TWO-LANE BLACKTOP

Kuwait 2017 | INDUSTRY | FOCUS: AUTOMOTIVE INDUSTRY

With an ever-increasing number of cars in Kuwait, the country's burgeoning automotive segment is entrenched by both an affluent consumer base as well as established partnerships between MNCs and Kuwaiti family holdings.

In mid-October 2016, HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah dissolved Kuwait's parliament as a consequence of a long-lasting political gridlock over fuel price increases. Announced as part of the government's strategy to meet its deficit targets in a low oil price environment, fuel prices increased by roughly 80% in September 2016, eventually triggering the resignation of the cabinet and the dissolution of the national parliament. Although the gridlock over fuel price increases followed a number of policy disputes over subsidy cuts, it should come as no surprise that Kuwait's automotive segment and its burgeoning consumer base have become key economic players.

According to the 2015 Annual Statistical Bulletin of Transport, the number of operating vehicles has been estimated at more than 1.9 million in 2015. With more than 75% of vehicles in private ownership, the 10-year trend suggests that the number of vehicles has not only incrementally risen over the past 10 years, but will further increase until 2020 at the very least. These numbers are further reflected in the regional automotive industry, given that the GCC car fleet steadily increases at a growth rate of 5%. In fact, the UAE, Saudi Arabia, and Kuwait are expected to make up nearly 75% of the GCC's car fleet until 2020.

These positive developments have been crucially facilitated by long-standing distribution authorizations and import dealerships between international automobile manufacturers and a number of family-owned companies. As the authorized distributor of Toyota's cars—the most popular automotives in Kuwait—Al Sayer Group, for instance, has obtained a significant share in the Kuwaiti automotive segment. The group has not only sold Toyota's cars for more than 50 years, but has also cemented its leading position in the car rental industry—a market segment that is expected to reach overall revenues of almost USD300 million until 2020. Most notably, however, a number of family conglomerates such as Alghanim, Behbehani, Al-Mulla, and Al-Babtain either started off in the automotive segment or eventually managed to obtain a crucial market share. In an interview with TBY, Al-Babtain's Group CEO Saleh A. Al-Babtain described how a car dealership with Nissan marked Al-Babtain Group's rise to success: “Operating for 65 years now, we are one of the oldest groups in Kuwait. We started in the automotive business in the late 1940s and, after that, we grew along with the discovery of oil in Kuwait. Eventually, we diversified and invested in automotive and real estate development which aligned with the business needs of the country. […] It is important in terms of size and revenue and I would put it as over 50% of our business but the other sectors of the group's investments should not be undermined. With regard to the automotive business, however, we are the agents for Nissan and are the second-biggest dealer in the world after Thailand.”

With international automobile manufacturers having cemented a top-performing supply chain with local family businesses over the years, various macroeconomic factors have facilitated a continuously rising demand for cars. While Kuwait's strong currency and its population's high disposable, tax-free income encourages high consumption patterns, the country's vast retail banking segment provides favorable loan and insurance options. Moreover, despite the recent surge in fuel prices, gas still remains at an affordable cost. Although Kuwait's infrastructure has been rather unprepared for the vast increase in operating vehicles over the years, a wealth of large-scale infrastructure projects, particularly new roads and bridges, are further set to significantly reduce traffic congestion in Kuwait. What finally remains unaddressed, however, is a comprehensive strategy to deal with the most fatal consequence that the burgeoning automotive industry has brought about: Over the past 10 years, the Ministry of Interior registered more than 4,265 motor vehicle casualties—a staggering number that is unfortunately set to further increase in light of the automotive industry's upward momentum.