The Future of Construction in Kuwait Economic Diversification to Improve Growth
The Kuwait construction industry grew at a compound annual growth rate (CAGR) of 2.65% over the review period, which was supported by growth in all the construction markets in the industry. However, the greatest contribution to the industry growth came from the infrastructure construction market, which is the largest market in the Kuwait construction industry.
This growth was assisted by the governmentâ€™s efforts to diversify the Kuwait economy and reduce its dependence on oil-related industries, which have led to growth in other industry sectors, including construction. In addition, the emergence of a large young population and considerable numbers of expatriates has further encouraged growth in the commercial and institutional construction markets. During the forecast period (2011â€“2015), there are large planned investments in the construction industry and, as a result, the Kuwait construction industry is expected to continue growing.
The Kuwait economy is dominated by the oil industry and oil-related business enterprises, and is the fourth-largest global oil exporter. The government is, however, planning on diversifying Kuwaitâ€™s economy to be less dependent on the oil industry.
As a result, the government is encouraging the development of more companies and industries in Kuwait. Due to the governmentâ€™s efforts at economic diversification, industries such as finance, banking, logistics, transport, industry, trading, telecom and transport began to develop and expand at a rapid rate during the review period, which increased the demand for construction activities, especially in the office buildings category.
The energy and communication infrastructure construction grew at a CAGR of 4.47% during the review period. The growth during the review period was achieved with the support of a government initiative in 2008 to upgrade the countryâ€™s electricity grids and make electricity distribution more efficient for air conditioning units during the summer season, in an attempt to eradicate the countryâ€™s electricity shortage.
In addition, since Kuwait is the only Gulf Cooperation Council (GCC) country without a telecommunications regulatory authority, companies in the private communications sector were able to take advantage of the weak regulatory environment. As a result, the market reached a saturation point and companies were forced to improve their services and quality to capture market share from rival companies. As such, telecommunication firms started investing large amounts of capital in the development of broadband communication networks across the country, resulting in increased construction activity in this sector.
The demand for retail space in Kuwait far outweighs current levels of supply. In 2008 the average retail space per person in Kuwait was below 0.32 meters, compared to an average of 0.66 meters for the Gulf region. Furthermore, the majority of Kuwait nationals are less than 25 years old and one-third of the population are expatriates, who would make use of retail space if it were available. With a large young population, the demand for housing is expected to remain high during the forecast period.
Due to the importance of oil to Kuwaitâ€™s economy, the state controls 95% of the land in Kuwait to ensure the freedom of oil exploration. However, this leaves little land for private developers to build on so there is a shortage of residential housing in Kuwait, leading to increased house prices. Property speculation activities have also added to the housing problem, raising house prices to a level that most homebuyers cannot afford. There is also little land available for commercial and retail construction. To address this, the government is expected to release more land and develop housing cities in collaboration with private developers to encourage residential construction over the forecast period.
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