Monday’s announcement on privatization was long expected but it is no less momentous for all that. This is going to be the Saudi sale of the century. STC, Saudia, postal services, water and sewerage, highways, servicing of ports and airports, and much, much more are all to come under the hammer. It opens tremendous opportunities for the private sector. That will in turn have major implications for the economy as a whole. In the past, faced with government calls to repatriate some of the $750 billion invested abroad and put it to use in the Kingdom, the private sector’s response was that opportunities for investment here were too limited: there are only so many shopping malls that can be built. The planned privatization changes all that. Not only will the private sector be able to buy into businesses that are at the heart of the economy, but the decision also unlocks the door to future investment. With a stake in such entities, the private sector will have both the mechanism and the motivation to make them grow and prosper; the overseas investments will start to come home.
Involving the sector in the country’s infrastructure is not the only reason for this decision. There are ideological reasons behind it as well. Saudi Arabia believes wholeheartedly in the free market —always has. It is pure irony that during the oil boom years it had to adopt what is in effect a command economy: the scale of what was needed to develop the country — and in such a short period of time — was beyond the private sector’s capabilities. It simply could not create the cities, the housing projects, the industries, airports, railways, roads, hospitals, universities and so much more that were needed to bring Saudi Arabia into the modern world. It is different today: the private sector has both the funds and the skills to run and develop the country’s infrastructure.
The sale of the century starts on Dec. 17 when 30 percent of STC will be sold. Next will be the postal services but dates have not been set for it or any other privatization. That needs to be addressed. There should be a time limit so that these bold moves are not drowned in a sea of inaction by bureaucrats reluctant to surrender control over what they regard as rightfully theirs. There also need to be regulatory bodies for each of these industries to balance the interests of consumers and investors. They must be completely independent: investor confidence would be seriously undermined if government departments end up doing the regulating.
But no one should imagine that it will be plain sailing. STC, a highly attractive proposition, will be an easy privatization, which is why it is the first, but others will not be so enticing in the present form. No hard-nosed businessman is going to risk investing in Saudia without a major restructuring of the airline. It may be that the only way to engineer that is by first exposing it to the chill winds of competition. In India, the notoriously inefficient domestic Indian Airlines was transformed when it lost its monopoly and was forced to compete for passengers.
Inevitably then, privatization will not be to everyone’s liking. It is going to mean slimmer operations; there will be some who find themselves out in the cold, their cushy jobs gone. But business will be fitter, more transparent. That will be good for the economy. The change is also good for the government: running telecommunications and airlines, let alone hotels and grain silos, is not what modern government is about. It is a distraction. Most of all, it is good for Saudis: the change presages a nation of shareholders, not just a handful.
