Ten Imperatives To Successful Privatization In The Middle East

The successful privatization of state-owned assets in the GCC, can fuel economic growth, increase private-sector participation, boost competitiveness, attract foreign investment, and rationalize public expenditures to reduce the fiscal burden, according to the latest report byStrategy& Middle East, part of the PwC network.

The report, which outlines ten imperatives for Middle East privatization programs, also states that governments that lack the right capabilities and processes often find privatization initiatives complex, encounter delays and struggle to unlock the full potential of privatization itself.

Roger Rabbat, Partner with Strategy& Middle East, said: “Privatization can help MENA governments implement their ambitious development agendas and make their economies more competitive. However, the complex and time-consuming nature of privatization programs can be daunting. Working properly, MENA governments can avoid many common pitfalls.”

The ten imperatives developed by Strategy&for the successful privatization of state-owned assets provide government stakeholders with a series of pragmatic guidelines for managing change and the successful delivery of socio-economic growth, shareholder value and private sector confidence.

Ousama El Ghazzi, Principal with Strategy& Middle East, said: “Executing privatization programs without the proper precautions set in place might jeopardize the socioeconomic interests of both the government and the citizens alike. In fact, governments can introduce a set of measures aiming at protecting and ensuring citizens and government’s interests.”

The imperatives fall into three main phases of privatization: planning, execution, and completion.

Planning

• Governments need the right institutional setup and capabilities to provide clear, predictable oversight and governance for privatization.Such oversight and management by regulators enable companies to develop business models with reasonable confidence.
• They should plan a long-term, healthy competitive market structure—long before the actual sale of any assets. Promoting competition ensures that no private investor will have monopolistic power.
• Another step in the planning is to introduce measures to protect citizen and state interests in advance.For instance, they can stipulate that they will freeze, or even unwind, a privatization initiative if the private-sector investors fail to satisfy market demand or if they engage in unfair competitive practices.

Execution

• Governments should institute pragmatic program governance. They need joint committees encompassing senior representatives and decision-makers from key ministries and authorities, to meet regularly to provide strategic guidance, support the government teams implementing privatization, and ensure that required decisions are made on time.
• Employing effective management of change and communication among the different stakeholders is also key.
• Governments should provide potential investors with transparent information and access to facilities, assets, and the management teams of the public-sector entities.
• They should also be clear about future subsidy changes and devise sector-specific business models for their target sectors. These will govern the mechanism of subsidies in the post-privatization era to provide private investors with a clear path to profitability.

Completion

• Governments need to reduce or eliminate the risk to investors from future official decisions. For many private investors, the value of privatized entities lies less in the underlying assets than in future revenue streams from these assets.
• They should also ensure a smooth transition for employees, and proactively set employees’ expectations during the transition.
• Finally, they should continue to monitor enterprises after the sale – and take the necessary steps to ensure that privatization objectives are being met.