Kuwait is among the countries that have been affected by the current economic crisis. Most of its sectors are now counting losses as some of them have opted to close down. Kuwait’s investment industry has suffered a similar effect but its situation has been worse than in other industries. This is because it depends so much on the financial status to carry out its operations. Investment Dar otherwise known as TID and KMFIC are some of the major investment companies that have suffered losses due to the current crisis and are now relying on their assets to settle their debts and to also pay their employees as they hope that the situation will improve shortly.
Introduction
Kuwait’s investment industry is among the sensitive sectors that have been affected by the economic crisis currently prevailing globally. Banks take the largest representation of Kuwait’s investment industry and they have cut on their returns since people are not able to invest as before.
However, not all investment companies have suffered negative effects from the economic crisis since some have been found to adjust accordingly by employing competent practices through which they manage risks resulting from the economic crisis. Economics experts in Kuwait have suggested that the appropriate way to protect the value of an investment company during an economic crisis is by investing in long-term sustainability. Among the companies that have been considerably affected are Investment Dar and KMEFIC which is an investment company operating in Kuwait and the whole of Middle East. Roberts (2009 p 12)
An Analysis of the Investment Industry in Kuwait Today
The government of Kuwait has influenced appropriate adjustments in the country’s investment industry where the first steps have been economic regulation through the implementation of monetary policy. This policy involves control of money supply, interest rate, as well as money availability, and its implementation is being carried out by Kuwait’s Central Bank. In December the year two thousand and eight, the investment market made some confessions which were a reflection of the extent to which the financial crisis has affected Kuwait’s investment industry.
One of the confessions was that the investment authority of Kuwait otherwise known as (KIA) would not be in a position to provide financial support that would assist in the restoration of confidence that was already diminishing in Kuwait’s investment industry. Investment banks were also reflected in the confessions and their failure was predicted despite intervention efforts employed by the Kuwait government to support them. Another area that would not be controlled was an investment in oil companies where oil prices had fluctuated to a point that the oil cartel would no longer control it.
After observing the situation in the current financial crisis, most speculators based in Kuwait had a strong belief that companies in the investment industry would suffer greatly though none of them would dare think that the house of Global investment otherwise known as Global would also fall. This would meet Kuwait citizens with shock since its failure would mark the second surprise of the same kind that would be experienced in Kuwait in December.
The first one was the fall of Kuwait’s Gulf Bank which is a very significant bank in Kuwait’s investment industry. On the sixteen days of December, Global was downgraded by five notches and was placed in the category of C, according to the gauging system employed on Kuwait’s’ investment companies. This downgrading took place because; Global had failed to make payment to another company known as WestLB which had lent it some money. Kuwait’s investors were shocked since they had invested so much with Global and it had maintained desirable financial management there before, leaving Kuwait citizens with no doubt that it would survive the financial crisis.
Investment Dar (TID)
The fall of Global had been preceded by TID’s fall which is another significant bank that is highly regarded by Kuwait investors and has an equally great contribution to Kuwait’s investment industry and the economy as a whole. The fall of TID was so remarkable to a point that it had difficulties in making payments to its staff which meant that investors were at a greater risk of losing all they had invested with it.
By December twenty-second, the situation at TID had reached its worst when employees of TID staged violent protests as they claimed their salaries and to everyone’s surprise, those employees had not been paid for some time as their main worry was that their past salaries would go unpaid. It was at this particular time that TID declared that it would not be giving bonuses to its employees since it had difficulties even pay basic salaries. November salaries had been unpaid and since it was the end of December, employees were still waiting for their salaries. By March the year two thousand and nine, which is the current year, TID had suffered losses and it decided to have some assets liquidated to get cash to settle some debts.
A restructuring plan was issued to TID’s creditors where they were requested to liquidate some assets of TID which would take place in the next five years. This practice would not be favorable to the company considering the financial crisis as it would harm the company’s value. This is mainly depicted by the value of assets whose liquidation would directly affect shareholders as well as creditors who are directly affiliated to TID.
The restructuring operations of TID indicated that salaries had been cut where employees were given a less amount than before which was accompanied by a failure to give bonuses to employees which were normally given before the financial crisis. Several employees were also laid off since the company could not maintain a large number of staff while expenses on such areas as advertising were cut down. The total amount of these adjustments on the company’s expenses was approximately fifty percent which allowed it to operate at very minimal allowances to repay their debts with money that would be collected from liquidation.
The most current information concerning TID’s financial situation is the one reported in Arab Times on the twenty-eighth day of March the year two thousand and nine, where the company was reported of forming a committee that would make arrangements on how contacts with TID’s investors as well as creditors would be coordinated to necessitate the operations of its restructuring plan. The stock exchange has also attacked TID where it has announced a pause on its shares and they have not been involved in trading since April as the company had not presented its reports portraying its earnings on time. Broberts (2009 p 13-15)
Kuwait and Middle East Financial Investment Company (KMEFIC)
This investment company provides services to Kuwait and the whole Middle East region. It mainly concerns itself with the provision of services of investment banking among them being advice on investment to those who would wish to invest individually as well as mergers. KMEFIC also offers services on asset management which involves the management of funds and brokerage services. The company’s operations have been quite presentable as it has been depicted in the sale of its shares in the stock market as well as its rise in net profits. However, it has not been spared by the financial crisis that has currently affected the whole world.
Current reports on its financial status portray that its net profits are gradually falling and it is depending on its assets to regulate its operations. Just like the case with TID, KMEFIC is calling upon its creditors to liquidate assets to cover the losses being encountered and also settle some of its debts. The same trend is also evident in the stock market where its price has fallen from one hundred and sixty-two units on tenth May the year two thousand and nine, to one hundred and thirty-two units on twenty-ninth May. This shows that Kuwait’s citizens have lost faith in KMEFIC’s shares since its financial status is not promising as was the case before the financial crisis. Hejleh (2009 p.46)
Conclusion
The global financial crisis has had a great effect on several companies worldwide and Kuwait’s companies have not been spared. The main sector that has suffered the greatest effect in Kuwait is the investment industry where investment companies are closing daily due to the high level of losses being incurred. Investment Dar as well as KMFIC are some of the major investment companies that have been contributing a great share of revenue to Kuwait’s government.
These two companies have experienced drastic losses in the current state of the economy which is contrary to Kuwait citizens’ expectations who thought that these companies would survive economic crisis due to their strong foundations. However, this has not been the case since the financial crisis has persisted for quite some time which is beyond the limits that their reserves would sustain them. Khalid (2009 p.8)
References
Broberts D. Article on the investment Dar Company (TID): Arab Media Press 2009 pp. 12-15.
Hejleh w. Kuwait investment authority and the quality of investment: Amazon 2009 pp. 46.
Khalid J. Kuwait investment industry: Arab Times 2009 pp. 8.