Saudi Arabia hopes to raise about $55bn over the next four years as it plans to step up its nascent privatisation programme with the government seeking to boost revenue and narrow its yawning budget deficit.
Mohammed al-Jadaan, the finance minister, told the Financial Times that Riyadh had identified a pipeline of 160 projects across 16 sectors, including asset sales and public-private partnerships, through to 2025.
Riyadh’s aim is to outsource the management and financing of health infrastructure and services to the private sector, as well as city transportation networks, school buildings, airport services and water desalination and sewage treatment plants. Asset sales will include television broadcasting towers, government-owned hotels and district cooling and desalination plants.
The programme is part of Crown Prince Mohammed bin Salman’s drive to overhaul the state-dominated, oil-addicted economy and modernise the kingdom.
“It’s not a choice any more, but a requirement by the central government that these services or these utilities will no longer be run by the government,” Jadaan said. “It’s taking it [privatisation] to the next stage.”
He said the goal was to raise revenue in Riyadh, which is grappling with a budget deficit that hit $79bn last year, equivalent to 12 per cent of gross domestic product, and improve state services.
The minister hopes to secure $38bn through asset sales and $16.5bn through public-private partnerships.
Jadaan has set the ambitious target of reducing its fiscal deficit to 4.9 per cent of GDP in 2021 as the kingdom looks to recover from last year’s twin shocks of the coronavirus pandemic and the slump in oil prices.
The privatisation programme does not include entities owned by the Public Investment Fund, the sovereign wealth fund that has become the dominant force in the economy under Prince Mohammed’s leadership, or further asset sales by Saudi Aramco, the state oil company.
The crown prince said last month that the kingdom was in talks to sell a 1 per cent stake in Saudi Aramco, which listed 1.7 per cent of its shares in 2019, to a global energy company.
Jadaan said that funds raised through any future sales of Aramco’s shares would go to the PIF, which is spearheading Riyadh’s efforts to diversify the economy, not the treasury.
“There are two types of sales for Aramco. They can monetise their own assets like pipelines and recycle that money into new investments — that is their business,” he said. “When it comes to Aramco’s shares, we will monetise them, recycle them and create more activity in the economy by unlocking new sectors through the PIF.”
Saudi Arabia began its privatisation programme three years ago, announcing the sale of sports clubs, flour mills and a water desalination plant. But the process was slow and only five asset sales, four milling companies and the Saudi Medical Service Center, have been completed.
The kingdom’s privatisation law, which has been in the works for several years, is scheduled to be enacted in July.
A Gulf analyst said there would be some foreign interest in the privatisations, but added the programme would mostly attract local businesses as overseas investors were still “circumspect” about the kingdom, as well as Prince Mohammed’s “brand”. His leadership has been tarnished by human rights abuses, including the 2018 murder of journalist and dissident Jamal Khashoggi.
Developing the private sector in the state-dominated economy and creating jobs for young Saudis outside the public sector are among Prince Mohammed’s main goals.
But in the five years since he launched his “Vision 2030” programme, there have been complaints about companies being crowded out by the PIF, while costs have increased as Riyadh has slashed energy and fuel subsidies, increased value added tax and more forcibly enforced quotas on the employment of Saudis, which tend to be more expensive than foreign workers who dominate the private sector.
“The private sector has been crowded out and is still subdued, they are concerned about the rise in fees and taxes, but the government now realises they have to include them,” said John Sfakianakis, a Gulf expert at Cambridge university. “The government wants to create a more slimmed-down state, and reduce their liabilities on the one hand, while using the PIF to do all the megaprojects.”