A financial ecosystem to support energy in Kuwait

Kuwait

Ali H. Khalil, CEO of Kuwait Financial Centre “Markaz”, talks to The Energy Year about significant trends affecting the Kuwaiti economy, the level of sophistication of the local financial sector and how the government is including the private sector in its strategy. Markaz is an asset management and investment banking institution licensed and regulated by the Kuwait Capital Market Authority and listed on Boursa Kuwait.

What are the most significant trends affecting the Kuwaiti economy?
Two long-term trends are shaping the country and the region. The first is the transfer of wealth from the previous generation to the current generation, and that is – unlike what you see elsewhere – having a great impact. The newer generation is exposed to the international arena. They believe in diversification and like to invest across various conventional and alternative asset classes. They have a longer investment horizon and an appetite for higher risk. What was a conventional investment – real estate – for them is no longer conventional. The Kuwait market is one of many markets they invest in. We need to cater to this new generation.
The second huge impact, which I think will be long-lasting, is that no matter what oil prices do today, in the long run, oil is becoming part of a basket of energy alternatives. The story is changing. Prices will rationalise. There is innovation and substitution. We have serious issues to deal with, and the government will rely more on the private sector to create jobs and private-public partnerships to develop infrastructure projects.

How advanced is the Kuwaiti financial and banking sector?
This sector is ahead of most emerging markets in its composition. If we talk about the banks, I would say that they are at the forefront of technology. So many banks are announcing digital bank initiatives. We are at the forefront of it. The Central Bank of Kuwait today is very friendly toward fintech. They have a regulatory sandbox and are evolving their regulations to accommodate digital banks and fintech initiatives in Kuwait.
If I look at the Kuwait Stock Exchange (Boursa Kuwait), I would say they too are at the forefront. Boursa Kuwait has been one of the greatest surprises for us. What the leadership has done, I would say, is proof of what the private sector can do if allowed to work. We have a very liquid, orderly market. It has zero tolerance for malpractice in Kuwait. They are swift and are introducing new products.
If I look at the CMA, the Capital Market Authority, they have been a lot more dynamic recently. As you know, regulation is an iterative effort. If you just stipulate new regulations in response to the environment, you may sometimes end up underregulating or overregulating. Underregulating benefits the market but conveys more hazards. Overregulating hinders the market. The good thing is that we are identifying shortcomings and then changing our regulations and adapting to a new reality. We’ve seen this effort constantly coming to market, and changes in the regulations have found a balance between underregulation and overregulation.

How is the Kuwaiti government planning to involve the private sector in its strategic plans?
The government has become more proactive and is now asking the question, how do you build a productive economy? And when I say “productive economy” that concerns how to empower the private sector and how to shift the responsibility for business formation and job creation from the public sector to the private sector, where companies are much more accountable for productivity and efficiency.
We’ve seen that in Saudi Arabia. HRH Crown Prince Mohamed bin Salman was ahead of the curve. He led this move towards more private-sector participation. We’ve seen the impact on GDP growth. We’ve seen the breakeven oil price drop substantially in Saudi Arabia, and I think other countries – definitely Kuwait or Bahrain will replicate the successes. We feel that this is going to have an impact on Kuwait, and we’ll see this change.

How is Markaz helping the government achieve its Vision 2035 strategic objectives?
We are in tune with the government’s needs because they need us and the capital market. It’s a free economy, and the capital market must basically be the capital provider for the new drivers of the economy.
We have launched an energy private equity fund because, unless you have a local ecosystem that caters to the needs of the oil sector, you cannot get value from the oil sector. If we want to create an ecosystem in Kuwait, we need to allow local players to play a significant role. Kuwaiti companies need more scale and scope. We will be here, in our private equity segment, providing capital, equipment leasing, and alliances with international companies. We will provide companies with financial and strategic support that enables them to thrive in this market.

Which oil and gas sub-sectors do you see growing the most?
What does Kuwait need moving forward? How do we reach 4 million barrels of production efficiently while not substantially impacting our production costs? I think here you need a level of expertise that may not be immediately available today in Kuwait but can be built with time.
What I see is more subcontracting companies working with internationals who provide technology and equipment, and I hope that will provide employment to local Kuwaiti graduates because exposure to international expertise is how you build the infrastructure and the capacity.

What are your key objectives for the coming year?
In a broad sense, our key objective is to continuously exceed the expectations of our clients and our stakeholders. We are an investment company and an investment bank at the same time. Therefore, we are asset managers. We provide investment opportunities to our investors, and our investors today want global asset allocation, diversification, and alternative assets that provide them with enough profitability to offset inflation.
We are continuously upgrading our product range, but we would also like to be a more significant player in fulfilling the government’s aspiration of growing the economy. We see ourselves as the arm and the tool of the government, which seeks to create growth and support the private sector in meeting its growth objectives.

Read our latest insights on:

• Bahrain
• Kuwait
• Saudi Arabia