alshall weekly economic report · 2019-07-15 · alshall weekly economic report volume 20 – issue...

ALSHALL Weekly Economic Report

Volume 20 – Issue 16 – 25th April 2010

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This Week 1. Privatization Law 2. What is Available for Privatization? 3. Likely Bumps in KSE Trading Path 4. Profits of Listed Companies 2009 5. The Weekly Performance of Kuwait Stock Exchange

Prepared by Economic Research Unit ALSHALL Consulting Co. Salhiya – Sahab Tower – Floor 9 – Kuwait Tel: + 96522451535 – Fax: +96522422619 Email: [email protected] Web site: www.alshall.com

1. Privatization Law The National Assembly did well in passing the Privatization draft bill in its first deliberation by the end of the week before last week by majority of 33 votes. Opposition views must be respected despite our disagreement with them. The rule states that to get the best you have to take all views into consideration. Before we cite the bill’s benefits and advantages and what should be realized to guarantee its feasibility, we should discuss the objections on it, some of which exist in privatization literature like rights of national labor and rights of product consumers -service or commodity- especially when the project is either monopoly or semi-monopoly.

The bill exaggerates protectionism to the existing labor, which is fine on the short term. It provides the same advantages to those who will continue for five years with the public project which will be privatized, provided he/she will be trained and re-qualified to enable him/her to take up any other public work if he/she desires so. But if he chooses to retire after a long service, he might get 3 years to be added to his retirement balance, or 5 years to complete his retirement entitlement if he chooses to retire, and the amount of

three-year salary calculated on the last basic salary value as termination of service compensation. All workers in the privatized public project have the right to share by 5% of the privatized project with preferential prices to partially transform into owners. Equity here means additional social security vis-à-vis their fellows in other public services not subject to privatization. Another advantage is that if some of them will be discharged after 5 years, the new owner will be forced to retain the same national labor percentage as the one prior to privatization. In other words, he should replace the outgoing number by an equal number of new ones at a minimum. In case of expansion, the national labor should be increased accordingly.

The law provides that 40% of the project should be offered for public placement and 20% in the government’s hand so that the State as represented by the people and the government -its representative- will own 60% of the company. After adding 5% to workers, 65% of the company equities will belong to the public directly or indirectly. This means privatization is a partial, and not complete, transfer of ownership. In some vital projects, the government has



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the right to own the Golden Share or an absolute veto right to specific resolutions. In the second deliberation this right might apply to all projects. The bill provides establishing supervision and monitoring board and submits semi-periodic reports to the constitutional authorities which have the right to intervene within the limits of established legislation, or by issuing new legislation. It is an overprotection which is too exaggerated. Health and education sectors, two main services, remain immune and we have our own opinion regarding this. Natural resources, or oil reservoirs, their production volume is protected by the constitution. There is no country in the world, excluding N. Korea, which offers such protectionism.

The significance of the foregoing carries secondary importance; the paramount significance belongs to the future and whether the public sector can continue to provide support for keeping people in their jobs, which is absolutely impossible. Within the next 30 years, for measurement and comparison, 20 years have passed since the invasion, if the demographic growth continues at the present rate of 3.2% per year, 250% or 2.5 times of the number of the present work force will enter the labor market. The public sector, under its current operation model, will be unable to accommodate one-fourth their numbers. At the present performance level of civil

servants and public work values, KPC classification is now at the bottom compared with all regional similar companies and corporations. Needless to mention the power problems and the programmed power disconnection, corruption scale or Kuwait Airways Corp, education and health services; in other words, the making of a civilian is deteriorating because all of the above have been used as employment centers for the surplus demand on job opportunities and limited supply. Whether we like or hate the private sector, the world has decided including China, which receives the largest foreign direct investment (FDI) doses in the emerging economics, and believes that unless real investment amounts in any economy reach between 20%-30% of the gross domestic product (GDP), it will not avoid unemployment. This investment size is not available to the Kuwaiti government. Therefore, to the interest of the people, we should find an alternative.

