Experts welcome Saudi Arabia’s transformational plan, but say more still to be done

King Khalid International Airport in Riyadh is among the assets planned to be transferred to the Public Investment Fund. (Shutterstock)
Updated 09 September 2017
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Experts welcome Saudi Arabia’s transformational plan, but say more still to be done

DUBAI: Global financial and economic experts have welcomed the transformational plan to privatize large parts of the Saudi economy, but believe there is more work to be done before the program can really get down to the business of selling state assets to domestic or global buyers.
The National Center for Privatization (NCP), which is helping coordinate the program, recognizes that the plan is at an early stage. “In this initial phase our priority is to support individual government agencies to create the right framework for privatization, and to guide potential investors through the beginning of this process and create a blueprint for the future transfer of assets to private ownership,” said Hani Alsaigh, director general of the NCP’s strategic communication and marketing.
But experts pointed out that there was still a lot to be done in setting up the appropriate legal, regulatory and accounting infrastructure for the $200 billion program.
Nasser Saidi, who was minister of economy in Lebanon when that country considered a privatization program in the early 2000s, said: “When you approach privatization you have to have a legal and regulatory framework. This is being worked on fast in Saudi Arabia, but it is not there yet.”
He said that a crucial stage was the setting up of a privatization body separate from the authority of ministries that has a mandate to see the program through, and with an appropriate regulatory structure.
One such model is being worked through the privatization of King Khalid International Airport in Riyadh, where the assets are planned to be transferred to the Public Investment Fund (PIF) and regulation in the hands of the General Authority of Civil Aviation.
A Saudi banker, who asked to remain anonymous because his bank was involved in the advisory process for some of the privatization plan, said: “We’re seeing the first stages in the process. It will be difficult to navigate given the bureaucracy involved. It might be complicated to put in place the preparatory infrastructure, but in the end it will be brought to a result because of the political power behind the privatization.”
On the question of the best form the sell-offs could take, the banker thought it was good to have a combination of options depending on the assets: “A straightforward sale to strategic investors might be preferable, but in other cases a local listing, or a dual listing would be good. The government has to have flexibility.”
Saidi said it was important for the local capital markets to be fully involved. “IPOs offer good value, and they also allow Saudi citizens to see the benefit of the sale, if they believe they have a stake in it, as happened in the UK. And of course it would be good for local markets too,” he said.
Ellen Wald, American expert on the Middle East and author of the forthcoming book “Saudi Inc.”, said: “It’s an ambitious plan, to be sure, but the Saudis have stacked the odds in their favor by focusing on areas of strength and on attracting foreign capital to invest through joint ventures.”


World Bank shareholders approve $13 billion capital increase

Updated 22 April 2018
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World Bank shareholders approve $13 billion capital increase

  • Capital increase follows three years of negotiations
  • Increase of $7.5 billion for main institution and $5.5 billion for IFC

World Bank shareholders approved a “historic” increase in the bank’s lending capacity late on Saturday after the United States backed a reform package that curbs loans and charges more for higher income countries like China.
World Bank President Jim Yong Kim said neither China nor any middle income countries was happy about the prospect of paying more for loans, but they agreed because of the overall increase in funds available.
The agreement, which also increase shares and voting power to large emerging market countries like China, was “a tremendous vote of confidence” in the institution that came after three years of tough negotiations, Kim said.
“World Bank Group bureaucrats don’t often jump around and high-five and hug each other,” Kim told a small group of reporters following the Spring meeting.
He said the increase was needed because even with the end of the global financial crisis, the bank has been called on to provide funding to address a new series of challenges facing poor countries, like climate change, refugees, pandemics, “all new things for us.”
The increase provides an additional $13 billion in “paid in” capital: $7.5 billion to the main institution and $5.5 billion to the bank’s private financing arm, the International Finance Corporation.
Kim said the increase will allow the bank to ramp up lending to an average of $100 billion a year through 2030, from $60 billion in 2017 and an expected $80 billion in 2018.
Countries will have five years to provide the funds, but can ask for a three-year extension. The last increase occurred in 2010 and added $5 billion to the bank’s capital and $200 million for the IFC.
The United States, the institution’s biggest shareholder, rejected the World Bank request in October and the administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
But US Treasury Secretary Steven Mnuchin on Saturday said Washington supports the increase because of the reforms to lending rules.
“I look at this as a package transaction... we support a capital increase on the World Bank, along with the associated reforms that they’re talking about making,” Mnuchin told reporters.
The increase requires legislative approval, but Mnuchin said he was hopeful Congress would back the plan. Kim also said he has had contact with representatives from both parties and received strong support.
In a statement to the World Bank’s governing committee, Mnuchin applauded the plan to “significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” he said.
Mnuchin said the new arrangement, including for the IFC, “frees resources for countries that don’t have sustainable access to private capital markets.”P
China’s Vice Finance Minister Zhu Guangyao said Beijing supported increasing World Bank resources but had reservations about the agreement for changes in lending policies.
“We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita,” he said in a statement.
“We hope that the management take different national circumstances into full account in the implementation of the graduation policies... to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries.”
Kim acknowledged that lending to China would decline, but only gradually. That means “whatever borrowing they do has to be as impactful as possible.”
And he noted that because of the capital increase, “we will be able to maintain volumes for middle income countries as a whole.”
Zhu said the capital increase is “a concrete measure to support multilateralism” at a time when “anti-globalization sentiments, unilateralism, protectionism in trade” were creating uncertainties in the global economy.