The Gulf countries are engaged in a determined effort to diversify their economies away from oil production and the exploitation of natural resources. At the same time, they are also actively working to address other economic challenges, including job creation and growing demand for quality public services.
GCC governments recognise that increasing the role of the private sector can help them achieve these goals, as stated in national plans such as Saudi Vision 2030 which include clear provisions for public-private partnerships (PPPs) and the privatisation of state-owned companies.
By enhancing the role of the private sector and re-focusing the responsibility of the state, GCC countries could cumulatively save $164 billion in capital costs by 2021, and raise $505 billion in revenues from the sale of shares in state-owned assets. Increased private sector participation will allow GCC governments to focus on their core mandate of policymaking and regulations setting, while the private sector performs operational activities more effectively.
However, the challenge is that in many cases GCC countries have addressed private sector participation on an ad hoc basis and/or depending on their short-term needs. This approach has been characterised by insufficient planning, governance, capabilities, and commitment from senior stakeholders.
Privatisation programmes often lacked an active governing body to support their acceleration or set clearly defined privatisation guidelines. They had limited support from stakeholders and citizens.
Planning, prioritisation, and implementation monitoring of projects lacked effectiveness, resulting in delays in securing the necessary regulatory approvals and endorsements. All these factors have dampened investor confidence and the private sector’s desire to become involved.
GCC governments now realise that a comprehensive private sector participation strategy is required. Such a strategy needs to be supported by three elements: a private sector participation policy, a legal framework, and a strong institutional set-up.
A private sector participation policy can either stand alone or be part of a broader national scheme. It should articulate the government’s plans. While some countries have announced separate policies for PPPs and privatisation, a comprehensive policy would allow policymakers to prioritise projects and assess sector readiness and capital availability.
Such a policy would showcase the government’s commitment to involving the private sector. It would also create a basis for enacting relevant laws, while ensuring alignment with the country’s broader national development policy and economic goals.
The purpose of the legal framework is to provide certainty for the state and the private sector alike by dealing with all the potential legal problems upfront and making allowance for enough flexibility to adapt to changing circumstances. In general, countries with a civil law system must change existing laws and regulations or pass new laws to allow the private sector to take on public assets and deliver services historically provided by government institutions.
While some countries choose to adopt high-level guiding legal frameworks for private sector participation, PPP and privatisation have different legal ramifications and require different laws. PPPs are particularly complex and have considerable implications for public accounts, sector regulation, and procurement, as well as the allocation of assets and risks.
The purpose of the institutional set-up is to provide a strong, national governance structure to accelerate private sector participation efforts. The set up should ensure the proper allocation of the required authority and decision rights for those official and quasi-official organisations that will oversee the extended role of the private sector.
In some cases, these organisations may need to change by acquiring new and different capabilities to manage PPPs or oversee privatisation. Generally, countries introducing large scale PPP programmes create a PPP unit.
Depending on the context, the role of this unit could range from setting best practices and technical standards all the way to executing private sector participation programmes on behalf of government entities.
Similarly, many countries have created privatisation units to drive the sale of state-owned entities. While some countries have a single unit for both PPPs and privatisation, they require different capabilities and are usually led by different teams.
GCC states can unlock the benefits of an increased private sector role by adopting a strategic approach that gives it the right reasons and opportunities to get involved. In doing so, they can reduce their economies’ vulnerability to volatile commodity prices and achieve sustainable long-term growth.
The writers are partners at Strategy& (formerly Booz & Company), part of the PwC network.