Saudi Arabia’s $10bn privatization push gears up

The Riyadh skyline, Saudi Arabia. Areas for privatization in the Kingdom include water, renewables, education, transportation and health. (Shutterstock)
Updated 05 February 2019
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Saudi Arabia’s $10bn privatization push gears up

  • The water sector is expected to produce the first spoils of the state’s privatization plans, with the sale of the Ras Al-Khair desalination plant already advanced
  • Some privately financed projects are already underway in the Kingdom, including the first utility scale solar project

LONDON: Saudi Arabia’s privatization push is set to shift gear this year with plans to raise as much as $10 billion through state assets sales by 2020, according to a new report.

The water sector is expected to produce the first spoils of the state’s privatization plans, with the sale of the Ras Al-Khair desalination plant already advanced with four flour mills likely to follow soon after, the report from law firm Hogan Lovells said.
“The PPP market is fairly vibrant across the GCC, but the key focus in on Saudi Arabia where we expect to see more deals in renewables, education, transportation and health,” said Sohail Barkatali, a Dubai-based partner at Hogan Lovells.
However there remains concern about whether privatizations will inevitably require laying off large numbers of Saudi nationals, the Middle East Investment Outlook report noted. Such concerns, which also exist among other Gulf states seeking similar asset sales, may make so called “greenfield privatizations” more popular.
Some privately financed projects are already underway in the Kingdom, including the first utility scale solar project, as well as the world’s largest independent water desalination plant at Rabigh.

 

A total of 14 public-private partnership (PPP) awards are expected to be made by the end of the decade in areas that include parking, recycling and renewables.
However the lack of clear payment guarantees in the fledgling PPP sector may give the advantage to regional players who are better able to understand and manage sovereign risk according the law firm.
The UAE’s GEMS Education is among the recent entrants planning to build private schools in the Kingdom, while Mediclinic, the South African health care group with operations in the UAE, is also planning to invest in clinics in the country.
The trajectory of the oil price in 2019 may also impact the pace of privatization in Saudi Arabia and elsewhere in the Gulf where similar asset sales are being planned, spurred by a prolonged period of oil price weakness that have depleted state coffers.
According to Bank of America Merrill Lynch’s World at a Glance report, published this week, a higher breakeven oil price remains a concern for the Kingdom as it seeks to boost spending. “The gradual and sticky move higher in the fiscal breakeven oil price, coupled with the relative erosion of fiscal buffers since 2014, increases the economic vulnerability to a sustained drop in oil prices,” it said.
The bank said that prolonged low oil prices, fiscal reform slippage and the departure of expatriates remained risks to the economy.

FASTFACTS

UAE’s GEMS Education plans to build private schools in the Kingdom, while Mediclinic, the South African health care group, is planning to invest in clinics.


Saudi Arabia aims to achieve e-payment target of 70%

Updated 22 February 2019
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Saudi Arabia aims to achieve e-payment target of 70%

  • Reform plan seeks cashless society
  • E-payments could exceed $22bn in next four years

RIYADH: Saudi Arabia wants to achieve an e-payment target of 70 percent by 2030, a banking official told Arab News on Thursday, as the country moves toward becoming a cashless society.

Talat Hafiz, from the Media and Banking Awareness Committee for Saudi Banks, said online or cashless transactions were part of the Vision 2030 reform plan.

The Financial Sector Development Program (FSDP) was one of the initiatives to support the economic growth goals of Vision 2030, he added.

“Basically it is to transfer Saudi society from being heavily cash dependent in buying goods and services to a cashless society using digital and electronic payment,” he told Arab News. “One of the FSDP’s main targets is to increase and improve the percentage of non-cash utilization, from 18 percent in 2016 to 28 percent in 2020. However, the goal will increase of course with the target to 70 percent by 2030.”

Hafiz, in an Arab News column published earlier this month, said the Saudi Arabian Monetary Authority (SAMA) had been encouraging electronic payments and settlements in order to reduce the reliance on cash.

SAMA had introduced a number of e-payment systems in the last two decades to help consumers and institutions, he wrote, such as the Saudi Arabian Riyal Interbank Express and the online bill payment portal SADAD.

Earlier this week Apple Pay was launched in the Kingdom, joining the cashless roster of payment methods available to Saudi consumers.

A cashback service operated by credit card companies, where a percentage of the amount spent is paid back to the cardholder, was introduced last year in Saudi Arabia.

An illustration of how direct debit works, courtesy of the Saudi Arabian Monetary Authority (SAMA).

“All of these efforts collectively from the SAMA side are to reach the ambitious goal of the FSDP.”

Hafiz explained that e-payments saved time and effort and allowed people to access service and goods around-the-clock. 

“This is basically why SAMA is very active and now we see SAMA and the National Payment System are responsible and leading (the country) toward a cashless society by achieving the target set by 2030.”

Last February the Amazon-owned Payfort online payments service registered a new company in Saudi Arabia.

According to the “Payfort State of Payments 2017” report, Saudi Arabia and the UAE are the fastest growing markets in the region for electronic payments.

The report estimates that Saudi Arabia conducted $8.3 billion of payment transactions in 2016, showing 27 percent year-on-year growth.

E-payments in the Kingdom are expected to double over the next four years to reach more than $22 billion, the report added.