Saudi Arabia hopes to raise $55 billion through privatization

Saudi Arabia hopes to raise about $55 billion in the next four years because the country plans to strengthen its nascent privatization program, and the government seeks to increase revenue and reduce its growing budget deficit.

Finance Minister Mohammed al-Jadaan said in an interview with the Financial Times that Riyadh has identified 160 projects up to 2025, involving 16 industries, including asset sales and public-private partnerships.

Riyadh’s goal is to outsource the management and funding of sanitation infrastructure and services to the private sector, as well as urban transportation networks, school buildings, airport services, and water desalination and sewage treatment plants. Asset sales will include television broadcasting towers, government-owned hotels, and regional cooling and desalination plants.

The plan is part of Crown Prince Mohammed bin Salman’s push for reforms that modernize a state-led, oil-addicted economy.

Jia Daan said: “This is no longer an option, but a requirement of the central government that these services or these public utilities will no longer be operated by the government.” “Accepting [privatisation] Enter the next stage. “

He said the goal is to increase Riyadh’s revenue and improve Riyadh’s fiscal deficit. Last year, the country’s budget deficit reached 79 billion U.S. dollars, equivalent to 12% of gross domestic product (GDP), and improved national services.

The minister hopes to obtain $38 billion through asset sales and $16.5 billion through public-private partnerships.

Jadaan has set an ambitious goal of reducing its fiscal deficit to 4.9% of GDP by 2021, as the country hopes to recover from the double shock of last year’s coronavirus pandemic and the plunge in oil prices.

The privatization plan does not include entities owned by public investment funds (sovereign wealth funds that have become the dominant economic force under the leadership of Prince Mohammed), nor does it include further asset sales by the state-owned oil company Saudi Aramco.

The crown prince said last month that Saudi Arabia is negotiating to sell a 1% stake in Saudi Aramco to a global energy company, and Saudi Aramco listed its 1.7% stake in 2019.

Ja Dan said that all the funds raised through the future sale of Aramco’s shares will be used in PIF, which is the leader of Riyadh’s efforts to achieve economic diversification instead of the treasury.

“Aramco has two types of sales. They can monetize their assets (such as pipelines) and use the money for new investments. This is their business.” He said. “Speaking of Aramco’s stock, we will unlock new sectors through PIF, monetize them, recycle them and create more activity in the economy.”

Saudi Arabia started its privatization plan three years ago and announced the sale of sports clubs, flour mills and desalination plants. But the process was very slow, and only five asset sales were completed, four milling companies and the Saudi medical service center.

The kingdom’s privatization law has been enacted for several years and is scheduled to be promulgated in July.

A Gulf analyst said that privatization will arouse foreign interest, but the plan will mainly attract local companies because overseas investors remain “cautious” towards the “brands” of Saudi Arabia and Prince Mohammed. His leadership has been damaged by human rights violations, including the 2018 murder of journalist and dissident Jamal Khashoggi.

One of Prince Mohammed’s main goals is to develop the private sector in the state-owned economy and create employment opportunities for young people outside the public sector in Saudi Arabia.

However, in the five years since he launched the “Vision 2030” plan, there have been complaints that the company has been squeezed out by PIF. Riyadh has cut energy and fuel subsidies, increased value-added tax, and increased mandatory quotas. Increasing. Employment for Saudis is often more expensive than foreign workers who dominate the private sector.

John Sfakianakis, a Gulf expert at the University of Cambridge, said: “The private sector has been squeezed out and is still suppressed. They are worried about rising fees and taxes, but the government now realizes that they must be included. “The government hopes to establish a more streamlined state, on the one hand to reduce debt, while using PIF to complete all large-scale projects.”