Stalled privatisation plans in Egypt, Jordan and Morocco may get a boost next year, spinning off state enterprises in part by selling a special class of shares on money centre markets in the US and Europe. The sales, using American and Global Depository Receipts (ADRs and GDRs, respectively) would allow Arab governments to attract foreign capital that has shied from investing directly through Arab markets.
ADRs and GDRs have been widely used by companies in other global regions. Britain, China and Russia used DRs to raise billions of dollars while they privatised telecoms, energy companies and utilities. But to date, governments and private sector companies in the Middle East have lagged behind. Of the 2,160 ADR and GDR issues now traded on New York and London exchanges, only 91 come from the Middle East, and only 36 are from Arab countries.
However, an analysis of privatisation plans in the region shows that a significant number of state-owned companies are well-positioned to take advantage of a DR listing in London or New York.
Depository receipts come in several classes; some allow companies to raise new capital, others merely provide the status of listing on a money-centre stock exchange. In all cases, depository receipts signify that the issuing company has met stringent financial reporting requirements, boosting investor confidence.
Critics say that such a boost is much needed now, to attract both individual and institutional investors, who are leery about investing directly in Arab equity markets.
Writing in The Khaleej Times earlier this year, Matein Khalid noted that despite vast oil wealth (largely shipped overseas), "regional capital markets are still in the Stone Age of global finance."
Foreign investors have stayed away, preferring the more secure and reliable market environments found in Latin America and the Pacific Rim. As a result, in the past decade, the Arab world has attracted only 2% of the West's direct investments in emerging markets.
Much of the blame for this rests with the fact that long-term benefits of privatisation programmes have often been sacrificed for short-term political gains.
The World Bank, in a policy paper released in November, concluded: "Oil and other strategic resources have enabled many countries to postpone reforms while putting in place social and employment policies that are proving increasingly unsustainable."
Even Saudi Arabia--which is expected to enjoy a major windfall thanks to oil prices...