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Saudi Arabia privatization program underway, Kingdom aims to raise $55 billion within 5 years

“Launch” … the largest technical event in the region kicks off activities in Riyadh

Saudi Minister of Finance Mohammed Al-Jadaan said recently that the Kingdom’s privatization program aims to raise about $55 billion over the next five years.

The privatization program comes in line with the Saudi Vision 2030 targeting broader engagement of the private sector in the Kingdom’s economy.

Al-Jadaan explained that the Saudi government has selected 160 projects across 16 sectors to be offered through the program over the next five years. The government aims to secure $38 billion through asset sales and another $16.5bn through public-private partnerships.

The Saudi Council of Ministers issued its approval of the privatization system in March.

In statements published by the Saudi Press Agency, Al-Jadaan explained that the Kingdom’s Vision 2030 is concerned with enhancing investment in the national economy, creating attractive investment opportunities for the private sector, and increasing its contribution to the domestic production to enhance the sustainability of the Kingdom’s economy.

The ambitious privatization program will boost the Saudi balance of payments and increase the contribution of the private sector from 40% to 65% of GDP.

Steps to activate privatization program in Saudi government sectors

As the Kingdom moves towards privatizing the Saudi government sectors, only about a month away from its implementation and work on its practical arrangements, several economists have recommended the need to choose the best implementation tools, and take into account all the interests of the different parties.

This can be done through selling these assets at the best prices and the ability to improve the performance of companies and give major investors the opportunity to manage them, and define goals clearly before their offering, while choosing the right time and taking into account the potential of the market at the present time.

Al-Jadaan had confirmed that the entry into force of the privatization program soon would enable the private sector to participate more in providing services that the government used to provide and enable it to spend on more projects through private sector investments.

Economic expert and President of Governance Research Center (GRC) Nouf AL-Ghamdi told Leaders MENA that the Kingdom’s Vision 2030 aims to attract investments into the national economy, by creating attractive investment opportunities for the private sector, and increasing its contribution to the domestic product to enhance the sustainability of the Kingdom’s economy.

She added that the priority sectors in the privatization program are health; technolgy and communications; education; water; transportation; tourism; agriculture; municipal affairs; Hajj and Umrah; media, sports; civil aviation, transport and ports, and railways.

Regarding the returns on the allocation of state-owned assets, including government companies, lands and assets, Al-Ghamdi indicated that it leads to an increase in the state’s financial resource. It also will boost the financial capabilities of the Kingdom and its public agencies, which will be reflected positively on all aspects.

Other aspects in which privatization contributed, including the development of new sectors and the creation of leading national companies.

As for global investments, Al-Ghamdi believes that major international companies and emerging and leading global technology companies will be present, will maximize asset management, financing and investment.

Furthermore, Al-Ghamdi stressed that privatization plays an integral role in stopping financial waste and administrative corruption, raising the quality and efficiency of the services provided and increasing the effectiveness of the regulatory and supervisory roles of state agencies.

“Nevertheless, privatization will attract foreign investments, improve the balance of payments and provide job opportunities, especially with the increasing role of the private sector.”

Increasing the role of the private sector in economic development contributes to bringing more sovereign revenues to the state, including taxes and fees, as a result of the contribution of non-oil sectors to the GDP.

Regarding the privatization process and how to organize it, Al-Ghamdi indicated that it requires gradual application to avoid monopoly and shield those with limited incomes.

Al-Ghamdi explained that government sectors need to choose the most appropriate methods for the privatization program, in a balanced manner in which all parties take into account the different interests.

“Some experiences can be emulated, especially with regard to performance efficiency, such as what happened in some countries, including the United Kingdom and Malaysia,” she concluded.

Despite the application of the privatization program to many sectors in the Kingdom, the Saudi government excluded sectors from the program, as they will remain under its full financial and administrative management, as they represent the kingdom’s national security, namely: the armed forces, the judiciary and justice, the military colleges, and the security sectors, according to Al-Ghamdi.

One of the most important benefits of privatization program is innovation in providing services to citizens and expatriates, reducing bureaucracy, fixing apparent defects in the management style, and more importantly eliminating weak performance of employees in the government sector, she revealed.

The President of Governance Research Center added that this will lead to a tangible increase in production as it relates to reward and salaries. In turn, raising competition among employees, with regard to productivity and improving service, providing more job opportunities, increasing income, while reducing the burden on the government budget.

The funds saved will be redirected to implement important projects that directly benefit the citizens.

“We still have to follow up on the implementation, as some companies may tend to establish their own interests that conflict with the interests of the government and its general policy. Or laying off a large percentage of employees. Also, increasing the prices of services and goods after allocation. Poverty levels may increase, due to higher prices,” she warned.

This process will take place after a decree is issued for each establishment, and it will be within an implementation period determined by the competent authority or the supervisory committee, provided that it does not exceed 3 years from the date of the decision.

When the allocation decision is issued, it is not necessary to approve the transfer of all the employees of this ministry to company contracts, as it may be approved to transfer a specific activity to a private sector, and employees remain in the ministry.

