Private sector can help GCC states save $165bn in capital expenditures


GCC savings projected across utilities, airports, healthcare, and education by involving the private sector, with a further $287 billion expected from sales of shares in publicly listed companies
If GCC states increase private sector involvement in their economies, they could avoid $165 billion in capital expenditures by 2021, says a recent study by management consultancy Strategy& (formerly Booz & Company) issued by the Ideation Center, the leading think-thank for Strategy& in the Middle East. They could also generate $114 billion in revenues from sales of utility and airport assets, and up to $287 billion from sales of shares in publicly listed companies. GCC states could also narrow the innovation gap with other countries, enhance the delivery of and access to government services, and improve their infrastructure.
With more Private Sector Participation (PSP), these countries can achieve operational efficiencies of 10 to 20 per cent, reducing government budget deficits. Greater PSP could also help them close their innovation gap with other countries. Between 2013 and 2015, 70 per cent of global innovations stemmed from the private sector, versus 13 per cent from the nonprofit sector and only 8 per cent from the public sector.
Recently, GCC countries have been facing a few long-term challenges to the sustainability of their economies: a high dependence on oil for government revenues (73 per cent of revenues and 82 per cent of exports are linked to oil); a lack of workforce diversity and skills creating unbalanced labour markets (e.g., 78 per cent of women in Saudi Arabia do not participate in the workforce, and 54 per cent of the workforce is made up of expatriates); a growing need for public services such as healthcare, infrastructure, and education (e.g., the UAE is investing $300 billion in infrastructure until 2030); and an under-developed ecosystem for innovation, which is a key driver of national competitiveness.
Increasing PSP through the establishment of public–private partnerships (PPPs) and the privatisation of government assets is an ideal response to these challenges, suggests Strategy&. Most GCC countries, including Kuwait, UAE, Oman, and Bahrain, recognise the importance of PSP and have incorporated it in their national plans.
However, there is a lack of a dedicated PSP policy and legal framework, as well as an effective institutional set up.
Salim Ghazaly, Partner at Strategy& in Beirut, discussed past approaches to PSP and how countries can benefit from it today: “Past Private Sector Participation (PSP) in GCC countries occurred on an ad-hoc basis and in most cases without strong commitment from stakeholders (largely due to high oil prices). However, currently, we are witnessing a serious and structured approach to Private Sector Participation supported by well-defined national programmes, proper legal and regulatory frameworks, and best-in-class institutional models.
If properly implemented, these programmes could yield significant benefits to the region, including increased job creation, enhanced quality of services, faster localisation of industries, better innovation, foreign direct investment, and government expenditure rationalisation.”
To realise these benefits, GCC governments will need a rigorous and comprehensive approach to PSP and a clearly-articulated, long-term implementation plan that encompasses all economic sectors. Strategy& suggests three foundational elements to ensure PSP success: (i) developing a governing PSP policy, (ii) supporting it with a legal framework, and (iii) developing an institutional setup dedicated to driving PSP on the national level.
A PSP policy articulates the government’s goals with regards to private sector participation, aligns PSP with the country’s broader national policy, and allows for a more streamlined process. The legal framework, which encompasses the new laws or modifications to existing laws to facilitate PSP activities, will increase transparency and will outline the roles of all involved parties.
The level of depth of the PSP legal framework depends on existing laws and regulations but, in general, GCC countries should avoid overly rigid legal frameworks.