Saudi's privatization plan is still on

To boost its finances and as part of its Vision 2030 reform plan, the Saudi government is still keen to raise billions of riyals over the next few years by privatizing state assets.

Sectors earmarked for this plan include education, health care, water, transport and others. But progress to privatize these sectors has been slowed down by the COVID-19 pandemic shutdown.

Privatization is the transfer of ownership of specified assets or services from the government to the private sector. The transfer of ownership can be done in several forms including full/partial assets sale, such as initial public offerings (IPOs), management buy-outs (MBO), private public partnerships (PPP), build, operate and transfer (BOT), concessions or outsourcing. In the biggest privatization transaction in history, the Saudi government raised over SR112 billion ($30 billion) from the IPO of Saudi Aramco last year.

The National Center for Privatization (NCP) was set up as the facilitator of the privatization plan in Saudi Arabia. The NCP is responsible for developing the framework for selling government assets in coordination with the respective government entities.

The government aims to offload the ownership and management role of these assets by creating investment opportunities for local and international investors based on commercial and economic terms. Ultimately, the government aims to raise around SR750 billion in the next few years through the privatization program.

It is highly recommended that, for the privatization program to be effective and successful, the sectors carrying the highest priority are clearly identified, as well as the exact regulations which will be applied, especially for foreign investors.

This year is an exceptional time in terms of the pandemic, but I am sure the privatization plan will continue as a cornerstone of the Saudi government’s vision. The NCP will help in shortlisting qualified investors to explore how best to participate in future privatization transactions to unlock their potential and great value.

In my opinion, over many decades with different economies around the world, selling government assets through privatization has had a noticeable impact on the global economy. It has accelerated economic growth and improved living standards by cutting costs and increasing service quality.

The reforms also massively increased the size and efficiency of capital markets in many countries. Many of the largest share offerings in world history have been privatizations, including Aramco, and a large share of global stock market capitalization is from privatized companies. The Saudi stock market, Tadawul, has become one of the 10 largest stock markets in the world, post-Aramco listing.

Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group.