Privatisation of state-owned assets in GCC can fuel economic growth says Strategy& Middle East

The successful privatisation of state-owned assets in the GCC, can fuel economic growth, increase private-sector participation, boost competitiveness, attract foreign investment, and rationalise public expenditures to reduce the fiscal burden, according to the latest report by Strategy& Middle East, part of the PwC network.

The report, which outlines ten imperatives for Middle East privatisation programs, also states that governments that lack the right capabilities and processes often find privatisation initiatives complex, encounter delays and struggle to unlock the full potential of privatisation itself.

Roger Rabbat, Partner Strategy& Middle East at PwC said, “Privatisation can help MENA governments implement their ambitious development agendas and make their economies more competitive. However, the complex and time-consuming nature of privatisation programs can be daunting. Working properly, MENA governments can avoid many common pitfalls.”

The ten imperatives developed by Strategy and for the successful privatisation of state-owned assets provide government stakeholders with a series of pragmatic guidelines for managing change and the successful delivery of socio-economic growth, shareholder value and private sector confidence.

Ousama El Ghazzi, Principal with Strategy& Middle East said, “Executing privatisation programs without the proper precautions set in place might jeopardise the socioeconomic interests of both the government and the citizens alike. In fact, governments can introduce a set of measures aiming at protecting and ensuring citizens and government’s interests.”

The imperatives fall into three main phases of privatisation: planning, execution, and completion.

Planning

• Governments need the right institutional setup and capabilities to provide clear, predictable oversight and governance for privatisation. Such oversight and management by regulators enable companies to develop business models with reasonable confidence.
• They should plan a long-term, healthy competitive market structure—long before the actual sale of any assets. Promoting competition ensures that no private investor will have monopolistic power.
• Another step in the planning is to introduce measures to protect citizen and state interests in advance. For instance, they can stipulate that they will freeze, or even unwind, a privatisation initiative if the private-sector investors fail to satisfy market demand or if they engage in unfair competitive practices.

Execution

• Governments should institute pragmatic program governance. They need joint committees encompassing senior representatives and decision-makers from key ministries and authorities, to meet regularly to provide strategic guidance, support the government teams implementing privatisation, and ensure that required decisions are made on time.
• Employing effective management of change and communication among the different stakeholders is also key.
• Governments should provide potential investors with transparent information and access to facilities, assets, and the management teams of the public-sector entities.
• They should also be clear about future subsidy changes and devise sector-specific business models for their target sectors. These will govern the mechanism of subsidies in the post-privatisation era to provide private investors with a clear path to profitability.

Completion

• Governments need to reduce or eliminate the risk to investors from future official decisions. For many private investors, the value of privatised entities lies less in the underlying assets than in future revenue streams from these assets.
• They should also ensure a smooth transition for employees, and proactively set employees’ expectations during the transition.
• Finally, they should continue to monitor enterprises after the sale – and take the necessary steps to ensure that privatisation objectives are being met.