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Jeff Youssef
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DUBAI — A newly launched report by Oliver Wyman texamines why privatization in the GCC, despite its significant benefits, has been littered with stalled efforts and, in some cases, outright failure. According to the report, called Creating a Sustainable Privatization Program in the GCC, privatization has the potential to play an integral part of the GCC governments’ diversification and reform strategies.
Jeff Youssef, Partner at Oliver Wyman and author of the report, comments: “Privatization, when well executed, can bring clear benefits to the economy in terms of economic growth, higher employment, and an improved fiscal balance for the government.”
“Shifting assets to the private sector can reduce government costs by removing inefficient and unprofitable companies from a state’s balance sheet. While often viewed purely in fiscal terms, privatization can also provide important economic and social improvements.”
The report highlights that since the 1980s, there has been a worldwide trend toward privatization. However, GCC countries have remained largely absent from the privatization trends initiated in emerging economies. As a result, state ownership of the economy remains high in the GCC region.
Diversification is critical for many GCC countries which are overly reliant upon the sale of oil for government revenues. Currently, Kuwait is the most depend of all with 89% of all its government revenues derived from oil. In the United Arab Emirates, the most economically diverse country in the GCC, oil still represents 41% of all government revenues.
The recent declines in crude oil prices have led to deterioration in the fiscal positions of GCC countries. Each country has responded by incorporating aggressive cost-cutting and revenue-generating strategies (from non-oil sources) within their overall economic transformation plans.
Youssef believes privatization has the potential to be an integral part of such reform, given that a large percentage of each of these economies is currently in the public sector.
He said: “Our analysis suggests that the privatization of 25 percent of government-owned assets, or equivalent to a quarter of government entities, is an achievable target for GCC governments over a 15 year period. Selling assets has the potential to raise the aggregate GCC GDP by $100 billion, and would shift 300,000 public sector jobs of GCC nationals to the private sector.” — SG