Combating corruption, which is a pest and may occur with privatization, cannot be achieved by halting progress but by implementing the law and with some stringency. The privatization draft bill should be employed to remedy the future structural bottlenecks like the dominance of the public sector, and the prevalence of an exhaustible one income source to create jobs most of which are unreal, financing 94% of



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the state’s budget from a perishing income source. Increasing private investment doses will contribute to solving the first and second problems, i.e. increasing the private sector’s contributions to GDP and creating job opportunities. Therefore, the state’s preference to the investor in privatization should be based on its action plan, volume of the funds to be utilized for expanding and the number of job opportunities to be created for nationals, and not for the price. Issuing a subsequent legislation imposing income tax on privatized projects after a certain grace period depending on each project nature will create a nucleus for a tax basis to diversify economic resources and to contribute to financing the state’s budget. Those goals are more significant than the present’s issues including the project’s price and its owner. The real danger to the majority of people is the country’s future if the current approach continues. It needs a prudent man’s action.

2. What is Available for Privatization?

Debates on privatization projects because some believe the government has companies and projects which, if privatized, will transfer big wealth from the public to the private sector. In reality, the case is different. Most of the government’s companies or projects are either old or inactive, the good ones are either costly or cannot be privatized.

The last previously mentioned are limited to two only: oil reservoirs together with associated gas, if any, and Kuwait Investment Authority (KIA). Everything else is replicas and was privatized partially or totally around the world or in the region.

Going back to the 1990s, the World Bank in 1992 restricted the companies that can be privatized by 74 companies or projects, 62 of which are listed or unlisted shareholding companies and some were privatized, including “Zain” and “Agility”. Despite their latest problems, the number of national workers and their salaries increased; they developed their services to cover the entire world and became a source to export expertise and service and even generating some income in foreign currency to Kuwait. The Government can -and did- create rivals to them. What applied on these applies on selling the government’s shares in the banking sector’s units. We do not believe that the remaining companies might stir debate or sensitivity because the buying mechanism has been decided by auction to the highest offered prices as per law; this is ownership transfer and not privatization.

The remaining ones which the World Bank has restricted to 12 projects, 6 of which or two-thirds of the value, are public services. Most important of which is the power sector similar to what happened to Saudi Arabia, or



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private services like the Kuwait Airways, the Public Transport Co, telephone communications and postal services, ports management and Tourist Enterprises Company. The 6 others are oil related companies including Oil Tankers (KOTC), refining, fuel stations, petrochemicals, and foreign petroleum explorations. As for the first 6 ones, dissatisfaction with their services is common; their partial or total privatization occurred everywhere. Keeping the national labor percentage and tariffs (prices) unchanged by law, privatization will lead either to nothing due to non-feasibility of buying some, or to essential improvement in their services if privatized simply because the service will not be worse than the current status, like receiving your mail one or two months late, if ever.

As for petroleum projects or companies, by guaranteeing the state's ownership of reservoirs the constitution fortified their wealth. The law guarantees keeping the national labor percentage fixed in any privatized project. Most of these projects were either private or joint enterprise like KNPC and its subsidiaries and KOTC. What will happen is the inevitable improvement of the sector's services whose classification ranking dropped for the time being and KNPC was demoted. It will also stop harnessing the pipe which feeds the country for political employment and dividing positions according to quotas, or

employment for employment sake which inhibits the ambition for creativity and innovation.

Fear of all antagonists is legitimate but we must name sources of the fear which do not include the law or the privatization material when we call "a spade a spade". The permanent fear lies in bad governmental performance and maybe corruption. Its remedy is different and radical by reforming the government's administration at the highest levels; positions should be occupied by competent personnel and not by blind loyalties; corrupts should be severely punished. We of course do not exclude part of the private sector as being corrupt.

3. Likely Bumps in KSE Trading Path

A report of Numoura forecasts moderate growth in Qatari, Saudi and Kuwaiti markets which we agree upon it though we do not recommend it as an invitation for investment in these markets because there are uncalculated risks that may reverse the picture. Our concurrence justification is what we previously published that the Qatari and the Kuwaiti markets were among the weakest in 2009 which would make them start 2010 by low performance. Besides, Indications for bypassing the global crisis and probable strong performance for the three macro-economies in 2010 seem encouraging.



