It looks like Saudi Arabia’s privatization program will take longer than expected, delaying the kingdom’s grand plan to be diversified out of the oil business by 2030.
Nineteen months after Crown Prince Mohammed bin Salman (MBS) originally announced Vision 2030—the privatization of state assets to power an economic restructuring—the deals are slow to actualize.
“It’s going to take longer (than many expected),” a Saudi banker working on the transactions told Reuters. “There are headwinds from the shifting of priorities in government and at a micro-level as these are old institutions that have often never kept books and are not up to the rigors of privatization.”
Other issues include a frustrating bureaucracy, a lack of legal framework that mollifies investors, and an unorganized implementation of Vision 2030 altogether.
Uncertainty regarding the future of members of the royal family makes it even more difficult to conduct business with the authoritarians that run the kingdom. Early last month, MBS rounded up dozens of royals, ministers and tenured officials in an anti-corruption campaign seen by outsiders as a bid to consolidate power as his ascension to the throne nears.
The initial public offering of Saudi Aramco is due to occur in the second half of 2018, but the financial team managing the massive event has yet to come together on a foreign venue for the listing. London and New York have been at the top of the list for months, but a final decision is still due.
The non-IPO asset sales are set to make the government $200 billion, vastly improving the state’s finances. Last year, the government ran a $79 billion deficit, but the trend is due to reverse this year as austerity measures continue to rise in intensity.
In the grains sector, private bidders have complained of a long sales process for government-owned mills and difficult-to-decipher ownership rules. The health ministry has ordered a hold on tenders to purchase 55 healthcare units in Riyadh. The bids were logged back in April.
“Compared with many of its neighbors, Saudi Arabia has only limited experience in terms of privatizations, and still lacks an adequate regulatory framework,” Raphaele Auberty, a BMI Research risk analyst for the Middle East and Africa, told Reuters.
Public-private partnerships in the country’s main industries were almost non-existent when MBS declared their sale over a year ago. With no framework to work off of, the nation’s health, food and commodities sectors are struggling to create a model of ownership that would entice investors.
Last month, communications minister Abdullah Alswaha announced that the Saudi Post would also go through a five-year corporatization process before it was sold off to an unnamed investor.
“It makes sense to focus more on putting that corporate DNA, leadership and resources, then think about a complete privatization,” Alswaha said.
Even soccer clubs could be privatized. Jadwa Investment has been tapped to advise the sale of five clubs that play for the Saudi Professional League.
The scope of privatization efforts is increasing, but the flow of deals and bids has almost completely halted. MBS and his team seem to have lost focus on the economic future of the country, electing instead to continue an embargo against Qatar—a fellow Gulf state—and continuing an anti-corruption campaign that undermines the unity of the Saud family.
An embattled leadership is not a good look for a country trying to lure foreign money into its economy. Saudi Arabia will have to clean up its act on the bureaucratic, managerial, and royal levels to make sure the asset sale program works for the KSA, as well as its future partners.
By Zainab Calcuttawala for Oilprice.com