With Saudi Arabia announcing plans to raise $55bn through its privatisation programme, other Gulf countries are similarly stepping up efforts to stimulate private investment in public assets and projects, with a view to strengthening state finances, spurring diversification and driving their respective Covid-19 recoveries.
In March this year Saudi Arabia’s Council of Ministers approved the long-awaited Private Sector Participation Law, which aims to increase both the privatisation of public sector assets and private sector participation in infrastructure projects.
The law will enter into force in July. Targeting 16 sectors, it will advance one of the core goals of the Kingdom’s Vision 2030 economic development plan, namely an increase in the private sector’s contribution to GDP, from 40% to 65%.
The new law addresses various areas which have traditionally generated a degree of trepidation among potential investors, particularly foreign entities.
For example, among the principles it enshrines are that of a level playing field between foreign and national investors; the freedom of private sector entities to collect revenues; and a more streamlined process for obtaining permits and approvals. The law also exempts privatisation projects from meeting Saudisation quotas.
This willingness to engage with the concerns of foreign investors can be read as a reflection of the post-Covid-19 panorama, in which Gulf countries are in a more fiscally constrained position and hence likely to be more conciliatory than they may have been in the past.
At the same time as the approval of the law, Saudi Arabia’s National Centre for Privatisation – which was founded in 2017 – announced the launch of a Registry of Privatisation Projects, a central database of information related to projects targeted for privatisation.
Hopes are high that the new law will provide a significant boost to privatisation.
At the end of May Mohammed Al Jadaan, the minister of finance, told the Financial Times that Saudi Arabia was expecting to raise $38bn through asset sales and a further $16.5bn through public-private partnerships by 2025.
A Gulf-wide acceleration
The Saudi Arabian government is among a number in the region that are expanding their respective privatisation strategies.
As OBG has explored in depth, the Covid-19 crisis prompted many Gulf states to accelerate their ongoing attempts at diversification, with increased private sector involvement a key element of many such projects.
In Oman, for example, local media recently reported that the government was looking into selling its 54% stake in the Oman Cement Company.
The country has a pre-coronavirus track record of championing privatisation. Its first major sale was of a 49% stake in Oman Electricity Transmission to the State Grid Corporation of China, at the end of 2019.
On a related note, it has recently been reported that Abu Dhabi is considering the sale of a 10%, $4bn stake in the Abu Dhabi National Energy Company, known as Taqa, which is the emirate’s largest utility.
It is thought that Taqa’s ongoing shift towards renewable energy – it plans to increase the contribution of solar and wind to 30% of production over the next decade – could enhance its attractiveness to international investors.
Last year the company announced that foreign investors, who had previously been banned, would be allowed to buy stock in future sales.
Any potential sale of the company’s assets would represent the latest step in an ongoing privatisation campaign by the emirate, which in recent years has attracted more than $20bn in foreign investment into the operations of state-owned oil company Adnoc.
Meanwhile, in March Bahrain held the Bahrain Metro Market Consultation, an initiative designed to find private companies with which to form a public-private partnership to develop its metro system. The launch of international tendering for the project is expected later this year.
It is estimated that the project will cost more than $1bn, and potentially as much as $2bn.
Bahrain has long been a regional leader in courting private sector investment. For instance, within the MENA region Bahrain was ranked second only to the UAE on the World Bank’s most recent ease of doing business index, and 43rd overall.
As Gulf governments seek to bolster the resilience of their economies and public finances in the wake of the pandemic, there are concrete reasons to anticipate that privatisation will play a significant role both in their immediate Covid-19 recovery strategies and in their longer-term diversification efforts.
U.S. companies are barreling towards a $1.8 trillion corporate debt
US firms are barreling towards a giant wall of corporate debt that’s about to mature over the next few years, Goldman Sachs strategists said in a note.
There’s $1.8 trillion of corporate debt maturing over the next two years, Goldman Sachs estimated. Firms could be slammed with higher debt servicing costs as interest rates stay elevated. That could eat into corporate revenue and weigh on the US job market.
