The privatisation of government entities in the region needs to pick up pace to boost revenues and help in further diversifying economies, experts said in Abu Dhabi on Wednesday.
“Privatisation is definitely good but much more could have been done. The pace at which it is progressing I think there should be much more urgency to it,” said Anita Yadav, senior director for Global Markets and Treasury and head of Fixed Income Research at Emirates NBD, while speaking at the Institute of International Finance (IIF) Mena Financial Summit.
“The governments have realised [this] and this is the beginning. Oman electricity is privatising four of its grid and utility companies. I think it will be good for the economy to diversify and for markets to deepen and for the relation between government and private sectors to improve,” she said, adding that economic growth in the region has fallen in the last three years because of government ownership and reliance on oil.
In similar comments, Mazin Sa’ad Al Nahedh, group chief executive officer, Kuwait Finance House stressed that the privatisation of national oil companies (NOCs) would benefit regional economies and increase transparency.co is a huge step forward if it goes through and it will be one of the key elements that would transform local governments in terms of how they approach NOCs and protectionism that is currently there.”
“We live in a hydrocarbon economy in GCC [countries], there is significant reliance on hydrocarbons. As such, international investors would like to get a piece of that and NOCs are not liberal enough to give that piece to investors,” he said.
In recent times, the Abu Dhabi National Oil Company (Adnoc) offered a partial sale of its shares in one of its subsidiary firms, Adnoc Distribution, through a listing on the Abu Dhabi bourse. Saudi Aramco is considering an initial public offering (IPO) in the next two years.
Mubadala, which was planning an IPO for its firm Cepsa, postponed the move following a weak response from investors.
“What’s happening in KSA [the Kingdom of Saudi Arabia] with AramAlex Coelho, chief executive officer of Al Hilal Bank also said all stake holders would benefit from privatisation. The economies and the landscape and even the government benefits from this,” he said.
Oil prices could decline below $70 per barrel
The Institute of International Finance (IIF) said in a report issued on Wednesday that Brent oil prices could decline below $70 (Dh257.11) per barrel due to oversupply in the market.
“Global markets are now well supplied with crude oil as the United States, Russia, Saudi Arabia and Canada are each producing near-record volumes,” said Garbis Iradian, chief economist for Mena at the IIF.He also said oil from the neutral zone, which is shared by Kuwait and Saudi Arabia, will resume sometime next year if they settle their dispute. The production at the neutral zone was about 0.5 million barrels per day in 2015.
“If this comes on stream, that could put downward pressure on oil price. The other thing is export of crude oil in the Kurdistan region, which is about 300,000 barrels per day, is also expected to come to the market.”
Saudi Arabia will not increase its oil production if the oil price is below $70 per barrel because the fiscal break-even price for oil, which balances the budget, is well above $80 per barrel, he added.