Privatisation in the Gulf: the key to both recovery and diversification?

With Saudi Arabia announcing plans to raise $55 billion through its privatisation programme, Gulf countries are stepping up efforts to stimulate private investment in public assets and projects, with a view to strengthening state finances, stimulating diversification and boosting their respective recoveries from COVID-19.

In March, Saudi Arabia's Council of Ministers approved the long-awaited Private Sector Participation Law, which aims to increase both privatisation of public sector assets and private sector participation in infrastructure projects.

The law will come into force in July. Targeting 16 sectors, it will promote one of the central objectives of the Kingdom's Vision 2030 economic development plan, namely an increase in the private sector's contribution to GDP from 40% to 65%.
The new law addresses a number of areas that have traditionally generated some degree of concern among potential investors, particularly foreign entities.

Among the principles it enshrines are a level playing field between domestic and foreign investors; freedom for private sector entities to raise revenues; and a more streamlined process for obtaining permits and approvals. The law also exempts privatisation projects from meeting 'Saudisation' quotas.

This willingness to compromise with foreign investors' concerns can be read as a reflection of the post-COVID-19 landscape, in which Gulf countries find themselves in a more fiscally constrained position and are therefore likely to be more conciliatory than they might have been in the past. 

At the same time as the law was passed, Saudi Arabia's National Privatisation Centre, founded in 2017, announced the launch of a Privatisation Project Registry, a central database of information related to projects earmarked for privatisation. 

Hopes are high that the new law will provide a significant boost to privatisation.

In late May, Mohammed al-Jadaan, the finance minister, told the Financial Times that Saudi Arabia hoped to raise $38bn through asset sales and another $16.5bn through public-private partnerships by 2025.

The Saudi government is among several in the region that are expanding their respective privatisation strategies.
As OBG has explored in depth, the COVID-19 crisis led many Gulf nations to accelerate their ongoing attempts at diversification, with increased private sector involvement a key element of many of these projects.
In Oman, for example, local media recently reported that the government was considering selling its 54% stake in Oman Cement Company.

The country has a pre-coronavirus history of advocating privatisation. Its first major sale was of a 49% stake in Oman Electricity Transmission to State Grid Corporation of China in late 2019.
On a related note, it was recently reported that Abu Dhabi is considering the sale of a 10%, $4bn stake in Abu Dhabi National Power Company, known as Taqa, which is the emirate's largest utility.

It is believed that Taqa's continued shift towards renewables (it plans to increase the contribution of solar and wind power to 30% of output over the next decade) could increase its attractiveness to international investors.
Last year, the company announced that foreign investors, who had previously been banned, would be allowed to buy shares in future sales. 

Any potential sale of the company's assets would represent the latest step in an ongoing privatisation drive by the emirate, which in recent years has attracted more than $20 billion in foreign investment in the operations of state-owned Abu Dhabi National Oil Company.

Meanwhile, in March, Bahrain held the Bahrain Metro Market Consultation, an initiative designed to find private companies to form a public-private partnership to develop its metro system. An international tender for the project is expected to be launched later this year.

The project is estimated to cost more than $1 billion and potentially up to $2 billion.
Bahrain has long been a regional leader in seeking private sector investment: within the MENA region, Bahrain ranked second after the UAE in the World Bank's most recent business index, and 43rd overall.

As Gulf governments seek to strengthen the resilience of their economies and public finances in the aftermath of the pandemic, there are concrete reasons to anticipate that privatisation will play an important role in both their immediate recovery strategies in the face of COVID-19 and their longer-term diversification efforts.