Good performance in both the public and private sectors is necessary for a country’s economic growth.
Performance of entities in both sectors depends on good governance. Due to cut-throat competition, the private sector has no choice but to implement effective policies for better yields, but in the case of state enterprises, this is not always the case, as government support makes many lax in their attitude, negatively affecting performance.
Good corporate governance is a system that influences a company’s value. Weak corporate governance in state enterprises, meanwhile, has a negative impact on a country’s economy. In a bid to improve performance, privatization of state enterprises is often used as a tool around the globe. Privatization generally leads to a change in management style, working culture, and helps boost performance.
It not only leads to the implementation of good corporate governance, but it also helps stop political interference, creates common goals and protects the rights of minority shareholders. Privatization has become a key feature of economic policy in the developed and developing world. In the West, governments privatize public enterprises to improve efficiency and reduce state expenditure.
Privatization now plays a crucial role around the globe as one aspect of a transformation process that includes macroeconomic and microeconomic reforms. It leads to the transformation of a country’s economic landscape and its benefits range from increased state revenues to a reduction in the government’s role as the sole provider of certain goods and services. Countries which use privatization as an economic tool show significant improvement in operating and performance criteria. However, the shift is not easy and the process takes a lot of time, as these companies need adequate restructuring measures before privatization.
That is why the process is a major part of Saudi Arabia’s Vision 2030 plan, as it will have a positive effect on the Kingdom’s economy. It will also create more job opportunities, and improve quality of service and accountability.
• Dr. Zahra Al-Nasser is an assistant professor in the department of finance and banking at Dar Al-Uloom University in Riyadh and an advisory board member in the department. Her research interest is corporate governance in GCC countries. She has published a number of peer-reviewed papers.