The investment bank estimated that $790 billion of corporate debt was set to mature in 2024, followed by $1.07 trillion of debt maturing in 2025. That amounts to $1.8 trillion of debt reaching maturity within the next two years, in addition to another $230 billion that will reach maturity by the end of this year, Goldman strategists said.
The wave of debt that will need to be refinanced could spell trouble for companies, as interest rates have been raised aggressively by the Fed over the last year. The Fed funds rate is now targeted between 5.25%-5.5%, the highest range since 2001.
For every extra dollar spent to service their debt, firms will likely pull back on capital expenditures spending by 10 cents and labor spending by 20 cents, the strategists estimated, a reduction that could weigh down the job market by 5,000 payrolls a month in 2024 and 10,000 payrolls a month in 2025.
Experts have warned of trouble for US corporations as credit conditions tighten. Already, the tally of corporate debt defaults in 2023 has surpassed the total number of defaults recorded last year. As much of $1 trillion in corporate debt could be at risk for default if the US faces a full-blown recession, Bank of America warned, though strategists at the bank no longer see a downturn as likely in 2023.
Russian response to sanctions: billions in dollar terms are stuck in Russia
“Tens of billions in dollar terms are stuck in Russia,” the chief executive of one large company domiciled in a country told ‘The Financial Times’. “And there is no way to get them out.”
Western companies that have continued to operate in Russia since Moscow’s invasion of Ukraine have generated billions of dollars in profits, but the Kremlin has blocked them from accessing the cash in an effort to turn the screw on “unfriendly” nations.
Groups from such countries accounted for $18 billion (€16.8 billion) of the $20 billion in Russian profits that overseas companies reported for 2022 alone, and $199 billion of their $217 billion in Russian gross revenue.
Many foreign businesses have been trying to sell their Russian subsidiaries but any deal requires Moscow’s approval and is subject to steep price discounts. In recent days British American Tobacco and Swedish truck maker Volvo have announced agreements to transfer their assets in the country to local owners.
Local earnings of companies from BP to Citigroup have been locked in Russia since the imposition last year of a dividend payout ban on businesses from “unfriendly” countries including the US, UK and all EU members. While such transactions can be approved under exceptional circumstances, few withdrawal permits have been issued.
US groups Philip Morris and PepsiCo earned $775 million and $718 million, respectively. Swedish truck maker Scania’s $621 million Russian profit in 2022 made it the top earner among companies that have since withdrawn from the country. Philip Morris declined to comment. PepsiCo and Scania did not respond to requests for comment.
Among companies of “unfriendly” origin that remain active in Russia, Austrian bank Raiffeisen reported the biggest 2022 earnings in the country at $2 billion, according to the KSE data.
US-based businesses generated the largest total profit of $4.9 billion, the KSE numbers show, followed by German, Austrian and Swiss companies with $2.4 billion, $1.9 billion and $1 billion, respectively.
‘The Financial Times’ reported last month that European companies had reported writedowns and losses worth at least €100 billion from their operations in Russia since last year’s full-scale invasion.
German energy group Wintershall, which this year recorded a €7 billion non-cash impairment after the Kremlin expropriated its Russian business, has “about €2 billion in working interest cash… locked in due to dividend restrictions”, investors were told on a conference.
“The vast majority of the cash that was generated within our Russian joint ventures since 2022 has dissipated,” Wintershall said last month, adding that no dividends had been paid from Russia for 2022.
Russian officials are yet to outline “a clear strategy for dealing with frozen assets”, said Aleksandra Prokopenko, a non-resident scholar at the Carnegie Russia Eurasia Centre. “However, considering the strong desire of foreign entities to regain their dividends, they are likely to explore using them as leverage – for example to urge western authorities to unfreeze Russian assets.”
