Complex Made Simple

Sluggish growth: How can private businesses push GCC’s public sector?

Following a moderation in geopolitical tensions and a modest surge in oil prices, growth in the region is predicted to accelerate to 3 percent in 2018 and 3.2 percent in 2019.

According to the World Bank, the Gulf Cooperation Council (GCC) economies are anticipated to lead stronger growth in the region, supported by easing fiscal adjustment, infrastructure investments such as the UAE Expo 2020, and reforms to promote non-oil sector activity.

Growth among the GCC countries as a group is expected to accelerate up to 2 percent in 2018 from 0.7 percent in the previous year.

Experts maintain that private sector has a crucial role in ensuring an upward streak of growth in the GCC region. Even the World Bank maintained that growth among the members of the GCC dipped due to lower oil output.

Therefore diversification and moving toward non-oil sector promise an era of growth in the region.

Saudi Arabia’s efforts to open its economy by allowing more foreign investments and UAE’s initiatives toward investor visa reforms are expected to yield rich dividends in the coming years.

READ: Is GDPR an open invitation for cyber criminals to manipulate your data?

Non-oil sectors to gain the spotlight

According to the latest Purchasing Managers’ Index (PMI) survey, the non-oil private sectors of Saudi Arabia and the UAE, the Arab world’s two largest economies, have registered steep expansions in the output and new orders alongside burgeoning export demand growth in 2017. The UAE’s index rose to 57.7 in December, with the private sector posting the sharpest expansion in new business since January 2015. While Saudi Arabia’s PMI measure was 57.3, signaling the strong increase in output and expansion of the private sector non-oil economy. In response to the rising output requirement, private firms have been hiring additional staff and creating new jobs in the economy.

READ: Why are expats willing to invest more in UAE?

“The role of the private sector has been on a rapid upward trajectory, primarily targeting consumer-driven sectors like retail, logistics, and industrials. Governments and the private sector are turning into trusted partners… driven by economic diversification, with a particular focus on transportation, power, and water, manufacturing, and energy where projects worth over $1 trillion are in the pipeline,” says Anthony Hobeika, CEO, MENA Research Partners.

Saudi, UAE in the forefront

Among all GCC countries, Saudi Arabia has ambitious plans to divest more responsibilities to the private sector for the economic revival. Under the Vision 2030 and National Transformation Program, Riyadh has begun the process to privatize utilities and offer stakes in state-run organizations to create new opportunities for the private sector and raise $200 billion for economic and social development. Authorities have conducted detailed valuations and identified 16 entities as top priorities for a sell-off and over 100 opportunities for pursuing public-private partnerships. Its plans for privatization also include selling a 5 percent stake in Saudi Aramco, the world’s biggest producer of oil, later this year, and handing over all airports to private players.

READ: Once desperate to leave, why do Syrian refugees now want to return home?

As part of the expansion of the UAE’s private sector, Abu Dhabi National Oil Company (ADNOC), the second biggest energy giant after Aramco, has privatized its distribution businesses by selling 10 percent stakes through $851-million IPO. ADNOC Chief Executive Officer Sultan al-Jaber has said the state firm could float up to 30 percent in the unit in future. Other UAE state companies, such as Emirates Global Aluminium, are due to list this year.

“Development across the region is encouraging, but it’s obvious that a lot of work is still needed to attract foreign direct investment and facilitate greater participation in the local economies. Sovereign wealth funds and private investors can work together to help smoothen the transition and fund economic transformation,” says Tarek Fadlallah, CEO, Nomura Asset Management Middle East.