JEDDAH, 12 February 2006 — Developing Gulf economies are embarking on investment schemes to invest most of the budget surplus to finance infrastructure mega projects. Drawing on their different experiences on financing infrastructure mega projects, the four panelists at the 10th session of the 2006 Jeddah Economic Forum agreed on the need to increase the role of the private sector in financing mega projects while reducing the government’s role.
This is the key element that the four panelists deemed necessary for strengthening the private-public partnership in Gulf countries.
Mohammed Al-Jasser, vice governor of the Saudi Arabian Monetary Agency (SAMA), speaking at session titled “Public Private Partnership: Financing Infrastructure” pointed out that mega projects financing had been in great part the responsibility of the government for a long time. Private financing for mega projects in the Kingdom was largely assumed by local banks which only offered short and medium-term loans. “We are issuing new licenses for foreign banks so that more private finance will be available for mega projects,” he added.
Since mega projects require long-term loans, it was important to look for other sources for finance such as local and international syndicated loans and domestic capital market credit. The problem in Saudi Arabia was that the contribution of the capital market remained insignificant due to the absence of proper financial debt instruments.
Al-Jasser stressed on the importance of developing financial instruments to spur the involvement of the domestic credit market in mega projects financing. He highlighted the effort of the Saudi Basic Industries Corporation (SABIC) on raising private funds for its mega projects through issuing Islamic corporate bonds (Sukuk). SABIC will be the first public company in Saudi Arabia to lists its corporate bonds in the domestic capital market.
The Lord Mayor of London, David Brewer, who spoke first, emphasized on the importance of sound infrastructure to generate a multiplier effect in the economy. Brewer, however, warned Gulf states on the economic damage that would result from the bias in the selection process of private sector partners. He argued that local governments should look only for partners who are fully capable of delivering the desired projects goals. Drawing on the British experience in that regard, Brewer said that between 1993 and 2003, the British government spent over 50 billion euros to develop the country’s infrastructure. The solid British infrastructure is what attracted hundreds of millions worth of investments to the country.
The Kuwaiti experience on enhancing the private-public partnership was highlighted by Youssef Al-Ibrahim, the former Kuwaiti minister of finance. Al-Ibrahim said that his government concentrated from the start on developing a robust private sector and it spent over one billion dollars on 93 private sector projects in the last years. He said that each dollar the government spends on private public partnership has a higher multiplier effect than each dollar spent by the government alone. Al-Ibrahim added that Kuwait has cooperated with the World Bank in making a study on how to enhance this partnership between public and private sector.
Rainer Geiger, deputy director at the Organization of Economic Cooperation and Development (OECD), ended the session by sharing his organization’s views on the private-public partnership in the Gulf and in MENA (Middle East and North Africa) region. He said that a recent study conducted by the World Bank showed that private sector involvement in the economy was cut by half in recent years because less public companies went private. Geiger said that his organization promotes private-public relationship in MENA through the established MENA Risky Investment Program. The program aims at increasing the involvement of private sector in infrastructure mega projects through supplying adequate credit.
