DUBAI, 30th January, 2017 (WAM) — If GCC states increase private sector involvement in their economies, they could avoid $165 billion in capital expenditures by 2021, says a study by management consultancy Strategy& (formerly Booz & Company).
According to the study 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 percent, reducing government budget deficits. Greater PSP could also help them close their innovation gap with other countries. Between 2013 and 2015, 70 percent of global innovations stemmed from the private sector, versus 13 percent from the nonprofit sector and only 8 percent 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 percent of revenues and 82 percent of exports are linked to oil); a lack of workforce diversity and skills creating unbalanced labor markets (e.g., 78 percent of women in Saudi Arabia do not participate in the workforce, and 54 percent 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 privatization of government assets is an ideal response to these challenges, suggests Strategy&. Most GCC countries, including Kuwait, Dubai, Oman, and Bahrain, recognize 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 programs, proper legal and regulatory frameworks, and best-in-class institutional models. If properly implemented, these programs could yield significant benefits to the region, including increased job creation, enhanced quality of services, faster localization 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.