Documente Academic
Documente Profesional
Documente Cultură
Nouf N. Alsharif
Economist
nalsharif@jadwa.com
Head office:
Overview
Privatization has become one of Privatization, the conversion of state-owned and managed
the major economic phenomena in enterprises into privately-owned and managed ones, has become
recent economic history. one of the major economic phenomena in recent economic history,
which has varied significantly from one country to another. Many
reasons arise as motivation for privatization, as supporters
emphasize on increasing efficiency and improving incentives.
Individuals
7%
26% Companies
Private
Investment funds Public 40%
May 2018
40% (+Oil)
60%
Government
18%
9% International
investors
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June 2018
The Kingdom has established the To govern the privatization process, the Kingdom has established the
National Center for Privatization to National Center for Privatization (NCP) and Supervisory Committees.
develop frameworks that will NCP’s role is to develop frameworks that will enable and manage
enable and manage privatization. privatization, and the committees should provide technical, financial
and legal framework for privatization.
Table 1: Previous privatization projects in the Kingdom, through IPOs
Year Company Sector Share Sold
Privatization objectives
Privatization Direct Objectives
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June 2018
Gov. net
savings from
25-33
privatization/ The plan clearly differentiates between direct
PPP asset sales and PPP, which provides better
supervision and stronger governance, follow-
Gov. net ing the international best practices (Table 4).
We note that the plan clearly savings from 1-1.2
differentiates between direct asset asset sales
sales and PPP, providing better
Create new This number might be reflecting the total
supervision and stronger 10-12
jobs in the number of public sector jobs that are planned
governance. thousand
private to be transformed through the privatization
jobs
sector process.
Vision 2030 Realization Program (VRP) metrics and targets:
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June 2018
Higher services prices post- believe that focusing on assessing the level of these services post-
privatization would require focusing privatization would support monitoring and evaluating the success of
on assessing the level of these the process.
services.
The plan targets 23 privatization initiative with high impact, of which
5 will be privatized through asset sales.
The plan differentiates between In addition, the plan differentiates between privatization and
privatization and corporatization. corporatization, as a number of initiatives will not be fully
privatized, but will be corporatized instead. This includes
transforming these assets into government or non-profit corporates.
Therefore, the plan excludes these initiatives from the metric
“number of assets privatized”:
1. Ports
2. King Faisal Hospital & Research Center
3. A number of transport projects
Table 4: Main differences between three types of privatization projects: IPO, asset sales, and PPP
Asset Sales
IPO (full or partial) PPP
Puts the listed companies under monitor by both investors
and market regulators Attracts the
Privatized companies need to adhere to rigorous expertise from
Risks can
requirements, such as corporate governance and strategic
be shared
transparency investors, such
between
as large
Positives IPO offers equal opportunities to both individuals and the public
companies
institutional investors to participate and
operating in a
private
large
More listed companies will help deepen local capital markets sectors
international
Generates higher returns to the government than trade market
sales
No strict
adherence with The PPP
IPO does not guarantee bringing in the required expertise capital market process
Negatives could get
from strategic investors into target sectors regulations and
transparency as very
the case in IPO complex
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June 2018
Current situation
The plan analyzes the current role In this section, the plan identifies two main facts about the Saudi
of the Saudi government as the economy:
main service provider. 1. The government has been the main service provider.
2. Previous privatization projects were limited to a number of
sectors with high levels of expertise and knowledge.
We find a significant opportunity in We find a significant opportunity in PPP projects that could emerge
PPP projects that could emerge in in the services sector, as the government decreases its role as a
the services sector in the future. main service provider. For example, there is a considerable potential
for improving health services in the Kingdom, by choosing the right
assets through the planned PPP projects, which raise the private
sector’s role while risks are shared with the public sector in the same
time. In addition, we do agree that providing most of services solely
by the government could raise conflict of interests.
Risks
The plan identifies two major risks: limited liquidity in the financial
system, and changes in market conditions. These risks will be
mitigated through opening opportunities to foreign investments,
global markets and leveraging. That said, dealing with various risks
came in more details in the “privatization projects manual”, recently
published by the NCP.
