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Kuwait Generates Record Budget Surplus as UAE Businesses Head Into Saudi Arabia and Dubai Offers SMEs Exemption

Middle East : 07 September 2012

Budget Surplus Reaches KD 13.2 Billion in Kuwait Following High Oil Prices

Closing financial figures in Kuwait reported a record-high surplus of KD 13.2bn for the 2011-2012 fiscal year. This is the thirteenth consecutive surplus in the GCC nation, and came as a result of increasing oil prices and lower levels of spending. Oil averaged at $110 per barrel over the course of this fiscal year, and project spending fell in that time.

Spending rose by just 4.8 percent over the previous fiscal year, increasing by KD 17 billion. Those figures are slightly skewed by an Amiri grant issued in the 2010-2011 fiscal year; the spending increase would have been 13 percent without the grant. Actual spending data totaled just 88 percent of the budget, far below the 94 percent average over the last five years.

Spending increases were found in salaries and wages, which jumped by KD 680 million. Current spending hit 92 percent of initial budgets, falling under the historical average of 97 percent. Capital spending dropped by 2.3 percent, year-on-year, hitting KD 1.8bn.

The Ministry of Electricity & Water was the largest contributor to spending decreases, shaving 17 percent or KD 174 million from their total. Capital spending ended up at 64 percent of budgeted amounts, under the historical average of 75 percent. Those figures fell below expectations, considering the 2011-2012 fiscal year is the second in a four-year development plan outlining increased spending. Some expected the lower figures, as major elements of the development plan have yet to begin.

Revenue increased by KD 30.2 billion or 41 percent over the previous year. Higher oil prices have boosted revenue, averaging $110 per barrel and up by 34 percent. Oil receipts were up by 43 percent year-on-year and reached KD 28.6 billion. Non-oil earnings made up nearly 6  percent of total revenue, right on target with historical data and up by 7 percent year-on-year or KD 112 million.

Firms in the UAE Push Saudi Expansion Plans Forward

Many GCC and UAE businesses are moving into Saudi Arabia to take advantage of untapped opportunities in the Kingdom’s massive economy. This drive will increase as licensing requirements ease up and Saudi announces intentions to attract more investments from overseas.
All of this also means that businesses across the GCC can go it alone or without a Saudi partner, should they decide that is the better option.

Authorities in the kingdom have stated that GCC firms will be treated in the same way as local companies, creating the ideal climate for businesses from across that region, according to MAF Properties CEO Peter Walichnowski. MAF Properties has a substantial footprint around the GCC as the Mall of the Emirates developers. The firm has not moved into Saudi Arabia yet, although plans to do so may be in the works, stated the CEO.

Several Saudi landowners have expressed an interest in the development of a leisure destination and mall. Although many malls have been built in the Kingdom, Walichnowski stated that a MAF-style development would still find a market.

Real estate developers Damac Properties and Emaar have worked in Saudi before, however service and retail sectors have been the focus of attention for GCC firms. AW Rostamani Trading have set up showrooms for Sun & Sand (of Dubai) and the ZNA brand (out of China) with over twenty Saudi outlet stores catering to the sports equipment market.

Saudi’s economy returned to robust growth last year, stated Euromonitor International, and the sense of affluence in the Kingdom has triggered greater retail sales through impulse buying. The same conditions exist this year, with oil averaging more than $90 per barrel.

Sources within the industry have suggested that the effects of Kingdom reforms are now being felt. Approval processes in licensing and regulatory departments are more streamlined and companies can now consider joint ventures.

A recent partnership between Cravia Holding and Al Rajhi Group is one example within the Saudi Arabian market.

Cravia Holding CEO Walid Hajj noted that this joint venture was strategic, as opposed to legal, and allowed the firm to move forward with full investment. The partnership creates a higher value and will help each firm move forward with better business.

SMEs Given Fee Exemption in Dubai

A recent announcement from Dubai’s Department of Economic Development stated that members of the Dubai SME will be offered a Dh 72 million fee exemption.

Dubai SME CEO Abdul Baset Al Janahi noted that small & medium entrepreneurs in Dubai will be charged a maximum of Dh 1000 per year for the first three years in business.
The aim of the exemption is to allow SMEs to focus on growth and avoid worrying about costs.

SME members are being given a large window of opportunity with this fee discount, according to Al Janahi. Businesses can be launched with greater confidence and an assurance of light government fees.
An average of Dh 20,000 will be saved through this initiative, totalling Dh 60,000 over the three-year period. Al Janahi added that the elimination of labour security deposits and the removal of additional licensing fees shaves about 90 percent off of fee costs and results in savings of between 10 and 20 percent of capital over three years.

Dubai SME’s Senior Manager of Business Start Up and Development Abdul Aziz Al Mazam noted that businesses are now exempt from a wide range of charges, including those from Dubai CCI, the DED and Dubai’s Municipality and Civil Defence.

Several agreements between Dubai SME and Aswaaq, Tecom and Union Cooperative Society have resulted in a 20 percent rent discount for members. Dubai SME members are also exempt from the bank guarantee of Dh 3,000 per employee hired, as dictated by the Ministry of Labour.
These fee exemptions, combined with expansion plans for firms around the UAE and GCC region, will result in job creation across a wide range of industries. Business-friendly programs such as these also attract more companies and encourage entrepreneurs to establish new ventures in the GCC region.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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