Also, the rules and arrangements for how employees and workers are treated in the sectors targeted by privatization are not new, and what was recently issued is a development and continuation of what was done previously.

The rules are based on providing options to the employee, not obligating him, starting with his transfer in the event of privatization, and in case of unwillingness, there are options to contain the employee in the same entity or sector in which he works, or transferring his services to another government entity.

According to Al-Ghamdi more than 30% of the employees need rehabilitation to meet the needs of the sectors nominated for privatization in the next stage. Efficiency and administrative and technical flexibility are a key factor at this stage in order to raise performance efficiency, rationalize expenditures, and make good use of resources. There are 3 types of employees, first the ones who qualify for the privatization stage, and the second type has skills and needs some qualification and they are the majority, and the third type are those who suffer from weakness in capabilities and they are estimated at an average of 30%

Another economist told Leaders MENA that the Saudi privatization program is not the first, as the Kingdom has previously privatized its communication sector. He revealed that the program will reduce current burdens on the Kingdom’s budget.

Moreover, he explained that the offering of the Saudi state-owned assets will positively impact the Kingdom’s financial resources, boost investments and raise the financial capabilities of state agencies.

Nevertheless, analysts forecast that these steps will give momentum to the development of new sectors within the Saudi economy and maximize asset management, financing and investment, especially that Vision 2030 aims to offer the shares of some state-owned companies in the financial markets.

privatization program will expand the scope of competition so that the economy is run more efficiently and effectively, and the government sector and work and coordination between them.

Accordingly, the private sector role will become a major partner in the Saudi economic development process, through clear and precisely known goals, and priorities that the state can shift its focus from without any negative impact.

Wheat leads privatization program

The flour mills sector is one of the sectors that are being fully privatized in accordance with the Saudi Vision 2030.

The first phase of privatizing the flour mills sector was completed in December 2020, when the ownership of the First Milling Company (MC-1) was acquired by Al-Raha Al-Safi Food Company after it provided the best financial offer of about $540 million.

The deal was facilitated by the National Center for Privatization (NCP) and the Saudi Grains Organization (SAGO).

In early April, a consortium comprising of UAE’s Al Ghurair Investment, and Saudi Arabia’s Al Rajhi Holding Group and Masafi completed the acquisition of a 100% stake in Third Milling Company (MC3) from SAGO and NCP for about $200 million.

Afterwards, SAGO sold 100% stakes in the Second Milling Company and the Fourth Milling Company, completing a previously announced privatization program.

Abdulaziz Al-Ajlan Sons Company for Commercial and Real Estate Investment, Al-Rajhi International Investment Company, Nadec and Olam International Company acquired the the Second Milling Company in a $568 million deal.

While, Alana International Alliance, Abdullah Al-Othaim Markets Company and United Feed Industry Company acquired the Fourth Milling Company for $229.05 million.

Thus, the value of the winning bids for the Saudi four milling companies amounted to more than $1.5 billion.

Qualified investors have conducted the necessary professional studies during the previous period, which ended with their submission of financial offers on April 19, 2021.

After reviewing the bids submitted by the qualified investors, and after ensuring that the bids fulfilled the conditions stipulated in the bid request document for this stage of the privatization process, the sale process was awarded to the investors with the highest financial bids, according to the Flour Mills Sector Privatization Program.

Abdul Rahman Al-Fadhli, the Saudi Minister of Environment, Water and Agriculture, commented on the deal, saying, “The completion of the flour production mills privatization program by selling the four milling companies to major alliances in this field reflects the confidence of investors and foreign companies in the strength of the Saudi economy.”

Education second in line

The Saudi Minister of Education, Hamad bin Muhammad Al Al-Sheikh, and the Tatweer Building Company (TBC) signed a contract for the first group project to finance, design, build and manage the facilities of 60 public schools in Makkah and Jeddah, to accommodate more than 50,000 students, as part of the partnership program with the private sector.

The CEO of the company, Fahd Al-Hammad, explained that “the strategic partnership between the Ministry of Education and the company resulted in several different projects and initiatives to support the education sector in the Kingdom. The most important of which is the initiative to strengthen the partnership with the private sector to provide educational buildings, which aims to achieve the maximum benefit from the expertise of the private sector in improving, developing and raising the efficiency of educational facilities.”

This comes within the construction, maintenance and transformation track, to raise the efficiency of educational facilities in accordance with the best international practices, and to develop and improve the educational environment, which will reflect positively on the performance of male and female students, male and female teachers, and all sector employees.

Chairman of Council of Saudi Chambers of Commerce and Industry, Ajlan Al-Ajlan, stressed that “Vision 2030 has been assigned to the private sector with 65% of the total output, and the efficiency of management for companies and institutions in the private sector is in a stage of continuous development, making them able to dealing with the privatization process at the highest levels in order to achieve competitiveness, quality and comprehensiveness of services throughout Saudi Arabia.

He added that the Saudi private sector is “bold and works in all sectors and entities based on the returns, and it also has experience and knowledge in addition to the ability to benefit from foreign companies with long experiences in privatization, which will positively reflect on the development of the Saudi economy.”

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