The Kuwaiti government’s decision to transfer KWD2.5 billion (US$8.1 billion) of landholdings to the country’s social security fund, instead of its sovereign wealth fund, comes amid long-standing political disputes over the direction of the US$801 billion Kuwait Investment Authority (KIA), one of the world’s biggest and oldest SWFs.

Public Institution for Social Security Fund (PIFSS) is acquiring 842,000 square metres of land in three plots, located in Al-Mirqab and Al-Rai in Kuwait City, and Al-Aqila in Ahmadi governate near the capital. The fund will then have the opportunity to develop the land, or use it as collateral for debt to invest in other initiatives.

The move to “bolster the financial and economic position, guaranteeing the institution's sustainability and reducing the actuarial deficit recorded in the institution's budget” is intended to support the requirements of current and future pensioners.

The move is somewhat of a surprise for Kuwait, which has in the past transferred chunky assets to KIA in return for liquidity. In early 2021, for instance, the Kuwaiti government sold its last performing assets to KIA in a bid to bridge its yawning budget deficit as it struggles to pay its bills – a situation that has diminished as a result of the hike in crude oil prices.

The assets included stakes in Kuwait Finance House and telecoms company Zain, which are worth approximately US$2.0 billion and US$4.4 billion respectively. In addition, KIA gained control of the Kuwait Petroleum Corp, which has a nominal value of US$8.3 billion. The assets were transferred to the Reserve Fund for Future Generations (RFFG), a long-term savings fund intended to sustain the country’s economy when oil reserves are depleted.

Unlike the 2021 transfers to KIA, the transfer of land assets to PIFSS was not intended to close the government’s yawning fiscal deficit. The purpose appears to be more strategic, focusing on domestic real estate development – possibly under the ambit of PIFSS subsidiary the Wafra Real Estate Company, which is developing Failaka Island including a marine tourist park. The public pension fund is increasingly focused on domestic economic development, indicating that the government is keen to utilise its capital for strategic ends.

Yet, this would seem to be the role that Kuwait’s new proposed sovereign wealth fund is supposed to take. In July, the Ministry of Finance and KIA said they will study the Ciyada Development Fund. The fund is supposed to be part of the government’s 2023-27 economic development program and aims to "accelerate the growth of the Kuwaiti economy, improve the quality of life and bolster transformation and progress in the various fields of development, through strategic planning and effective implementation of major development projects.”

The landholdings would seem to more in tune with Ciyada’s objectives. Similar to the domestic objectives of Saudi Arabia’s Public Investment Fund (PIF), the recently mooted Ciyada – which means “sovereign” in Arabic – will seek private sector partnerships to develop giga-projects and boost high value-added sectors in a drive to diversify the oil-based economy. The fund’s feasibility study, overseen by the KIA, is due to be completed by the year-end.

With PIFSS now receiving significant real estate assets, it is unclear how the new fund will be seeded and how it is distinct from KIA and the social security fund. However, PIFSS has stayed above the legislative turmoil that has surrounded KIA in recent years, which has seen KIA become a focus for complex power games and ministerial turf wars. The government may have decided PIFSS is a safe pair of hands, above the political fray, which could add value and, in turn, secure long-term objectives for social security provision.

Related funds KIA PIFSS-Wafra
Related tags Real Estate Kuwait