If GCC countries increase the involvement of private sector in their economies, they can avoid $165 billion in capital expenditure by 2021, says a recent study by management consultancy Strategy&.

The Gulf states 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. The 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, according to the study report.

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 non-profit sector and only 8 percent from the public sector.

Recently, the GCC countries have been facing some long-term challenges to the sustainability of their economies, which include 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 labour markets (78 percent of women in Saudi Arabia do not participate in the workforce, and 54 percent of the workforce is made up of expatriates) and a growing need for public services such as healthcare, infrastructure and education (the UAE will be investing $300 billion in infrastructure until 2030).

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, Dubai, 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.

“Past private sector participation in GCC countries occurred on an ad-hoc basis and, in most cases, without strong commitment on the part of the 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,” said Salim Ghazaly, Partner at Strategy& in Beirut.

To realise these benefits, GCC governments will need to adopt a rigorous and comprehensive approach towards PSP and a clearly-articulated, long-term implementation plan that encompasses all economic sectors.

Strategy& suggests three foundational elements to ensure PSP success:develop a governing PSP policy, support it with a legal framework, and develop 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. Having an institutional framework with good governance would facilitate the implementation of PSP. In many cases, this requires setting up new units such as PPP units or privatisation units that fill existing gaps within the government. These units’ roles range from promoting PPPs to investors and guiding PPP policies and plans to providing technical support to projects.

Source :Times Of Oman