Developing capital market with a national investment policy leads to sustainable inclusive economy: Alhajeri

Kuwait: Manaf Abdulaziz Alhajeri, Chief Executive Officer of Kuwait Financial Centre “Markaz” presented on April 10^th, 2019 a seminar titled, “Shaping our financial markets to become inclusive, economically productive and sustainable”, in collaboration with Department of Economics, College of Business Administration.

Developing Institutional capability & clear communication of reforms is essential for success

Alhajeri stressed on the need to improve the quality of our institutions in order to fully realize the value of our human capital. Job creation, better delivery of services to citizens, geopolitical stability, and economic sustainability are becoming increasingly pressing needs in the GCC region. As the drive to embark on a clear long term vision to deal with such challenges, the need for quality institutions is imperative to effectively realize our human capital potential. For long we have admired the institutional capability and infrastructure quality of developed nations, it is time we start building our own.

There have been numerous starts and reform measures, largely dictated by the level of oil prices and geopolitical situation. For the measures to be effective and to have an impact, it is essential that need for reforms and the essence of its outcome reaches one and all. An inclusive partnership among the state, key stakeholders and the citizens needs to be established for the reforms to be successful. While most challenges are being tackled now in a comprehensive manner, establishing an effective and inclusive Capital Market seems to be one of the missing key pieces towards better execution.

Broadening financial market is crucial for establishing sustainable and inclusive growth

Both globally and regionally, financial sectors remain among one of the best regulated sectors. Asset management and investment banking, part of the financial sector, can provide an efficient skill sets towards better collective investment schemes in various ways such as privatization of state assets, pooling capital for appropriate risk transfer, public private partnerships, capital for risky projects, hence towards a better cascading of economic benefits. 

Currently, Kuwait financial sector is dominated by the banking system. For instance, banking assets account for approximately 91% of overall financial assets in Kuwait as against 80% for the GCC region and just 43% in the U.S. Over reliance on banking system for the capital needs to build infrastructure and cater to the economic development needs of the state could create inefficiencies. With fiscal deficit being the norm and the state spending being a huge driver of economic activity, Kuwait could do well to establish and nurture various non-bank financial institutions.

Holistic development of financial markets assumes significance

A holistic development of the financial sector that shall cater to appetite of risk profiles across spectrum, including Small Medium Enterprises (SME) financing, and capital requirements across various time horizons such as long-term infrastructure projects could be self-propelling and push the state towards realizing its aim of being a vibrant financial center. Leveraging the available technology in this regard could help Kuwait leapfrog over its peers.

Despite the availability of capital, one of the paradoxes of the current prevailing policies are in favor of attracting foreign direct investments. However, is it mainly to transfer know-how or to create jobs or to improve the primary market (Initial Primary Offerings, IPOs), a clear and coherent stately policy and commitment has room to improve.

Being home to one of the world’s largest 10 sovereign funds, Kuwait’s bourse thin trading and lack of growth of mutual funds are examples of bottlenecks against a rapid growth of Kuwaiti private sector.  The landscape in asset management industry is highly fragmented and is disproportionately dominated by Kuwait Investment Authority (KIA).

A clear domestic investment policy is seriously needed

Kuwait could do well to focus on the development of its debt market as it could yield rich dividends in the years to come. Near-term improvements are usually achieved through policy reforms and institutional development. Typically, capital market offerings of debt securities start with the highest credit quality issuers that are able to attract investors in a nascent market. The highest quality issuer, particularly in local currency, is typically the government, and government bond markets, beginning with short term money market instruments and extending to longer tenor bonds, forming the basis for further market development by establishing price points along a yield curve and providing instruments for liquidity management.

Efforts can be focused on developing the investor base. Though the presence of international investors could lead to growth and efficiencies, the most reliable and stable investor base would be the domestic institutions. Nurturing domestic investible asset pools via pensions, insurance, and savings vehicles for individuals to deploy into capital markets is critical for local sustainable capital market development.

Itself and answer to Kuwait’s most pressing sustainability facets, job creation and diversification of national revenues, national capital markets have had intermittent incentivizing policy by the state. Capital markets development rarely follows a linear path. Developing local capital markets and making greater use of them to fund private investment and strategic economic needs tends to happen in stages. Therefore, some sequencing of policies is essential. 

Kuwait’s sustainability challenge is further exacerbated by recent budgetary deficits. Whilst the credit rating is still robust, the general reserves is under strain to meet salary commitments at the expense of a clear policy towards non-oil investments through Kuwait’s mature and job producing sector.

Mr. Manaf concluded that the way forward is to develop a revamped national investment policy based upon clear investment guidelines towards empowering capital markets towards a sustainable and inclusive economy.

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About Kuwait Financial Centre “Markaz”

Established in 1974, Kuwait Financial Centre K.P.S.C “Markaz” is one of the leading asset management and investment banking institutions in the MENA region with total assets under management of over KD 1.09 billion as of 31 December 2018 (USD 3.60 billion). Markaz was listed on the Boursa Kuwait in 1997. 

For further information, please contact:

Media & Communications Department

Kuwait Financial Centre K.P.S.C. "Markaz"

Tel: +965 2224 8000

Fax: +965 2246 7264

Email: ssaad@markaz.com     

www.markaz.com  

© Press Release 2019