By Staff writer
New report urges Gulf states to increase private sector involvement in economies in era of lower oil prices
If GCC states increase private sector involvement in their economies, they could avoid $165 billion in capital expenditures by 2021, according to a new report.
Management consultancy Strategy&, formerly Booz & Company, said Gulf countries 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 report added that 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, said Strategy&.
The report comes as GCC countries face long-term challenges to the sustainability of their economies resulting from a new era of lower oil prices, a commodity the region still relies heavily upon for revenues.
Salim Ghazaly, partner at Strategy&, said increasing PSP through the establishment of public–private partnerships (PPPs) and the privatisation of government assets is an ideal response to these challenges.
He said most GCC countries recognise the importance of PSP and have incorporated it in their national plans but there is a "lack of a dedicated PSP policy and legal framework".
“Past 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). 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 rationalization,” he added.
Strategy&'s report said GCC governments will need a rigorous and comprehensive approach to PSP and a clearly-articulated, long-term implementation plan that encompasses all economic sectors.
In many cases, this requires setting up new units such as PPP units or privatisation units that fill existing gaps within government, it added.
Hilal Halaoui, partner leading the Public Sector practice at Strategy& in the Middle East, said: “PSP would enable the GCC states to refocus their efforts on the essential tasks of government, which means becoming more ‘fit for service’. They could focus on fewer and more important tasks — bringing more effort and resources to bear on the achievement of critical goals."