Econ 220: Saudi Economy - Topic 7: Privatization

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Econ 220: Saudi Economy – Topic 7

Privatization

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Privatization
 It is an instrument of economic policy through which
there is a transfer of property or control of assets, usually
owned by the state, to the private sector.
 Privatization includes the privatization of management
and ownership.

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Privatization
 Privatization often requires a restructuring of a whole
sector rather than one firm for example the restructure of
communication and transportation sector in Saudi.
 It also requires a legal and regulatory mechanisms to
ensure that private providers do not overlook the public
dimensions and responsibilities of the services they are
licensed to deliver, and ensure they meet the pre-agreed
targets and policy objectives, such as coverage to certain
areas and access for the public.

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The Aim of Privatization
 Increase the role of the private sector.
 Move from a state controlled and dominated economy to a
free market-based economy.
 Diversify the economic base.
 Sign for foreign investment that a country has improve its
political, economic, legal and regulatory situation.

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The Saudi vision of Privatization
 Reduce the heavy dependence on oil market and has
opted for decentralized, private market-based economic
activities.
 Saudi aims to achieve this through a three pronged
approaches:
 Saudi will join WTO to enable a bigger Saudi world market
share.
 It will initiate a domestic privatization program of core
government services.
 Saudi will use foreign direct investment to foster technology
transfer and domestic economic stimulus.

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The Saudi vision of Privatization
 Saudi Arabia has succeed in joining WTO and Saudi
companies are on the way to expand the Saudi world
market share “such as SABIC”.
 Saudi started privatization program of core government
services in 2002 by privatize STC.

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Saudi government planning to privatize 18
economic sector
 Telecommunications  Water and sewage
 Civil aviation  Highway constructions
 Desalination  Airport services
 Highway management  Postal services
 Railways  Grain and flour silos
 Sports clubs  Hotels
 Health services  Seaport services
 Municipality services  Industrial city services

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The Saudi Government Objectives of Privatization
according to Supreme Economic Council

 Improving the capacity of the national economy and


enhancing its ability to meet the challenges of regional
and international competition.
 Encourage private sector investment and effective
participation in the national economy increasing its share
of domestic production to achieve growth in the national
economy.
 Expanding the ownership of productive assets by Saudi
citizens.
 Encouraging local investments of domestic and foreign
capital.
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The Saudi Government Objectives of Privatization
according to Supreme Economic Council

 Increasing employment opportunities.


 Providing services to citizens and investors in a timely and
cost efficient manner.
 Rationalizing public expenditure and reduce the burden
of the government budget.
 Increasing government revenues from return on sale of
assets to be transferred to private sector.

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References
 Ramady, M. (2005). “The Saudi Arabian
Economy”. Springer. Chapter 11

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