Saudi privatization plan on track, but faces challenges: Jadwa

Saudi Arabia's Privatization Program Delivery Plan 2020 shows a high level of governance and regulatory framework, but faces service level and employment generation challenges, Jadwa Investment said a new report.

“As privatization usually aims to help achieve economic and social benefits simultaneously, the level of services provided by the companies post-privatization should be carefully monitored,” it noted.

In addition to fiscal revenues, one of the main goals of privatization is achieving social benefits through providing higher standards of living to citizens in all income levels.

“Services have tended to attract more FDI inflows globally in recent years  whilst it still lags behind in the Kingdom, showing an opportunity for local and foreign investments, and an opportunity to improve fiscal benefits in the same time,” the report stated.

Accordingly, it would be beneficial to include this criteria in one of the main privatization assessment metrics, in order to monitor the efficiency of services and measure its impacts on the local society, Jadwa noted.

According to the consultancy, the success of privatization depends on the entity’s employees and, therefore, smoothing the impact of privatization on the public workers would enhance the process.

The program has a target to create 10-12,000 jobs by 2020 through the privatized entities. However, latest labor data shows new jobs created for Saudis in the private sector last year totaled 12,000, with the average of new jobs between 2014 and 2017 was 108,000 per year.

In the Kingdom, public sector employees account for more than 60 percent of total Saudi workforce.

“Accordingly, we think that this target could be achieved through the transferred jobs from the public to the private sector, with more new jobs to be created in the medium term between 2022-2030,” Jadwa noted.

 In April 2018, the Council of Economic and Development Affairs approved the Privatization Program Delivery Plan, which aims to privatize five government assets by 2020, with total revenues to reach SAR 35-40 billion.

More than 100 privatization initiatives have been identified to be considered by 2020 in many sectors including health, water, transportation, education, municipalities, energy, sports, labor and social development, and communication.