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June 2018
Sector Initiative
Develop privatization general legislative frameworks
Develop legislative frameworks that govern the targeted sectors for
privatization
Corporatize ports
Transportation 4 initiatives to enhance transportation system
Energy, Industry, and Minerals Enable production of energy from renewable sources through PPP programs
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June 2018
Figure 4: Measures of healthcare services in the G20 countries (latest available data)
4.5
(Hospital beds per 1,000 people)
Italy
Germany
4 Argentina Russia
3.5 China
Australia France
3 UK OECD average
Saudi Arabia
2.5 US
Canada S.Korea Japan
2 Mexico
Brazil
1.5
1
India South Africa
0.5
Indonesia
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
(Doctors per 1,000 people)
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June 2018
After going through restructuring, After going through restructuring and efficiency planning,
new privatized companies are new privatized companies are expected to exhibit growth
expected to exhibit growth and and profits in the medium term, raising the need to hire more
profits in the medium term… workers to keep up with competition and the potential higher
demand on their services, creating new jobs and raising
employment in the longer term. Within the region,
restructuring companies post-privatization in Jordan has led
to an estimate of 25 thousand new jobs in privatized sectors
in the medium term (Box 2).
12
10
8 Chemicals
6
4 Oil, Gas & mining
2
0 0 10 20 30 40
2001 2007 2015 (Percent)
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June 2018
25 13
1.5
(percent)
(percent)
20
15 12 1
10
5 11 0.5
0
-5 10 0
2011 2012 2013 2014 2015 2016 2017 private sector public sector*
11 *Public sector data is provided by GaStat from the MCS, and it excludes
employees in the military and security sector.
June 2018
Global trends
In the 1950s and 1960s,
nationalizing business firms was In the 1950s and 1960s, governments in developing countries and
seen to enhance economic many newly independent countries sought economic development
development. through nationalizing business firms. At that time, state ownership
was thought to promote development in areas where the private
sector was too risk-averse to explore.
Since the 1970s, more than 100 countries had privatized tens of
thousands of firms, raising almost $1.5 trillion in government revenue
Since the 1970s, more than 100 (Figure 9). Beginning with the US, and followed by the UK, where the
countries had privatized tens of government privatized coal, steel, railroads, telecom, electricity, and
thousands of firms. water. After that, many countries have seen the substantial fiscal
benefits and followed the privatization process, as total revenues
accounted for 10 percent of government budget in some years.
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June 2018
Outlook
Lastly, the privatization program would also interact with the PIF
Program. As privatization helps in maximizing revenues from state-
owned assets; the two programs are expected to simultaneously
look at targeted state-owned assets to be privatized.
Figure 9: Worldwide revenue from privatization, Figure 10: Value of privatization transactions in
1988-2016 developing countries by region, 1988-2008*
350
Sub-Saharan Africa
300
South Asia
250
($ Billion)
MENA
200
Latin America
150
East Asia
100
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June 2018
A Vibrant
Society A Thriving
Economy An Ambitious
Nation
Figure 12: The privatization program NTP 2020 and Vision 2030 revenue targets
NTP 2020 and Vision 2030 targets Accumulated government proceeds from asset sales
800
700
600
(SR billion)
500
400
300
200
100
0
2020 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030
NTP Vision
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June 2018
Disclaimer of Liability
Unless otherwise stated, all information contained in this document (the “Publication”)
shall not be reproduced, in whole or in part, without the specific written permission of
Jadwa Investment.
The data contained in this research is sourced from national and international
statistical sources unless otherwise stated, such as GaStat, Tadawul, Ministry of Civil
Services, IMF, UN, WB, UNCTAD, the Privatization Barometer among others.
Jadwa Investment makes its best effort to ensure that the content in the Publication is
accurate and up to date at all times. Jadwa Investment makes no warranty,
representation or undertaking whether expressed or implied, nor does it assume any
legal liability, whether direct or indirect, or responsibility for the accuracy,
completeness, or usefulness of any information that contain in the Publication. It is
not the intention of the Publication to be used or deemed as recommendation, option
or advice for any action (s) that may take place in future.
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