While reports that Saudi Aramco's IPO was put on hold held attention across the globe, it is actually part of a larger trend as Saudi Arabia's privatisation efforts slow, Bloomberg reported.
Privatisations could exceed $350 billion in about five years according to Mitsubishi UFJ Financial Group's Middle East and North Africa unit.
Crown Prince Mohammed bin Salman has pushed for privatisation as part of his Saudi Vision 2030, which aims to diversify the oil-dependent nation's economy. When the plans were first thought up, as oil prices crashed to under $40 per barrel of Brent crude, it must have seemed a prudent measure to nudge the economy away from oil. However, privitisation may take a back seat as oil prices recover.
“It is undeniable that the privatization schedule is running behind what was initially assumed,” Jean-Paul Pigat, head of research at Dubai-based Lighthouse Research, told Bloomberg.
“I’m not sure there yet exists a coherent long-term strategy that actually finds the proper balance between the roles for the public and private sector in the economy, and until this is formulated, delaying the privatization program might actually be in their best interests.”
Oil dependence is not the only problem; the Kingdom has long depended on government spending for jobs--state assets include King Khaled International Airport, the stock exchange, multiple soccer clubs and Ras Al Khair power plant, among others.
Bloomberg noted that the sale of four flour milling companies by the Saudi Grains Organization has some momentum, with a 30 November deadline for bidding qualification applications.
Pigat told Bloomberg that the scope of the reform was optimistic and needs to be calibrated to a more realistic standard. Opening up an economy (the region's largest) to the public sector will surely take more time.