PRIVATIZATION - A STRATEGIC SHIFT

The terms ‘privatisation’ and public sector are misnomers. Public sector, as it is commonly known, could best be called the ‘state sector’, as it is state-owned and administered; as opposed to managed, by the bureaucracy. Without wishing to be disparaging, bureaucracy’s accountabilities and priorities are different and not wholly economic; in many parts of the world. They would not be able to manage risks nor wish to take any culpability, if in their judgement, it is a close-call and things could go wrong. All businesses are impacted by Murphy’s Law and not for the faint-hearted!

This is when the leadership at the highest level, such as what we have in Dubai, decides to shift gear and nudges the private sector to come out and participate vigorously and viably i.e. convert into a sector that has some public ownership but also includes businesses that are managed by families and some individuals, as opposed to only collectively a wider body of shareholders.

All announcements of new Dubai projects in themselves, are quite dramatic in terms of scale and scope; such as that of Dubailand. Clearly, many of them are predicated on the fact that the successful creation and execution of quality opportunities, will inherently produce the necessary synergy and financial support to flow in, on merits. In itself, these are serious attempts to ensure that there is a virtuous cycle in the making; constantly and consistently. No mean feat in itself!

But what was even more important in the recent announcement, is the strategic shift in the Government thinking in considering privatisation; as a major component not just for new but existing assets. More so in the UAE, but indeed in the rest of the Gulf, the Government directly owns many of the projects and is a major shareholder, through related institutions, in many of the publicly quoted companies, i.e. those whose shares are listed in the domestic stock exchanges. This is partly, due to the fact that the country has a small native population and all these projects carry start-up risks, which cannot be initially borne by the commercial / investing community.

In many instances, there are also other factors such as subsidies, low pricing and social considerations (especially in the case of utilities), which warrant them to be in the public hands. Except that, when the country’s projects have come to fruition, many of the projects attain good commercial viability. Therefore, they could be considered ripe for bringing in the private sector; so as to give a sense of participation as well as achieve wider ownership as possible and at the same time, this can help bring new ideas, better quality management and accountabilities. Therefore, the original thought processes, when the projects or an industry had to be nurtured in the public interests, is no longer relevant. It is often time to wean away the young ones and let them fend for themselves i.e. stand up and be counted. For this, what is important is to pick the winners first and achieve the privatisation as a medium-term programme, as opposed to a one-off effort.

It is in this context, that the proposed establishment of a ‘Public Endowment’ and to take care of minors, as reported in the press, perhaps deserves a little greater scrutiny. For instance, if this privatisation process is established by the Government as a means of preserving wealth for the future generations, it would be regarded as laudable.

In this manner, nobody can castigate for selling the ‘family silver’, but it will be viewed rather as very much a ‘sharing and caring process’. Similarly, this is one way of building up economic management capabilities among the young nationals, and actually give them opportunities to manage the wealth of a country; in monetary terms on the one hand, but equally, give them responsible positions in industry and other economic sectors of the country, along with a slice of ownership.

The privatisation move should give a significant boost to the markets. The Dubai Financial Market (DFM) can well do with more public companies being listed and if some of the larger quasi-commercial enterprises now in the public sector, were to reach wider ownership, they could benefit the market. In turn, the market will attain breadth and depth.

The key need, given that there are currently fewer than say some 40,000 potential shareholder families within the UAE, is to achieve greater penetration, by perhaps including the GCC nationals, and allocating certain maximum quotas, say 20% for GCC and 10% for expatriates. Indeed, the opening up of the economies need not assume the form where you unlock all the doors and windows wide open to allow gushes of wind to sweep you off your feet. What is required is a carefully measured process, where you allow cross-ventilation, so that, on the one hand, the room does not get very stuffy, but on the other, gradually, you make visitors welcome, but not so comfortable, as to stop them from contributing.

The ethos of this region, as indeed in the Orient, will not allow for systemic shocks or ‘overdrive’. It would be best if it is a process of gradualism, where you consolidate upon gains that you make, analyse and minimize the mistakes that will inevitably happen, and all these are done in a ‘block-building approach’. This approach will be more durable and sustainable. Once it gains acceptance, the privatization pace can be quickened and the process of widespread economic ownership can then become a reality, where the state can continue to initiate projects, companies and activities that would do a world of good to the economy, but where the economic risks are unlikely to be taken up on day one, by the private sector, because of the vast imponderables. Once these projects reach a certain stage of maturity and financial stability, then the state can and should actually realize value by exiting, and not just recover costs and reinvest in new initiatives.

There have been multiple terminologies to privatisation. Some call it disinvestment; especially those suffering from the grand socialist era delusions. There are the capitalists, who will go for an aggressive abandonment of all the cherished values of caring and sharing. It is therefore appropriate, that the Dubai Executive Council and the leadership at the highest level, have chosen to make a detailed study and a planned rollout, in a manner, where the absorptive capacity in the Dubai economy, can cope comfortably with what is being offered. There should then be no issues of over-digestion and all will benefit from the shared ‘prosperity’.

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