The private sector has long been considered the engine of growth for most economies globally, except in many parts of the Mena region where the state and state-owned enterprises have dominated the production of wealth.

With a few exceptions, the recent collapse in oil prices highlights the weakness of the private sector across the region. Whereas governments are now more willing to hand over larger areas of economic activities to the private sector, it seems that more should have been done to prepare the private sector for a major handover.

It is ironic that the $1bn Taif airport public-private partnership (PPP) project in Saudi Arabia is postponed at around the same time Riyadh announced its Vision 2030 plan, which main themes include increasing private-sector participation.

The postponement of the Taif airport PPP, however, reveals more about the lack of readiness of a framework to ensure its success rather than the weakness of the model itself. A robust framework is necessary given that every PPP is unique. The unique nature of each project explains why an airport PPP project in the same country, the Medina airport PPP, was successfully procured in 2012. 

The scarce history in large-scale PPP projects in the region, particularly outside the power and water sectors, has meant that multinational companies have often taken the lead in these projects, bringing in their experience, initiating the adoption of industry best practices and transferring knowledge to their local partners.

These have come at a certain cost. For one, banks usually lend at a higher rate to private enterprises compared with sovereigns. In many cases, this additional cost means citizens will have to pay more for services that otherwise would have been provided at a lower cost by the government. The government will have to compromise control over certain national assets and assume its role as a regulator, not a project owner, in most cases.

Sharing control of services means establishing a legislative framework that will enable the private sector to grow. This framework can include establishing a suitable PPP framework, relaxing commercial agency laws, establishing incubation and funding resources, and other economic incentives for start-ups, all of which most GCC governments have recently shown a willingness to adopt.

The process of strengthening the private sector role will take time and will be more complicated and expensive than expected. In the end, the government may pay for not pushing hard enough to empower the private sector when oil prices were high.

As shown with the Taif airport example, some projects might still require part-funding from the government, especially in a high-risk environment. The transformation might also outlast the low oil prices, which experts tell us will be the true test of governments’ commitment to privatisation.