Privatisation Efforts in the GCC

by Sophie Smith

The COVID-19 pandemic has caused a global economic slowdown with detrimental impacts on the economy, to which the Gulf Cooperation Council (GCC) countries are no exception. The region has experienced large declines in economic growth (Kuwait reaching the biggest decline of 8.1%) while budget deficits grew (Bahrain reaching the highest at -18.31% of GDP) in 2020 as oil prices slumped to $21 per barrel in April of the same year.[i] Such a situation has given the oil-dependent countries a renewed impetus for economic diversification, which has long been on their agenda as the countries are expected to deplete their oil reserves as soon as within the next decade amid the global shift to renewable energies.[ii] Their economic development plans seek to reduce their reliance on hydrocarbons towards a knowledge-based economy. The private sector has formed a central aspect of this transformation process, as the GCC countries attempt to create a conducive business environment to stimulate privatisation.

 

Given the importance of the private sector in the Gulf’s future development, this series explores some of the main privatisation initiatives and patterns throughout the GCC, including the key drivers and challenges. Privatisation efforts in the Gulf date back to the 1990s at the time of the oil price slump with Kuwait taking the first leap. Having to deal with the aftermath of the Iraqi invasion in addition to low oil prices, it established the Kuwait Investment Authority in 1992 to implement a three-stage privatisation programme. During the decade, several privatisation endeavours were undertaken — spearheaded by Oman, Qatar, and Abu Dhabi — as projects were launched and privatisation frameworks were established, with Bahrain following in the 2000s. However, despite those early efforts, privatisation has gained traction across the entire region only years later. In Saudi Arabia, privatisation initiatives also attracted attention at the turn of the millennium; however, the Kingdom’s shift to privatisation has been slower and intensified in recent years with the ambitious Vision 2030 launched in 2016.

 

To support this privatisation drive, the Gulf countries have adopted numerous laws to establish guidelines for privatisation and public-private partnership (PPP) projects. Oman led the way – adopting a decree in 1996 – followed by Bahrain in 2002, as the other countries only passed legislation as late as March 2021 (e.g. Saudi Arabia’s Private Sector Participation Law). Alongside legislation, most GCC countries, except for Bahrain and Oman, also have set up separate bodies to oversee privatisation. Such efforts come as several privatisation projects have taken hold across the countries. Kuwait commenced with its privatisation in the telecommunications sector, Bahrain in transport, whereas Oman, Qatar and Abu Dhabi began in the power sector. However, the majority of projects in all GCC countries appear to be in the energy sector. That being said, privatisation has increasingly pierced into other sectors, especially in recent years as the region looks to involve the private sector in transport, waste management, housing, education and healthcare, to name a few.

 

Such efforts fall in line with the Gulf countries’ economic development plans that seek to diversify the economy away from their reliance on hydrocarbons. Across all countries, privatisation is expected to support the shift to a knowledge-based economy to promote sustainable economic growth. Indeed, the private sector can stimulate innovation and enhance the productivity and efficiency of sectors, offering a better quality of service at lower costs, as well as create further employment opportunities. In turn, this improves the countries’ international competitiveness. To reap such benefits in full, however, further efforts need to be made across the region. For instance, private sector employment largely remains unattractive to the workforce, while quotas for hiring nationals, alongside policy flaws and market failures, act as a disincentive for the private sector.

4 August 2021

References

[i] Index Mundi, ‘Crude Oil (petroleum) Monthly Price - US Dollars per Barrel,’ Index Mundi, n.d. https://www.indexmundi.com/commodities/?commodity=crude-oil&months=240.

[ii] IMF, “Economic Diversification in Oil-Exporting Arab Countries,” IMF, April 29, 2016, https://www.imf.org/external/np/pp/eng/2016/042916.pdf.