Just by way of background: The Vision 2030 strategy, aimed at diversifying the Kingdom’s economy away from oil dependency, foresees big expansion in private-sector activity as a dynamo for further growth.
Apart from the historic initial public offering (IPO) of Saudi Aramco — based on a valuation of $2 trillion, the offering of 5 percent of the shares would be the biggest ever at $100 billion — there is an even bigger schedule of other privatizations, ranging from power stations to football clubs, that has been officially valued at $200 billion.
It marks a historic shift in the economic, social and cultural life of Saudi citizens, comparable to anything experienced by Britons under former Prime Minister Margaret Thatcher’s state sell off in the 1980s, or by Russians in the dissolution of Soviet assets in the 1990s. Some commentators rank it close to the “capitalization” of communist China under Deng Xiaoping, in terms of its global resonance.
But the privatization plan is staggeringly complex. HSBC — one of the Saudi government’s advisers to parts of the program — estimates there will be 100 new listings on stock markets. The current owners range from outright central government entities, through to municipalities and local authorities. The privatizations may take the form of IPOs, but could also see disposals to private equity groups or to trade buyers.
Policymakers, faced with this kind of complexity, need to ensure they keep a firm grip on the process — look what happened in Russia when the state lost control, in many cases, to less-than-scrupulous private sector operators.
Earlier this month the National Center for Privatization (NCP) announced a blueprint for the sell-off, with the main feature being a series of supervisory committees to oversee each sector of the program.
A full list of the sectors, available from the NCP, reads like a cross-section of the Kingdom’s economy. The committees will act in collaboration with the NCP and the Ministry of Finance to provide strategic guidance and support.
In short, they will ensure an orderly queue in the privatization process, rather like the mountaineer guides who help climbers get to the congested summit of Everest each year without mishap.
The head of the line is already beginning to form. Mohammed Al-Tuwaijri, the deputy minister for economy and planning, has already said that he sees “low hanging fruit” in the form of water companies, power generators, and grains storage and processing companies. These are believed to be ready to come to market more or less any time.
Saudi Arabia’s raft of privatizations may take the form of IPOs, but could also see disposals to private equity groups or trade buyers.
Other sectors will make bigger headlines and have greater resonance with Saudi citizens, the ultimate beneficiaries of the program. Just last week, the Kingdom’s foreign investment body Saudi Arabian General Investment Authority (SAGIA) said it would allow full foreign ownership in the health and education sectors, following similar moves in engineering and retail.
Health care is a crucial sector. The government is believed to be considering whether to sell off all public hospitals, and could make a big statement with the King Faisal Specialist Hospital in Riyadh, regarded as the jewel in the crown of the Kingdom’s medical assets, which could be privatized in a showcase offering, which will help sell the principle of private ownership.
Education too is a sensitive area, but banks are believed to have already submitted plans for private-sector control of schools’ construction and management. These kind of projects lend themselves perhaps more to a public-private-partnership model than to stock-market flotation.
Aviation is another sector being prepared for private-sector ownership. Recently it emerged that US bank Goldman Sachs had been appointed to oversee the sale of Riyadh’s King Khalid International Airport, and the Americans could use their expertise in airport privatization for the other big airports in the Kingdom.
King Abdul Aziz International Airport in Jeddah has already partnered with Singapore’s Changhi Airport Group and is due to open its expanded facilities by the second half of next year. All airports will be transferred to the ownership of the Public Investment Fund as a prelude to a sell-off, aviation officials recently said.
All that sell-off activity should generate some interest among Saudi citizens, but you can expect real excitement to build when the turn comes for the privatization of the Kingdom’s football industry. Hitherto government-owned, it would be understandable if ownership of the likes of Al-Hilal, Al-Ittihad and Al-Nasser football clubs was confined — at least initially — to Saudi citizens. Advisers say, however, that participation by rich, football-crazy foreigners — like the Chinese — should not be ruled out in the longer term.
In the summer months, much has been done to advance the Saudi sale of the century. The autumn promises to be a blur of activity.
• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai