Privatisation in the UAE: A Growing Alliance between the Public and Private Sector
by Sophie Smith
On 26 May 2021, Amazon Web Services announced its intention to open three data centres in the United Arab Emirates (UAE) early next year in partnership with the Abu Dhabi Investment Office. The plan will tap into the growing demand for cloud services in the country while strengthening the Emirate’s digital economy through initiatives such as cloud skills training and start-up enablement programmes. It comes as part of the Abu Dhabi Investment Office’s wider ambitions to attract investment in technology in an effort to stimulate innovation and digital transformation. Such collaboration speaks to a growing trend in public-private partnerships (PPP) in the UAE as the country attempts to diversify its economy away from hydrocarbons in line with its economic development ambitions.
Privatisation in the UAE
In recent years, there has been a growing emphasis on privatisation in the UAE. The Emirates have focused on integrating the private sector into policymaking processes and creating a conducive business environment for privatisation through measures, such as implementing additional legislation. On the national level, for example, the UAE Cabinet adopted Resolution (1/1) on the Procedures Manual for Partnership between Federal Entities and Private Sector in 2017, which provides a framework for PPPs in order to boost investment opportunities and improve the quality of services with a focus on developing infrastructure projects.
Beyond the national level, further privatisation initiatives are largely being left to the discretion of the different emirates that comprise the UAE. In the case of Abu Dhabi, for example, involvement in privatisation dates back to the 1990s when it established a privatisation committee for the water and electricity sector, in combination with adopting Law No (2) Concerning Regulation of The Water and Electricity Sector, to pave the way for independent water and power projects. And, more recently, in 2019, the Abu Dhabi government issued two laws to boost privatisation on a larger scale. Law No (1) included the establishment of the Abu Dhabi Investment Office to support the private sector in wider plans for economic growth and diversification. The other law, Law No (2), concerned the regulation of PPP to foster private sector participation and investment in infrastructure projects and the delivery of services. Dubai is also increasingly turning to privatisation. In 2011, for example, the Dubai government adopted Law No (6) on the Organisation of Private Sector Participation in the Production of Electricity and Water, which led to the privatisation of certain assets in the electricity sector. In 2015, the Department of Finance adopted Law No (22) – which established a regulatory framework for PPP — and created the PPP Unit, which deals with the implementation and formulation of PPP policies to encourage private sector participation and investments in projects.
This has helped encourage numerous privatisation initiatives in the UAE. For instance, in education, the Abu Dhabi Department of Education and Knowledge has issued contracts to private sector firms for educational and administrative supervision in primary education since 2006. Moreover, in energy, several partnerships with the private sector have been struck including, most recently, the Al Dhafra solar project (the world’s largest solar project) which will produce energy with a record-low tariff. The Hassyan clean coal power station project — the first of its kind in the region — is another example as the project involves the joint venture between Acwa Power, Harbin Holding Company and Dubai Electricity and Water Authority. Moreover, the Abu Dhabi National Oil Company has sold shares and awarded contracts to the private sector in recent years, including, in 2020, when it sold a 49% stake in its natural gas pipelines to six investors for $10.1 billion USD. In transport, there is an equal pace in privatisation efforts. Dubai’s Roads and Transport Authority, for example, has formed partnerships with the private sector on the Route 2020 project to expand Dubai’s metro. And, in waste management, Masdar, Abu Dhabi’s renewable energy company, partnered with Bee’ah, an environmental management company, in 2017 to develop a waste-to-energy plant in Sharjah in order to reduce the UAE’s landfill.
Motivations for Privatisation
Such initiatives are designed to help achieve the UAE’s economic development goals in line with Vision 2021 and the Centennial 2071. In this respect, the private sector is expected to contribute towards creating a sustainable and diversified economy. This holds particularly true for the energy sector, where the private sector is seen as an integral part of the government’s ambitions of generating 50% of power from clean energy by 2050. Indeed, in the green industry, the private sector can act as a source of innovation, investment entrepreneurship and business model development to boost the market for new technologies in clean energy, water management and desalination, waste management and transport. It is expected that the private sector will help create a more competitive, knowledge-based and highly productive economy, bringing with it more job opportunities to promote economic growth. In fact, the private sector forms an incremental part of the government’s National Innovation Strategy in stimulating innovation in the UAE through the creation of innovation and scientific research centres, adoption of the latest technologies and development of new products and services. In this regard, privatisation is also designed to improve the quality of services provided at lower costs. And, a further motivation behind privatisation, is that it should allow the government to optimise its operations, focusing more on its regulatory and administrative functions while reducing government spending.
Privatisation offers numerous opportunities vis-à-vis economic development for the UAE. This has become ever-more needed amidst the COVID-19 pandemic, which witnessed a fall in economic growth to -5.9% as the budget balance reached -7.38% and unemployment doubled to 5% in 2020. However, the UAE appears to be on the right track regarding its ambitions vis-à-vis privatisation. And, with the upcoming Dubai Expo 2020 in October, such ambitions are likely to be strengthened as the UAE looks to spur innovation in tackling global challenges in partnership with corporations and countries around the world. Indeed, the Vice President Mohammed bin Rashid Al Maktoum has stated that there are ‘big opportunities for [the] private sector,’ paving the way for further partnerships between the public and private sector.
1 June 2021
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