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Obstacles in the Kuwaiti market's performance may be summed up in three. The first, and more important, is the vague status of listed groups and companies and the probable default of any one of them. While patience was acceptable under the crisis conditions and the sustained psychic pressure, we believe that indexes of the overall economy and the local banks' overcoming the crisis stage warrant the start of disposal of this bump consequences. Public supervisory authorities are supposed to be stringent and push these companies either to main restructuring or merger to improve their position, if possible, or the voluntary liquidation option, or cancelling their listing in implementation of the stock market's law. There are unnecessary costs that augment skepticism in everything if consecutive news about the bankruptcy of this company or that continues. They should be dealt with by surgery.

As “Agility” is a main company and superior in its services and should be protected as strongly as possible because it created exportable excellent services, lengthy developments of its case with the US Government is the second bump that affects the market negatively. We do not know for certain whether it committed a grave mistake, though it remains probable, but irrespective of whether it did or not, it remains better to expedite an amicable settlement with the US Government

even with paying bigger amounts only with one condition, namely, not to be placed on the black list.

The third bump is beyond the local authorities capability of intervention; it is “Dubai World” crisis developments which indicate that no substantial progress in settling debts. This explains why the Emirates two stock exchanges were excluded by Nomura's report. Leaking rumors state that “Dubai World” offered two options. The first one to local banks whose credit is worth US$ 10 billion offered 1% interest-also extending the term of loans. The second one was more generous to foreign creditors; it will have immediate impact and negative reflections on the local banking and real estate sectors' recovery from the crisis as they apply indirectly to Kuwaiti companies investing there. We repeat a former call by us that GCC states undertake a group action to support Dubai's negotiating position versus its creditors as the European Monetary Union members did with Greece.

We still stick to one of our previous opinions that KSE index will grow positively, the second half of the year will be better in performance than the first half; we emphasize the sustained international recovery from the financial crisis together with its positive reflection on global economy, with occasional drop if any of the above bumps occurs.

ALSH

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The following tables summarize last week’s performance of KSE

Most Active Sectors & Companies % of Total Value Traded Description

Market KD Sectors 36.1% 106,290,280 SERVICES SECTOR 27.8% 82,023,230 BANKING SECTOR 16.3% 48,112,800 INVESTMENT SECTOR

% of Total Value Traded Description Market KD Companies 14.8% 43,732,350 KUWAIT FINANCE HOUSE 12.0% 35,495,650 ZAIN 5.8% 16,947,050 OULA FUEL MARKETING CO. 5.7% 16,651,750 GULF BANK 4.2% 12,366,320 ALJAZEERA

42.5% 125,193,120 Total

Description week 16 week 15 Diff

22/04/2010 15/04/2010 % Working days 5 5 Al Shall index (41 Companies) 5,401 7,825 -31.0% KSE index 7,254.8 7,384.5 -1.8% Value Trade (KD) 294,580,420 431,575,320 Daily average (KD) 58,916,084 86,315,064 -31.7% Volume Trade (Shares) 1,163,715,000 1,790,125,000 Daily average (Shares) 232,743,000 358,025,000 -35.0% Transactions 27,005 39,123 Daily average 5,401 7,825 -31.0%

week 15 week 16 Description 15/04/2010 22/04/2010

4 11 Increased Value (# of Companies) 27 18 Decreased Value (# of Companies) 10 12 Unchanged Value (# of Companies) 41 41 Total Companies

Company Name THU THU DIFF CLOSE DIFF

22/04/2010 15/04/2010 % 2009 % 1 The National Bank Of Kuwait 413.8 413.8 0.0 345.3 19.8 2 The Gulf Bank 254.1 247.4 2.7 200.6 26.7 3 Commercial Bank Of Kuwait 688.7 659.7 4.4 674.2 2.2 4 Al-Ahli Bank Of Kuwait 279.7 291.4 (4.0) 303.0 (7.7) 5 Kuwait International Bank 239.7 248.0 (3.3) 189.7 26.4 6 Bank Of Kuwait & The Middle East 289.1 289.1 0.0 278.2 3.9 7 Burgan Bank 245.4 241.7 1.5 249.1 (1.5) 8 Kuwait Finance House 1232.0 1278.5 (3.6) 1183.8 4.1 Banking Sector 436.3 438.0 (0.4) 391.4 11.5