Transforming Africa’s Transport and Energy Sectors in landmark Zanzibar Declaration
A special meeting of African ministers in charge of transport and energy held from 12-15 September on the theme, “Accelerating Infrastructure to Deliver on the AU Agenda 2063 Aspirations” has concluded with an action-oriented Zanzibar Declaration aimed at spurring the Continent’s transport and energy sectors.
Convened under the auspices of the African Union’s Fourth Ordinary Specialized Technical Committee on Transport, Transcontinental and Interregional Infrastructure and Energy, the meeting was organized by the African Union Commission (AUC) in collaboration with the African Union Development Agency (AUDA-NEPAD), the African Development Bank (AfDB) and the United Nations Economic Commission for Africa (ECA).
Speaking at the Ministerial segment of the meeting, Robert Lisinge, Acting Director of the Private Sector Development and Finance Division at the ECA called on member states to address the barriers limiting private sector investments in infrastructure and energy, urging them to facilitate investments by creating conducive policy and regulatory environments. “The requirements of continental infrastructure development and the aspirations of Agenda 2063 and Agenda 2030 far exceed current levels of public sector investment,” he said.
He stressed that over the next ten years, there is a need for concerted action to address energy transition and security issues, in order to open up opportunities for the transformation of the continent. He cited ECA’s analytical work on the AfCFTA, which demonstrates there are investment opportunities for infrastructure development in the area of transport and energy and added that digitization and artificial intelligence offer great opportunities for the efficient operation of infrastructure.
According to the Zanzibar Declaration, the Ministers adopted the AUC and ECA continental regulatory framework for crowding-in private sector investment in Africa’s electricity markets. This framework will be used as an instrument for fast-tracking private sector investment participation in Africa’s electricity markets. The Declaration also called on ECA and partners to develop a continental energy security policy framework as called for by the 41st Ordinary Session of the Executive Council and an Energy Security Index and Dashboard to track advancements in achieving Africa’s energy security.
The meeting acknowledged the efforts by ECA to support Member States in coordinating Public-Private Partnerships (PPP) with development partners and the establishment of the African School of Regulation (ASR) as a pan-African centre of excellence to enhance the capacity of Member States on energy regulation.
The Declaration requested the ECA and partner institutions to further act in the following areas:
The AUC, in collaboration with AUDA-NEPAD, ECA, AfDB, RECs, Africa Transport Policy Programme (SSATP), and the African Continental Free Trade Area (AfCFTA) Secretariat to implement the roadmap on the comprehensive and integrated regulatory framework on road transport in Africa.
ECA, in collaboration with AUC, to identify innovative practices and initiatives that emerged in the aviation industry in Africa during the COVID-19 pandemic and propose ways of sustaining such practices, including the development of smart airports with digital solutions for improved aviation security facilitation and environmental protection.
ECA, in collaboration with AUC, to establish mechanisms for systematic implementation, monitoring and evaluation of continental strategies for a sustainable recovery of the aviation industry.
The AUC, AUDA-NEPAD, AfDB and UNECA to engage with development partners and Development Finance Institutions (DFIs) to mobilize resources for projects preparation and implementation of PIDA-PAP 2 projects.
ECA and AUC, in collaboration with partners, to coordinate PPP initiatives to avoid duplication of efforts and strengthen complementarity.
The AUC and ECA to work with continental, regional and specialized institutions to support the design and implementation of programmes, courses, and capacity development initiatives of the African School of Regulation (ASR) to support the implementation of the African Single Electricity Market and Continental Power System Master Plan.
The AUC to work with AUDA-NEPAD, AfDB, ECA and RECs, respective power pools, regional regulatory bodies, and relevant stakeholders to design continental mechanisms for regulating and coordinating electricity trade across power pools.
AUDA-NEPAD, AUC, AFREC, ECA, AfDB, Power pools and development partners to comprehensively assess local manufacturing of renewable energy technologies and beneficiation of critical minerals for battery manufacturing.
ECA and AFREC to accelerate the implementation of the Energy4Sahel Project to improve the deployment of off-grid technologies and clean cooking in the affected Member States.
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