Privatisation is the way forward

The move by the UAE Federal Government and Dubai authorities to privatise government-owned companies and assets is a step in the right direction.

The Federal Government on Sunday decided to privatise assets of the state-owned Federal Electricity and Water Authority, and Dubai's government-owned Dubai World announced an initial public offering to raise $4 billion by selling 20 per cent equity in DP World, the world's third largest port operator.

Although privatisation of utilities is not new to the country, as most of the power and desalination plants in Abu Dhabi have already been privatised, the other emirates have yet to follow suit. In keeping with the goal of creating a vibrant financial centre in the country, the recent move will help to attract international capital and will support robust economic growth in the coming years.

If this is the beginning of a series of privatisations, then local and foreign investors will have much to invest in, which in turn will boost the region's banking and financial sector. It also reflects a shift in the government's position from traditional practices and will strengthen the country's growing private sector.

The Cabinet decision comes in line with the recent comments made by the International Monetary Fund (IMF) in its country report earlier this month. In it, directors of the global financial watchdog encourage the listing of large quasi-public enterprises on the equity market, and promote an increased role for institutional investors.

As the UAE moves towards privatisation, the question of rules and regulations as well as the international best practice - or lack of it - will pop up. Before opening up the economy too much and too fast, the UAE needs to first check the strength and effectiveness of its regulatory environment.