I know I misquoted Clinton’s famous election phrase, “It’s the economy, stupid.” For the US in 1992, it was the economy. In Kuwait, people wonder what is our problem. Some say it is political, others say social, and the financially savvy like to point to the economic side as the culprit. The best answer to that question is, “It’s everything, stupid.” Everything: we are dysfunctional from a political, social, and economic perspective.
Political:
The country is daily riding a roller-coaster of politics orchestrated by a cynical populist parliament and a fragile inefficient government. The political roller-coaster is circulating in a never-ending fashion from impeachment to dissolution. When is it going to end? I don’t want to elaborate on the political side. For more, refer to my previous post titled, “Parliamentary plays derail reform.”
Social:
Why it it that everyone in Kuwait regardless of their wealth live the most lavish lifestyle? The answer is simple: why not? Charge it on a credit card and expect the government to forgive loans. It is sad that a graduating senior from a Kuwaiti high-school’s dream is not to get into Harvard, but to drive a Maserati and upgrade to a Ferrari after college graduation. I remember a time when I was a kid and I used to enjoy going to my family’s weekly gathering to go to the supermarket and buy candy. You know what is a Kuwaiti kid’s dream nowadays? A Blackberry phone and an Abercrombie & Fitch t-shirt. This consumer mentality has to come to an end. More importantly, the parenthood relationship between the government and its citizens has to be abolished. There is severe moral hazard in our nation and its a vicious downward spiral cycle. Our government acts as a free collection agency for businesses. Our parliament sponsors morally hazardous acts such as sending families for tourism in the name of sickness and proposals such as debt forgiveness and “attractive” laid-off employee benefits. Our citizens enlist in unheard of universities in the likes of Zimbabwe and the Philippines to get a high-paying government job doing, well, nothing.
Economic:
We were the first to establish a stock market in the GCC, but today we are the only country without a governing Capital Markets Authority. It hurts, so I don’t want to talk about where we were, coulda, shoulda, and woulda. I wish I could say it in a different way, but what is happening in Kuwait’s stock market is a disaster. The domino effect is unstoppable without government intervention, regulation, and a complete overhaul of the economic system. We desperately need to instill confidence in our stock market. We want to send a message to everyone that what happened during Souq Al-Manakh crisis was a one-time event that isn’t currently in the making.
The government has to take the initiative and push for a new era of economic transparency and development. We need a Capital Markets Authority that acts as a watchdog that punishes all malpractices in the industry. Isn’t it humiliating to see the United States question manipulations by Kuwaiti individuals and companies while no one in Kuwait addresses these issues? Isn’t it ironic that market leaders are currently on the verge of bankruptcy? With added transparency, investors would have enhanced clarity and can potentially make an informed decision as opposed to gamble or leverage on an insider tip. Rest assured that the wounds of burnt foreign investors will take time to heal and it will be challenging to win them back. The establishment of a Capital Markets Authority is pivotal to the critical process of confidence restoration in our financial system. What we lack in Kuwait is priorities. Why don’t we organize and push for passing the Capital Markets Authority in the parliament? Let us prioritize our problems and address them in a one-by-one basis instead of being overwhelmed by their magnitude.
After the Agility controversy last week, people are left wondering what could stop the free-fall of our stock market? As with any solution, there is a short-term and long-term approach that need to be addressed in tandem. Establishing a Capital Markets Authority helps in the long-term, but shorter-term we have to focus on addressing the issue at hand. The reality is that our stock market is made-up of a few Chaebols*. These few Chaebols have numerous companies attached to them. These numerous companies ultimately depend on the success of the few and the few are all in trouble. The biggest four companies by market capitalization in the Kuwait Stock Exchange are Zain, NBK, KFH, and Agility. There used to be Dar and Global, but there are gone. Zain is operationally challenged and its owners want to bail-out (but seemingly can’t), NBK will be hit hard if Zain owners can’t sell their stake, KFH depends heavily on real-estate and with the wealth destruction in Kuwait there is no hope there, and Agility’s sheer existence is being challenged by a complex fraud case.
I believe government intervention should be through recapitalizing banks. The government should simply buy a 5-10% stake through new share issuance by all banks. This will provide banks with much needed cushion for taking write-downs. Instead of the never-ending provisions drama, let us mark down these assets, take the hit, and move on. The US is a perfect example of such successful approach. Establishing a portfolio that buys into stocks and tries to lift the market is a very limited solution. The government is only addressing a symptom when it does that and should do that simultaneously with other solutions proposed.
*Chaebols: large, conglomerate family-controlled firms of South Korea characterized by strong ties with government agencies.
No comments:
Post a Comment