$300-billion Saudi state sell-off moves at Snail’s Pace

When Prince Mohammed bin Salman of Saudi Arabia announced his $300 billion privatisation plan there was much excitement for what was then being termed the ‘sale of the century’. Now, 19 months down the line, very little seems to have actually happened.

Among the myriad of problems that seem to be plaguing this transition are substantial bureaucracy, poor legal structures and lacklustre investors. This has affected many of the country’s sectors – most noticeably grains, the postal service and healthcare.

A Saudi banker explained that the transformation is going to take much longer than anticipated due in part to the constantly shifting priorities of the government. They are also encountering problems on a lower level with institutions which have little by way of book-keeping. They will need a full make over before they will be at an adequate standard for privatisation.

This sell-off of Saudi Arabia forms an important part of the Prince’s Vision 2030 plan. The overarching purpose of this plan is to diversify the economy, which is currently suffering from high unemployment. In this time of low oil prices, the Prince is aiming to move away from energy exports and find new ways of bringing revenue into the country.

However, professionals in the banking and investment arenas as well as analysts are concerned about the distinct absence of clear regulatory frameworks. Without these it will be a challenge to assure potential shareholders of important matters such as the level of control foreign companies could gain.

Overall the sell-off is supposed to improve the state of state finances by putting much of the country into private hands. The four areas that have been put as priorities for 2017 are: grain silos, sports, electricity generation and water provision.

However, would-be buyers of the kingdom’s grain silos are being put off by the prospect of tedious ownership rules and seemingly never-ending paperwork to complete the sales process.

Raphaele Auberty, a risk analyst at BMI Research for the Middle East and Africa stated: “Compared with many of its neighbors, Saudi Arabia has only limited experience in terms of privatizations, and still lacks an adequate regulatory framework.” This will undoubtedly lengthen the process and place numerous hurdles in the way of prospective buyers.

It was originally thought that the bidding process for Saudi Arabia’s key sectors could start in 2018 but it is now looking like 2019 or even 2020 could be more realistic start dates.

Further confusion was thrown into the mix when a local media outlet released information that the government was planning to privatize 27 airports by mid-2018. This has been rejected by target analysts who have dismissed the idea as unrealistic. When questioned on the topic the Chairman of Saudi Civil Aviation Holding Company explained that the airports were to be corporatized or turned into private companies by the date mentioned. The full process of privatization would come later down the line.

He finished by saying: “Various challenges have arisen and have been resolved. The deadline of mid-2018 is reachable.”