The success of privatisation in the Arab world will depend on the ability of governments to tap the region’s private wealth, according to Michael Giles, chairman of international banking at Merrill Lynch. Speaking at the 9 December Arab Bankers Association conference* in London, he said that private investors could lead the way in privatisation programmes and provide the necessary long-term shareholder base for privatised companies. Private investors can be more entrepreneurial than institutional investors and are able to commit funds early, he said.
Potential private investors comprise three groups: employees of privatised companies; retail investors; and high net worth individuals (HNWIs). Only the third of these groups has the means and mentality to make a significant impact, Giles said.
Merrill Lynch estimates put total global investible wealth at $80.1 million million as of end-1995, of which $16.7 million million was owned by HNWIs. Some $768,000 million, or 5 per cent, of global HNWI wealth was owned by individuals in the Arab world, excluding Lebanon and the Maghreb countries. Of this, $718,000 million was owned by 185,000 individuals in the GCC. Some 78,000 Saudi Arabian individuals accounted for $421,000 million, or about 55 per cent of Arab HNWI wealth.
Although local HNWIs could be a stable source of funds for Arab markets and a relatively small commitment could have a considerable effect, the Arab world must compete for capital flows with other markets around the world, both developed and emerging. Merrill Lynch identifies a number of institutional and structural problems, which inhibit the region’s ability to attract new capital. Disincentives to investors include: the illiquidity of markets, which prevents the quick sale or purchase of equity; the paucity of securities research published; the relative scarcity of domestic financial intermediaries advertising equity investment services; and the lack of cross-border equity investment advertising.
The challenge for the Arab world is to provide the liquidity, transparency and regulatory regimes required by the sophisticated HNWI investor. Privatisation programmes may provide the catalyst for such a change, says Merrill Lynch.
Speakers at the conference from the Arab world included Moroccan Privatisation Minister Abderrahmane Saaidi and Chairman of the Royal Commission for Jubail & Yanbu Prince Abdullah Ibn Faisal Ibn Turki al-Saud (see Cover Story and Saudi Arabia).
* Privatisation in the Arab World, London, 9 December, organised by the Arab Bankers Association.