Chapter

7 Privatization and the Regional Public Joint Ventures in the Gulf Cooperation Council Region

Editor(s):
Saíd El-Naggar
Published Date:
June 1989
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Author(s)
Mohammed F. Khatrawi1

Since its inception in 1981, the Gulf Cooperation Council (GCC) has repeatedly emphasized the importance of regional joint ventures as an effective approach to foster cooperation and integration of the six member states economies. In fact, a number of regional joint ventures, both public and private, were undertaken long before the formal formation of the GCC, but the presence of the GCC should presumably have stimulated this trend. However, with the recent drastic decline in oil revenues, the private sectors in the GCC states are being called upon not only to take the lead and the initiative in developing new intra-GCC joint ventures, but also to acquire partially or totally public sector interests in the intra-GCC public joint venture enterprises already existing.

The main purposes of this paper are to review the basic characteristics of the existing GCC regional joint ventures, investigate the difficulties and constraints impeding the privatization efforts of these joint venture enterprises, and explore the possibilities of developing a policy and institutional framework to promote private sector investment in the intra-GCC joint ventures. The paper starts out with a brief conceptual review of privatization, regional joint ventures, and regional economic integration, while the main conclusions of the paper that emerge are offered in the last section.

Privatization, Regional Joint Ventures, and Integration

Privatization

Privatization is most commonly seen as a process through which the ownership and operational management of the state-owned enterprises are transferred partially or totally to the private sector. The private sector can be national or foreign individual business firms, business people, or companies. Clearly this most common definition of privatization does not explicitly take into consideration the transfer—again from the public to the private sector—of commitments to establish future enterprises or to invest and manage in general or in certain economic activities.

This additional consideration of the privatization concept is of special importance for drawing the boundary line between the activity opened to private sector investment and those activities dominated by the public sector. In practice, however, it is difficult to delineate clearly between these two groups of activities, because in most contemporary free enterprise economies, the public sector takes over those enterprises that are not sufficiently attractive to the private sector or because of their need for high initial investment, highly advanced and complicated technology, and special managerial skills, despite their national or regional importance. Also, the final dividing line depends on the policy of the ruling party in the country concerned. Regardlesss of the final location of the dividing line, the private sector movement to invest in enterprises requires clear-cut promotional policies that affect the public sector. The private sector’s investment promotional policies may include

  • subsidies;

  • incentive packages;

  • simplified procedures and favorable treatment of business people;

  • guidance on and provision of needed data and information on potential opportunities;

  • favorable fiscal, monetary, and trade policies; and

  • favorable legal environment.

In developing countries, the private sector usually lacks the courage and sufficient expertise to set up huge industrial and agribusiness complexes. Under the pressure of the ambitious development and diversification programs required to foster the transformation of the economy into a modern developed economy, the public sector in these countries is forced to invest directly and heavily in a number of nationally or regionally important enterprises with, or (as is often the case) without the participation of the private sector.2 Privatization of such public enterprises is then considered as soon as the private sectors in these countries show enough interest in taking over these enterprises. To reduce the risk or the chances of failure, privatization of these enterprises is usually carried out gradually.

Besides political and ideological justifications, the most important economic reasons for privatization include

  • gains associated with higher cost effectiveness and faster decision making by private sector management;

  • gains associated with the higher mobility of the private sector to identify, seize, and implement feasible project investment ideas;

  • reduction in the public budget, dependence on taxation, borrowings, or drawing on public reserves, while compensating for the drop in public investment expenditures.

However, these privatization gains are not expected to be attained automatically. On the contrary, privatization—especially in the context of developing countries in general and in the GCC states in particular—could be accompanied by a number of negative aspects. Privatization may lead to a considerable increase in the existing pattern of wealth and income distribution; it may be associated with a considerable decrease in the quality of the goods and services provided by the enterprise and with exploitation of consumers or users of the goods and services relying on the natural or artificial monopolistic conditions associated with the enterprise concerned. It may lead to neglect of the national or regional economic and social interests of the enterprise, such as the commitment to employ and train local manpower, development of disadvantaged areas, and transfer of technology. Nothing could guarantee the improvements in efficiency claimed for privatization. In fact, the fear is that the private sectors in the GCC states may tend to act as sleeping partners, leaving the business to be run by the foreign counterpart (wherever applicable) and being satisfied to get a commission at the end of every financial year. Privatization does not necessarily lead to an increase in the national or regional capital stock and therefore to economic growth and diversification, because a mere transfer of ownership from the public to the private sector is not an investment in the economic sense.

Regardless of the gains actually resulting from privatization, public ownership is not a substitute for a government’s direct regulatory and controlling role in the enterprises (irrespective of their ownership and management) to safeguard the public interest, including imposition of quality measures and specifications of the goods and services produced, especially when such considerations are particularly important. Food items, pharmaceuticals, transportation, and medical care services are good examples.

Joint Ventures

Joint ventures are essentially multicountry enterprises that are owned and/or managed totally or partially by governments, or publicly owned companies and/or nationals, or private companies of more than one country. This implies that joint ventures can also have totally or partially public or private ownership and management. Enterprises that are owned and/or managed by the government and citizens of one and the same country are usually referred to as “mixed-ownership enterprises” regardless of the scope and area of their operations. Joint ventures, on the other hand, are described as “regional joint ventures” only when owners (public or private) of the enterprise are citizens of a group of countries that are members of a formal, regional or subregional grouping agreement. Otherwise, joint ventures are by definition national enterprises.

