454.7 9.7

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