This content is from: Local Insights

Saudi Arabia

Saudi Arabia's Supreme Economic Council (SEC), chaired by Crown Prince Abdullah, recently approved a privatization strategy outlining those sectors of the economy to be partially or wholly privatized. The targeted sectors include telecommunications, power generation, desalination, railways, hospitals, and the postal service.

Privatization of these sectors is designed to ease Saudi Arabia's financial burden, which includes an estimated internal debt of $164 billion. Proceeds from the privatizations would be used to offset this debt.

The maturity of Saudi Arabia's private sector following some 30 years of development has made it feasible to transfer a portion of the Kingdom's public sector duties to private companies.

The proposed privatizations will provide new investment opportunities in Saudi Arabia for Saudi nationals and foreigners alike. Given the decline of the US and European stock markets and the rise in the Saudi stock market, particularly after September 11, Saudi Arabian investors are looking to repatriate their capital from the US and Europe.

Another catalyst to foreign investment in Saudi Arabia is the 18-point Foreign Investment Law of April 2000, which is administered by the newly-created General Investment Authority. Saudi Arabia now permits 100% foreign ownership in those sectors of the economy that are not on the SEC's Negative List, which is to be updated periodically. Low-cost loans are available from the Saudi Industrial Development Fund for up to 50% of project capital for qualified industrial ventures, including those with 100% foreign capital.

These privatization efforts will not only bring a one-off payment into the Kingdom's coffers, but will also reduce Saudi Arabia's internal debt by cutting the government's payroll through a transfer of employees to the private sector. Moreover, it is hoped that privatization of these sectors will make them more efficient and responsive to the market.

Saudi Arabia's privatization efforts will be given a boost by the introduction of the long-awaited Capital Markets Regulations expected later this year.

Nabil A Issa

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