Financial Restructuring and Investment Powerhouse
A region with several underdeveloped markets, far-reaching reforms, renewed government spending and a determination to have the private sector play a key role in infrastructure development. There is a strong willingness to unlock state-owned assets for investment; several PPP projects are on the way; and, whilst there have been some delays, a pipeline of IPOs are to come.
The political will to open the market to foreign investment is strong. Preparing state-owned enterprises for privatization takes time, the local private sector is struggling to adapt to the new environment, and depending on the country foreign investors are not yet ready to pour money in.
As the pieces of investment frameworks gradually come into place, deals should start to flow. However, geopolitics will continue to dominate discussions around Saudi Arabia, but as the year goes on, governments are expected to get into fifth gear in terms of Vision2030 goals, completing a number of privatization sales and PPP projects by the end of the year.
Next to large-scale foreign and private sector investment government will opt to redirect sovereign wealth fund resources back home to tackle the need for job creation, rather than – as planned – investing the surplus abroad to diversify and mitigate oil shocks.
Vision 2030 puts the creation of a vibrant private sector and the streamlining of government activities at the heart of each country’s economic transformation program.
The main instrument to realize diversification goals is the privatization of existing state assets in everything from energy and water to sports clubs and flour mills, alongside an ambitious PPP program that leverages the private sector to build and operate infrastructure across the spectrum from schools and hospitals to desalination plants.
Local companies respond to growing cost pressures, sector disruption, increased competition and the need to expand globally. With a more enabling business environment coming into place, M&A deals that had foundered on insufficient regulation are also being revived. The financial sector remained among the most active, with tighter margins spurring consolidation and governments pushing for larger and stronger banks in what remains a heavily overbanked region.
Sovereign wealth funds have emerged as the most active venture investors at the front of the queue for any tech company looking for funding. Greater volumes of investment are expected as fiscal surpluses in the region bring in new capital inflows and other SWFs consider investing more actively.
While the global marketplace is impacted by issues such as Brexit – but we expect to see real progress in PPPs, privatization and the environment for foreign investment and global talent in the GCC. The extent of the progress will shed more light on the Gulf states ability to open up their economies, while protecting the interests of their own citizens and businesses – and redefining their place in a world that is changing fast.