GCC could generate $114bn by promoting private sector: Report

Most GCC countries, including Kuwait, Dubai, Oman and Bahrain, recognize the importance of PSI and have incorporated plans to boost PPP in their respective national plans. (Reuters)
Updated 04 February 2017

GCC could generate $114bn by promoting private sector: Report

JEDDAH: The Gulf Cooperation Council (GCC) economies could generate $114 billion in revenues and avoid $165 billion in capital expenditures by 2021 by effectively promoting the private sector, said a report.
By increasing private sector involvement (PSI), the GCC countries can achieve operational efficiencies of 10 to 20 percent, reducing budget deficits.
The report was issued by the Ideation Center, a think tank for Strategy& in the Middle East.
The report said that the Gulf countries could generate up to $287 billion from sales of shares in public-listed companies. By doing so, the report added, the GCC countries could narrow the innovation gap with other countries, enhance the delivery of and access to government services and improve their existing infrastructure.
Around 70 percent of global innovations stemmed from the private sector versus 13 percent from the nonprofit sector and only 8 percent from the public sector.
Amid long-term challenges to sustainable economies like dependence on oil and a lack of diverse workforce etc., increasing PSI through the establishment of public-private partnerships (PPP) and privatization of government assets appear to be an ideal response, the report suggested.
Most GCC countries, including Kuwait, Dubai, Oman and Bahrain, recognize the importance of PSI and have incorporated plans to boost PPP in their respective national plans.
However, there is a lack of a dedicated policy and legal framework, as well as an effective institutional set up.
Salim Ghazaly, partner at Strategy& in Beirut, said that in the past PSI in Gulf countries occurred on an ad-hoc basis and without strong commitment from stakeholders primarily due to high oil prices. “However, currently, we are witnessing a serious approach to this issue supported by well-defined national programs, proper regulatory frameworks and institutional models. If properly implemented, these programs could yield significant benefits to the region, including increased job creation, enhanced quality of services, faster localization of industries, better innovation, foreign direct investment and government expenditure rationalization,” he said.
Having an institutional framework with a clear governance model would facilitate the implementation of PSI. In many cases, this requires setting up new units such as PPP units or privatization units that fill existing gaps within government. These units’ roles range from promoting PPPs to investors and guiding PPP policies and plans to providing technical support to projects.
Hilal Halaoui, partner leading the Public Sector practice at Strategy& in the Middle East, said: “PSI would enable the GCC states to refocus their efforts on the essential tasks of government, which means
becoming more ‘fit for service’ ... Instead of being the leading provider of services and employer of people, for example, government entities would refocus on their roles as facilitators and regulators.”
According to Karim Aly, partner with Strategy& in Dubai, “A holistic, long-term plan to increase private sector participation will reap greater returns for the GCC countries in the long term.”


Japan’s households tighten purse strings as sales tax and typhoon hit

Updated 06 December 2019

Japan’s households tighten purse strings as sales tax and typhoon hit

  • Falls in factory output, jobs and retail add to fears of worsening slowdown after Tokyo unveils $122bn stimulus package

TOKYO: Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1 percent in October from a year earlier, government data showed on Friday.

It is the first fall in household spending in 11 months and the biggest fall since March 2016 when spending fell by 5.3 percent. It was also weaker than the median forecast for a 3 percent decline.

That marked a sharp reversal from the 9.5 percent jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 sales tax hike from 8 percent to 10 percent.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March, but such recovery won't be strong enough.”

Household spending fell by 4.6 percent in April 2014 when Japan last raised the sales tax to 8 percent from 5 percent. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5 percent in October, the fastest drop since April 2014, a faster decline than the median 9.8 percent forecast.

Analysts said a powerful typhoon in October, which lashed swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Separate data also showed the weak state of the economy.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, fell a preliminary 5.6 points to 94.8 in October from the previous month, the lowest reading since February 2013, the Cabinet Office said on Friday.

It was also the fastest pace of decline since March 2011, according to the data.

Real wages adjusted for inflation, meanwhile, edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper-than-expected slowdown. The economy grew by an annualized 0.2 percent in the third quarter, the weakest pace in a year.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.