GCC governments are looking to privatize some state-owned assets and companies to maintain better economic growth, increase private sector participation, boost competitiveness, attract foreign investment, and rationalize public expenditures.
All this is being done so that these countries could reduce their fiscal burden.
High inflation, rising poverty rates, and the absence of a middle class are only some of the dangers of privatizing industries.
Privatization plans for 2022
An extensive plan to privatize several of Kuwait’s utilities and economic enterprises was adopted by the Supreme Council for Privatization in December 2021, and also got governmental approval.
The privatization process is expected to expand to 38 government institutions and activities, starting with the state’s facilities.
The plan’s implementation will be split into two stages.
The first phase is dependent on some of these entities being transformed into commercial entities.
As for the second stage, it depends on privatizing these commercial entities and offering a percentage of them to the private sector to manage and operate them.
Last year, Saudi Finance Minister Muhammad Al-Jadaan announced that the kingdom was preparing 160 privatization deals, and intended to reveal more in 2022, specifically in the education and logistics sectors.
With privatization, Saudi Arabia aims to reduce its general budget burden and increase the private sector’s participation in its GDP from 40 percent to 65 percent by 2030.
10 imperatives
PwC recently released a report titled “Ten imperatives to successful privatization in the Middle East,” which can help governments develop and execute privatization programs successfully. The PwC report divided them into three primary stages of privatization:
Planning:
- Governments must have the appropriate institutional framework and competencies in place.
- Long before any assets are ever sold, governments should plan a long-term, healthy, and competitive market structure.
- Governments must put in place mechanisms to safeguard the interests of both the public and the government.
Execution:
- Senior officials and decisionmakers from the most important government departments and agencies should meet periodically to provide strategic guidance, support the implementation of privatization, and make sure that necessary decisions are made on time.
- Employing effective change management and communication among the different stakeholders is also crucial.
- Governments should make their facilities, assets, and management teams available to potential investors openly and honestly to attract private sector investment.
- Governments must be aware of future subsidy changes and design sector-specific business models for their target sectors. For private investors to have a clear route to profitability after privatization, this will control the mechanism of subsidies.
Completion:
- Governments need to reduce the risk of future official choices for investors. A privatized company’s worth is often determined by its future revenue streams rather than its core assets.
- Governments must also ensure a smooth transition for employees and proactively set workers’ expectations during the transition.
- Governments should also monitor companies after the sale and take the required actions to guarantee that privatization objectives are accomplished.