– Oil will range between 50 to 60 dollars in the next five years
– The budget deficit will reach 9 billion dinars annually
The Investment Authority gained 20 times its money invested in Visa.
– Inflation in the seventies and eighties was 15 percent… There is no fear of its current level
Khalil: Markaz continues its commitment to supporting the development of the financial services sector and the capital market
The former managing director of the General Authority for Investment, Farouk Bastaki, expressed his fear of the government’s intention to withdraw from the Future Generations Fund after it exhausted the general reserves, especially since expectations are focused on the price of a barrel of oil ranging between 50 to 60 dollars over the next five years.
Bastaki’s words came during one of the sessions of the Kuwait Financial Center Company (Markaz) conference, which was organized the day before yesterday under the title “Future Outlook for 2023: Where do investment opportunities lie in light of the challenges in the markets?” And it was moderated by the Managing Director of Wealth Management and Business Development at Markaz. Abdul Latif Al-Nisf, to discuss effective strategies for seizing opportunities in various markets.
Bastaki added, in the session moderated by Ali Khalil, CEO of Markaz, that in light of oil prices reaching those levels, the budget deficit will reach 8 to 9 billion dinars annually, and therefore the solution may be to resort to withdrawing from the reserve for future generations, wondering « How many years will he last?
He stated that the budget deficits during the past eight years collectively amounted to about 41.7 billion dinars ($137 billion), and they were paid through the General Reserve Fund by depleting all its liquidity.
Bastaki pointed out that 90 percent of Kuwait’s budget depends on oil and is therefore subject to fluctuations in its prices, citing that the estimated deficit for the budget for the year 2021/2022 was 12.1 billion dinars, while the final account showed that the deficit was only 3 billion dinars, thanks to the rise in oil prices. As a result of the Russian-Ukrainian war on large scales, not because of diversification of investments or prudent decisions.
And he continued that every year 25 thousand people graduate, meaning that the government must provide within 4 years about 100 thousand jobs to accommodate them, pointing out that the solution lies in many decisions, the most important of which is reducing expenses, especially since 75 percent of the budget is allocated to salaries and subsidies. With expectations of an increase in this number in the coming period, noting that the remaining part of the budget directed to development is very small and does not exceed 12 percent after deducting expenses.
Bastaki believed that the second solution lies in privatization, such as the privatization of the General Organization for Ports, the airport, the electricity sector, education and health, citing the example that the cost of a high school student to the state, according to studies, amounts to 8 to 10 thousand dinars annually, while with half of this amount he can enroll in a private school. Its quality is ten times higher than that of the state sector.
And he considered that the government should establish companies to include under its umbrella all public schools, provided that 25 percent of them are offered to the private sector and kept 25 percent, and 50 percent is offered to citizens, indicating that this matter also applies to the health sector, which has a budget of 2.6 billion dinars and everyone. He complains about his poor services, stressing that after enabling the private sector, companies can be taxed.
Crisis opportunities
Bastaki added that crises are always going on and generate investment opportunities, noting that in 2007 the Visa company intended to offer its shares in the market, and investors were very reluctant to enter into it because of what the world was suffering from, but the General Investment Authority entered into talks with the company. The largest share in the world was allocated to it at about $840 million, indicating that the company’s share was $44 at the time, and after a while each share was divided into four, so that the value of one share became $11, so the commission’s cost decreased to $11. And he indicated that the value of the share now amounted to $224, i.e. That the Authority earned 20 times the money invested in the company.
Bastaki added that in light of the mortgage crisis in 2008, Related Company intended to build the largest real estate project in America, which is Hudson New York, and was unable to attract investors due to the conditions that prevailed at the time, but the Investment Authority entered the project on conditions. Especially, it is now considered one of the most successful and largest private real estate projects in America.
He stated that the level of inflation in the seventies and eighties was 15 percent, and that interest rates at that time reached 20 percent, stressing that there is no fear of what has reached now at 3.1 percent.
Bastaki said that in the year 1987 the “Black Monday” crisis occurred, and the “Dow Jones” index fell at that time by about 22.6 percent within one day, and then the mortgage problem came in 2007 to 2009 and the world was on the verge of bankruptcy had it not been for the interventions of banks. Central and states, then to the Corona crisis in 2020.
He pointed out that in light of crises, cash must be preserved to seize the opportunities generated from it, and risk must be taken to achieve profits, expecting stock markets to rise by about 10 percent, such as Standard & Poor’s.
investment awareness
For his part, Khalil said that Markaz continues its permanent commitment to support the development of the financial services sector and the capital market, by enhancing investment awareness, stressing the importance of the investor having complete knowledge before making any investment decisions, to achieve his financial goals.
He added that the company supports investors by providing them with knowledge that leads to informed and responsible decisions, to seize investment opportunities in various asset classes.
Trends 2023
For her part, Executive Vice President of Investment Banking and Fixed Income Services at Markaz, Rasha Othman, touched on the most important events and trends in 2023, and opportunities in the fixed income sector and bond issuances at higher prices.
Khaled Al-Mubaraki, Senior Vice President of Real Estate Investment Management in the Middle East and North Africa at Markaz, discussed the effects of the increase in interest on the real estate sector, and the most important emerging opportunities in the region during 2023.
In turn, Vice President of Equity Investments in the Middle East and North Africa at Markaz, Fahd Al-Rasheed, spoke about the most important emerging challenges and opportunities for investors, and highlighted the investment opportunity portfolios in the company.
In a related context, Abdul Razzaq Razzouqi, Vice President of Consulting, Mergers and Acquisitions, and Investment Banking Department, highlighted the activities of mergers and acquisitions and the direction of family and large companies.
American market
During the second session of the conference, Managing Director of Mar-Gulf, the real estate arm of Markaz in the United States of America, Sami Shabshab spoke about the most important factors affecting the American market, including the impact of inflation and interest rates in the real estate sector. He also touched on His opinion on the sectors that provide the best opportunities for investors during the current year.
In turn, Assistant Vice President, International Investment Consulting Department at Markaz, Sheikh Hammoud Salah Al-Sabah, referred to the important role played by due diligence and the importance of choosing an asset manager in investment success, pointing to the importance of setting clear goals and assessing levels of risk tolerance and asset distribution. efficiently.
The list of speakers also included the CEO of “Golub Capital” Lawrence E. Golub, who explained that the US economy is in a healthy condition and that the market today is the most suitable for lenders in years, noting that interest rates are at their highest levels since the major financial crisis.
Walid Zain, Middle East and North Africa partner in Hamilton Lane, participated in the session, who reviewed the role of governance in private markets in increasing the number of open, semi-liquid funds, and highlighted the attractiveness of risk-adjusted returns, which private loans provide in an environment characterized by high interest rates.
