Cairo- Decypha: Addressing the crunch in state revenues after the oil production slump, the Kuwaiti government announced plans in February to undertake financial reforms, including the adjustment of state contribution to the national economy, enhancing private sector involvement, and the issuance of a number of legislative and administrative amendments.
Heavily depending on oil as a primary source of revenue, around 95% of Kuwait’s export yield were coming from oil, before the 2014 international collapse in crude’s prices, where prices peaked at $155 per barrel.
The overall revenue levels were affected in response, falling from $97 billion in fiscal year (FY) 2013/14 to $40 billion in FY2015/16, pushing the government to estimate a budget deficit of KWD 12.2 billion ($39.7 billion) by the end of the current FY, marking a 50% increase from the previous year, according to the figures of the Kuwaiti Ministry of Finance.
Restructuring the state’s budget, the Kuwaiti National Assembly’s budget committee announced in June 2016 that the government would implement subsidy rationalization, cutting budget allocations for fuel and gas subsidies in FY2016/17 to KD238 million.
As a result of that, the non-oil sector is expected to grow. The National Bank of Kuwait (NKB) stated in September that the non-oil growth will mark 4.5% in 2017, up from 4% in 2016.
The harsh oil slump has forced all six Gulf Cooperation Council (GCC) countries to diversify their revenues, including the ones from the tourism sector, which can be done through developing tourism strategies.
In Kuwait specifically, the tourism sector was said to be needed to bolster the national income, Minister of State for Cabinet Affairs and Acting Minister of Information Sheikh Mohammad Al-Mubarak Al-Sabah said in March.
New tourism investments to shake up the market
Shaping 2.1% of Kuwait’s GDP, at KWD 834.3 million, the tourism industry is planned to expand over the next decade, to record 2.6% of the GDP, around KWD 1.36 billion.
The sector attracted KWD 113 million in investments in 2016, with projections of growth are set at 3.7% for 2017, according to the latest Kuwait report published by the World Travel and Tourism Council (WTTC).
Travel and tourism’s share of national investment is forecasted in the report to hike from 1.3% to 1.5% in 2027, the WTTC added.
Thus, the country is attempting to flourish its investments in the tourism and travel sector, through development of projects such as: Madinat Al Hareer (Silk City), a mega project parallel to Kuwait City; expanding Kuwait International Airport to receive 25 million passengers by 2025; and establishing Sheikh Saad Al Abdullah Islamic Centre. A Supreme Commission for Tourism is to be founded to monitor investments in these projects.
The Kuwaiti government has trimmed in February the work period on the KWD 1.31 billion terminal, whose contract was signed with Turkey’s Limak in May 2016, from six years to four years.
Some new attractions such as the $770 million Sheikh Jaber Al Ahmad Cultural Centre, which opened in late 2016 and encompassing an opera house, theatre and conference spots, the Abdullah Al Salem Cultural Centre and Cultural Village slated for 2017, will act as market addition to Kuwait’s tourism industry, according to Oxford Business Group (OBG).
Tourism sector performance
Dividing the tourism sector into sections, the business travel was considered to be the most well performing sector. Spending on business travel is forecasted to see the highest growth rate at 13.1% in 2017 reaching KWD 445.6 million, to further rise to KWD751.1 million in 2027. This will be followed by a 6.9% of growth rate in visitor exports in 2017, reaching KWD 331.8 million, to grow to KWD 705.2 million.
As for the leisure travel, the sector is anticipated to grow to reach 2.1% this year, registering KWD 1.315 billion, to reach KWD 1.97 billion in 2027, according to the WTTC.
Corporate visitors have registered 70% of Kuwait’s arrivals in 2016, leaving 6% market share for leisure travellers, according to Colliers International.
The huge dependency on business travel in Kuwait has caused a decrease in hotel occupancy by 6%, with the average daily rate falling by 2.3% in the same year, Colliers added.
Kuwait has also appeared to be putting the meetings, incentives, conferences and events (MICE) at the centre of its attention, according to Faisal Al Duraie, director of research and tourism information at the Ministry of Information.
Hotel sector to expand in Kuwait
The hotel occupancy in Kuwait is considered to be on the lower end of the spectrum in comparison to other GCC countries, revolving around an average of 50%, according to OBG.
Supported by the famous Hala February festivals, which offers visitors shopping discounts and entertainment celebrations, the hotel occupancy was pushed forward to 54.6% in February, financial services firm EY stated.
A series of new hotels will be launched in Kuwait City over the upcoming four years, according to local media. Kuwaiti retailer Alshaya and Four Seasons Hotels and Resorts are building a 140,000 sq m Four Seasons Hotel Kuwait at Burj Alshaya, including 284 rooms. The opening is scheduled in 2017.
Other $1 billion new hotel establishments will be built at the Avenues mall in partnership with Hilton and Kuwait’s Al Rai Real Estate. The 158-room luxury Conrad Kuwait and the 430-room Hilton Garden Inn will open in early 2019.
Another 261-room Grand Hyatt Kuwait hotel will open within the 360 Mall development in 2020, through the partnership between US chain Hyatt and Kuwait’s Tamdeen Group. The 160-room Novotel Sharq and 200-room Centro Rotana will open in 2017 and 2018 respectively.
Kuwait 2035 Vision
The Kuwaiti government is preparing a structural and economic reform plan, which will work to promote other economic sectors in the country. By 2035, Kuwait targets minimising the oil revenues compared to tourism, industry, technology, banking and investment sectors.
Targeting to empower the private sector, increase SMEs contribution and attract foreign investments, the government works on five programmes in the vision, including developing national tourism.
The tourism plan mainly eyes encouraging investments in different tourism areas and making the best use of tourist services and utilities. Marketing campaigns for tourism in Kuwait will also be launched as part of the vision by the Ministry of Information.
One of the shorter methods of boosting the tourism sector in Kuwait is through enhancing the demand for the leisure industry. The state needs to invest further to ensure its ability to compete with other GCC countries in terms of tourist arrivals.
New hotels and tourist projects will serve as a good opportunity for the sector to bolster its GDP contribution and save the non-oil transformation of Kuwait.
By Doaa Farid