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9 Commercial Facilities Co 234.6 245.4 (4.4) 241.8 (3.0) 10 International Financial Advisors 737.6 753.8 (2.1) 737.6 0.0 11 National Investments 453.0 434.1 4.4 459.3 (1.4) 12 Kuwait Investment Projects 779.2 806.7 (3.4) 889.2 (12.4) 13 Coast Investment & Development 194.1 188.6 2.9 158.6 22.4 Investment Sector 411.4 417.9 (1.6) 430.8 (4.5)

14 Kuwait Insurance Company 69.5 68.4 1.6 81.6 (14.8) 15 Gulf Insurance Company 201.7 230.2 (12.4) 230.2 (12.4) 16 Al-Ahleia Insurance Company ِ 165.2 165.2 0.0 180.5 (8.5) 17 Warba Insurance Company 150.8 150.8 0.0 196.6 (23.3) Insurance Sector 121.6 126.0 (3.5) 140.0 (13.1)

18 Kuwait Real Estate Company ِ 124.7 124.7 0.0 111.6 11.7 19 United Realty Company 171.3 173.3 (1.2) 163.2 5.0 20 National Real Estate Company 388.3 380.3 2.1 392.2 (1.0) 21 Salhiah Real Estate Company 775.3 781.7 (0.8) 710.7 9.1 22 Pearl Of Kuwait Real Estate Co 323.4 323.4 0.0 323.4 0.0 Real Estate Sector 281.3 280.1 0.4 274.0 2.7

23 The National Industries 331.9 340.4 (2.5) 259.5 27.9 24 Kuwait Metal Pipe Industries Co 162.5 149.2 8.9 80.2 102.6 25 Kuwait Cement Co 776.7 765.7 1.4 612.6 26.8 26 Refrigeration Industries Co 83.6 83.6 0.0 83.6 0.0 27 Gulf Cable & Electrical Industries 671.5 695.4 (3.4) 647.5 3.7 28 Contracting & Marine Services Co 211.2 244.8 (13.7) 225.6 (6.4) Industrial Sector 403.2 410.2 (1.7) 336.8 19.7

29 Kuwait National Cinemas 439.4 439.4 0.0 539.8 (18.6) 30 Kuwait Hotels Company 140.3 140.3 0.0 143.0 (1.9) 31 The Public Warehousing Co 1877.4 1910.9 (1.8) 1910.9 (1.8) 32 Kuwait Commercial Markets Complex 384.3 390.5 (1.6) 440.1 (12.7) 33 Mobile Telecommunications Co - ZAIN 3381.9 3257.0 3.8 2445.4 38.3 34 Kuwait Computer Co 87.5 88.4 (1.0) 64.1 36.5 Services Sector 2334.7 2269.6 2.9 1818.2 28.4

35 Livestock Transport & Trading Co 270.8 270.8 0.0 275.0 (1.5) 36 United Fisheries Of Kuwait 188.2 194.3 (3.1) 118.6 58.7 37 Kuwait United Poultry Co 33.3 34.0 (2.1) 33.3 0.0 38 Kuwait Food Co 1418.9 1438.6 (1.4) 1438.6 (1.4) Food Sector 548.3 555.5 (1.3) 547.6 0.1

39 Sharjah Cement Co 459.0 451.2 1.7 431.4 6.4 40 Gulf Cement Co 661.3 661.3 0.0 524.2 26.2 41 Umm Al-Qaiwain Cement Industries 426.8 426.8 0.0 375.3 13.7

Non Kuwaiti Companies 291.9 290.9 0.3 261.8 11.5 General Index 499.5 498.8 0.1 439.6 13.6

alshall weekly economic report · 2019-07-15 · alshall weekly economic report volume 20 – issue...

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