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Thu 7 Feb 2019 11:27 AM

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Privatisation sales, IPOs lagging behind M&A activity in region - report

A report from Hogan Lovells found that GDP growth has not led to an improved environment for the GCC private sector

Privatisation sales, IPOs lagging behind M&A activity in region - report

Despite M&A activity have picked up because of corporate restructuring, moves into the technology space by sovereign wealth funds and loans driving growth in debt markets, key areas such as privatisation sales and IPOs progress lagged behind, according to a new report from international law firm Hogan Lovells.

According to the report, GDP growth has not translated into an improved environment for the private sector, which has been hit by rising costs, cautious consumer demand and lower government demand.

“Larger Gulf companies are looking outside their home markets to diversify revenues and are investing heavily in technology to boost their global competitiveness,” the report said. “But many smaller family companies – especially in Saudi Arabia – are struggling to wean themselves off cheap expatriate labour, protectionist regulations and local government spending.”

Additionally, the report noted that in the UAE – which has long been a hub for investments in the region – private sectors jobs have declined as companies restructure and cut costs.

“Expats are squeezed by rising taxes and stagnant wages, so consumer demand is down,” the report noted. “The government too has kept spending low.”

Meanwhile, despite enormous growth potential in Saudi Arabia, actual transactions have been hampered by a challenging business environment, lack of investor confidence and lingering concerns about opening up to outside influence.

Lastly, the report noted that volatile oil prices make it difficult for GCC economies to guarantee stability, and that countries in the region face growing protectionism and home and abroad.

This, the report said, “increases the tension between jobs and the pressure to produce locally, on the one hand, and opening foreign investment on the other.”

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