4-point program to scale up Kingdom’s privatization drive

Saudi Arabia is at an important juncture as it pursues a path of economic diversification of its economy.
The government is planning wide ranging reforms and institutional changes to provide impetus to PPP in the Kingdom.
It intends to open up multiple sectors of the economy including airports, municipalities, health care and education for greater private sector participation.
The Economist Intelligence Unit categorizes the PPP preparedness of countries on a 4-level maturity profile — nascent, emerging, developed and mature.
Saudi Arabia could probably be categorized as close to emerging at this point of its transformation journey.
The Kingdom is starting its journey in a weak global macro-economic environment, with slowing global growth and a real risk of global recession.
However, while global demand for infrastructure is growing, with an estimated $57 trillion of additional investment required by 2030, there is no sufficient pipeline of “investable” infrastructure projects.
Governments need to unclog this pipeline, even as new countries including Saudi Arabia are looking to attract global investors.
The Kingdom can do the following 4 things, learning from experiences of countries such India, to scale up its PPP program fairly quickly.

First, institute a comprehensive PPP program which includes an enabling policy and regulatory framework rather than a transaction to transaction approach, which may not scale. In this context consider enacting a PPP law as has been done in several countries including in Middle East.

Second, strengthen institutional capability for PPP. In this context, the Kingdom is doing the right thing by building capacity in the Ministry of Economics and Planning, which is the nodal agency coordinating privatization efforts. Learning from mature markets such as the UK , Australia and Canada, it can consider creating a center of excellence in PPP, on lines of the 3P organizations, to learn from best practices globally and within the Kingdom (eg Madinah Airport PPP) and transfer knowledge to other government departments as they move up the learning curve.

Third, “incubate” a pipeline of anchor PPP projects that are viable and can kick start the program. In structuring these projects ensure the risk sharing between the government and the private sector is appropriate. Do not transfer risk to the private sector that it can not manage. Remember the residual risk is always with the government when projects fail.

Finally, align interest of all stakeholders, viz. the public, government project proponents, private sector developers( domestic and foreign) and the financiers. Listen to the voice of the stakeholders and balance their interests in designing the PPP program and projects. Communicate the benefits of the program to the public throughout the process.

The Kingdom is embarking on an exciting journey of one of the most ambitious privatization programs globally. If it can execute well it can quickly transform its economy.

— Excerpts from a presentation made at last week’s Jeddah Economic Forum by Arvind Mahajan, partner, head of infrastructure and government services, KPMG Advisory Services in India.