Capital Market

SoE Privatization Initiatives in the GCC: Implications for Equity Capital Markets through IPO’s

Vibeesh Sampath

12 September 2023

The economies of the Gulf Cooperation Council (GCC) nations have long been tethered to their abundant oil reserves. The countries in the Middle East and North Africa (MENA) region accounted for approximately 31.9% of the world’s oil production between 2002 and 2021[1]. Combined with the growth in oil prices globally since 2000, the GCC countries filled their coffers and averaged a fiscal revenue savings rate of 40% in 2007[2]. Buoyed by their savings, the GCC countries engaged in accelerated spending, especially between 2010 and 2014. The government spending as a percentage of GDP rose from 20% in 2007 to 30% in 2014[3].

The oil market witnessed a turnaround between 2014 and 2015 with an unexpected decline in price of more than 50%, which was among the largest in the past century. It resulted in a cumulative oil revenue decline of USD 6.5 trillion for all oil-exporting countries between 2014 and 2018[4]. However, government spending continued its pace by tapping into the debt markets. The gross government debt as a percentage of GDP of the GCC countries rose from 132% (2000-2013 average) to 221% (2014-2020 average)[5].

The combined factors of lower oil prices, falling demand for oil, and rising fiscal debt resulted in the GCC countries recognizing the need to diversify their economies to provide stability. Subsequently, all countries laid out strategic “visions” for their economies, working towards diversification and private sector development (Saudi Vision 2030, Qatar National Vision 2030, We the UAE 2031, etc.).

To encourage private sector development, the privatization of state-owned enterprises emerged as a pivotal strategy. Governments recognized that privatization could provide a buffer against oil price volatility and enhance economic resilience. Privatization was increasingly focused on by the GCC economies after the disruption in oil demand induced by the COVID-19 pandemic.

The GCC countries have enacted various laws and programs to support their privatization drive and provide confidence to investors. KSA launched a privatization program in 2018 and enacted the Private Sector Participation Law in July 2021. Qatar launched a body to encourage the participation of private sector in economic development in 2016. UAE launched a Public Private Partnership law in 2015 for the emirate of Dubai. The governments have also eased restrictions on the ownership of foreign investors in the local companies, moving towards allowing 100% ownership in certain sectors. In recent years, with an aim to increase private sector contributions and to improve the size and liquidity of their financial markets, there has been a focus on IPOs of state-owned companies.

Since the beginning of 2022, the GCC countries have witnessed an array of IPOs of state-owned enterprises. These IPOs are crucial for both maintaining economic growth and reducing fiscal strains. The IPOs were extremely successful in terms of the response received from the investors. Most IPOs resulted in oversubscription of shares, bringing about significant capital inflows.

IPOs of State-owned companies in the GCC region (2022- Q2 2023)

Note: State-owned companies are companies where the government owns a majority share in the company

The performance of these state-owned companies has been mostly positive since listing. Most of them have outperformed the average of other IPOs in the GCC market. Abu Dhabi Ports was the best performer, gaining 72% until August 31, 2023. TECOM, DEWA, and Borouge are the underperformers, with DEWA and Borouge posting negative performance.

These significant IPOs not only demonstrate the continued interest and activity in the GCC's equity markets but also highlight the diversity of sectors and industries contributing to the region's economic growth and investment opportunities. Additionally, the IPOs garnered interest on a global scale, bringing foreign investors into the market, with UAE being the main beneficiary. The heightened IPO activity in the last two years served as a catalyst for a significant increase in foreign (non-GCC) ownership of UAE-based stocks from the pandemic lows. The DFM exchange witnessed a rise in foreign ownership with non-GCC investors owning 12.8% of companies listed on the exchange as opposed to a lowly 1% in February 2019[6][7].


The steep increase of FDI inflows into Saudi Arabia and UAE also highlight the appeal of these two countries to global investors.


Clearly, Dubai and Saudi Arabia stand out as key players in the privatization wave. IPOs of state-owned firms like Salik and Empower show how dedicated Dubai is to expand the size of the capital market and luring foreign investment. The Dubai Stock Exchange had five successful IPOs in 2022 with total funds raised of USD 8.5 billion. Interest has grown worldwide with UAE’s FDI inflows growing at a CAGR of 21.6% from USD 10.3 billion in 2018 to USD 22.7 billion in 2022. The Dubai Stock Exchange is prioritizing private sector listings, with plans to list 10 state-affiliated companies[8].

With aspirations to increase the private sector's GDP share to 65%, Saudi Arabia has identified 200 projects across 17 sectors for privatization and public-private partnerships. The completion of 30 projects in the last five years underscores seriousness to its privatization goals. Along with the UAE, Saudi Arabia has also been a hotbed of IPO activity in the GCC. The KSA IPO tally rose to 36 in 2022 from 12 in 2021 and has maintained a steady pace with 17 in the first half of 2023. UAE witnessed 4 IPOs in 2021 after three years without any activity and has grown since with 10 in 2022 and 4 in the first half of 2023.

The GCC countries’ approach to privatization and economic diversification is reflected in the wide variety of IPOs. The oversubscribed offerings show that investors are interested in a variety of industries. Increased equity market involvement highlights the region's developing investment environment and efforts to draw both domestic and foreign investors. These IPOs represent a critical turning point toward sustained economic development and increased market competitiveness as the GCC continues to spearhead privatization activities.

Along with the IPO wave, the GCC economies have been making strategic sales of state-owned enterprises. Canadian pension fund CDPQ invested USD 2.5 billion in Jebel Ali Port, Jebel Ali Free Zone, and the National Industries Park, three of DP World’s flagship UAE assets. The Saudi Grain Organization sold four key milling assets in 2020 and 2021 raising approximately USD 1.5 billion dollars.

While the work towards diversifying the GCC economies has been the talking point, it is to be noted that the need was recognized almost 10 years ago with increasingly volatile oil prices from 2014. Despite the vision for the future, the economies have been slow to act on the required measures. We are witnessing privatization and heightened IPO activity only in the last few years when it was discussed in 2016. The GCC region’s real non-oil GDP growth has also been lackluster since 2015, well below its 2000-2014 average of 6.9%.


Looking ahead, the GCC's equity capital markets are expected to remain active thanks to government initiatives and increased market liquidity from recent IPOs. KSA and UAE are expected to persist with their efforts to privatize. KSA aims to raise USD 55 billion through their privatization measures by 2025. Dubai plans to increase the market capitalization of its capital markets to USD 820 billion[9]. Relatively, even though the other GCC countries are laggards in their efforts, they are expected to follow suit as it is imperative to grow the private sector. With the falling demand for oil and limited oil reserves, the GCC region’s financial wealth could be depleted by 2034 unless measures are taken to address the issues. Continued and consistent steps in the right direction by the governments can make the GCC’s privatization initiatives a success and help achieve the visions the countries have for their economies.

[1] Source: Statistical Review of World Energy - BP

[2] Source: The Future of Oil and Fiscal Sustainability in the GCC Region - IMF

[3] Source: The Future of Oil and Fiscal Sustainability in the GCC Region - IMF

[4] Source: The Future of Oil and Fiscal Sustainability in the GCC Region - IMF

[5] Source: World Economic Outlook - IMF

[6] Source: Refinitiv, Marmore Research

[7] Note: Ownership is calculated after adjusting for free float

[8] Source: Global Investment Outlook 2022 – Emirates NBD

[9] Source: Financial Times

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