The main aim of this paper is to deal with the regional joint ventures in the context of the GCC region and in particular with their privatization. On the national level, joint ventures are desirable for their exceptional power as engines of economic growth and development, and are powerful vehicles for transferring technology throughout the domestic economy. On a regional level, joint ventures are expected to accelerate economic cooperation and integration of the member states social, cultural, and production structures. They are also expected to contribute heavily to the group’s efforts to foster economic growth and technological progress of the group as a whole, as well as of each and every member state of the group.

Regional Economic Integration

The first step toward regional economic integration, according to the model borrowed from the free enterprise developed countries, is to liberalize intraregional trade by creating a free trade area. When applied to regional economic integration of a group of developing countries, it has been repeatedly observed that this model cannot lead to substantial increases in intraregional trade, owing mainly to the absence of a large-scale and highly diversified production base similar to that existing in the developed countries. Regional joint ventures are therefore strongly recommended as an important supplementary approach to any serious regional economic integration among a group of developing countries. Moreover, the regional joint ventures approach to regional economic integration has the advantage of starting the free trade area with a full liberal flow of the products of the regional joint ventures concerned. Tinbergen has described this advantage as a partial custom union cum investment plan.3 However, regional joint ventures can cater not only to the member states domestic markets, but to their export markets as well. It is mainly for these clear advantages that the regional joint ventures approach to integration has been stressed by the Arab country group, of which the GCC is a subregional integrating group. Recently, more efforts on both public and private sector levels have been devoted to investing and/or encouraging investment in the Arab region of GCC regional joint ventures.

The Present Pattern of GCC Regional Joint Ventures

In the last few years, a number of regional joint venture enterprises financed or operated totally or partially by the Governments of the GCC member states have been established. A large number of these enterprises have been either implemented by the private sectors, or studied at a pre-feasibility or fully fledged feasibility level. The private sectors in the GCC region are being called upon to assume a larger and more effective role in financing and operating feasible investment projects both domestically and regionally.

The Basic Structure of Regional Joint Ventures

In a recent study prepared for the GCC Secretariat, a total of 263 intra-GCC joint ventures were identified. One hundred and fifty-eight (60 percent) of these joint venture enterprises are very small, with capital of less than $5 million. Of the balance, 14 are large government-sponsored ventures, in which intra-GCC participation has been gained as much from initiatives aimed at political and regional balance as from ordinary commercial motives (for example, Gulf Air and Alba). A further 56 are in the banking sector, in which Bahrain’s offshore banking industry predominates, and account for two thirds of the total capital investment in such joint ventures. Only 35 large, private sector joint ventures have been identified. The majority (two thirds) of these intra-GCC joint venture enterprises were established in the boom years of 1975–82, and only about 15 percent were established after the 1981 GCC agreement. The basic structure of the large nonfinancial joint ventures is shown in Table 1.

Table 1.Nonfinancial Joint Ventures in GCC Region
NumberAuthorized Capital

(million U.S. dollars)
Transportation42,627
Construction materials131,575
Oil and petrochemicals19505
Metal-working and engineering5377
Basic metal industries3392
Food and agribusiness8166
Hotels/car parks5105
Importing/trading210
495,757
Source: GCC Secretariat and Gulf Investment Corporation, “The Intra-GCC Joint Venture Projects, Past Experience and Future Opportunities” (July 1988), a draft of Chapter II of the final report.

Saudi Basic Industry Corporation (SABIC) is excluded.

Source: GCC Secretariat and Gulf Investment Corporation, “The Intra-GCC Joint Venture Projects, Past Experience and Future Opportunities” (July 1988), a draft of Chapter II of the final report.

Saudi Basic Industry Corporation (SABIC) is excluded.

Of the total of 49 large nonfinancial4 intra-GCC joint ventures, more than 70 percent are privately owned, while the remainder (29 percent) are government sponsored. However, as noted earlier, the private sector joint ventures do not account for more than 35 percent of the total capital invested in these joint venture enterprises (about $2 billion). As for the nature of activities, the majority were clearly concentrated in construction materials, followed by the oil-related and petrochemical activities, while importing/trading and metal-working and engineering had the smallest number of joint ventures. In terms of capital, transportation services was the most attractive activity of the intra-GCC joint ventures, followed by the manufacturing of construction materials (including cement). In this context, importing/trading was again the least attractive activity.

The National Distribution of the Regional Joint Ventures

The regional distribution of the joint ventures within the GCC is unbalanced (see Table 2). Bahrain, one of the small member states, accounts for 58 joint ventures (over 20 percent of the total) by virtue of its highly developed banking sector and its selection as the location for a number of strategic GCC projects, such as the Arab Shipbuilding and Repair Yard (ASRY), and the Gulf Aluminum Rolling Mill (Garmco). Oman, another small member of the GCC, also accounts for about 20 percent of the total, but the bulk consists of very small enterprises, often involving family ownership ties with United Arab Emirates citizens. By contrast, Kuwait is the base for very few joint ventures—only 10 have been identified—despite being the second most important industrial power in the GCC.

Table 2.National Distribution of Joint Ventures in GCC Region
Total Joint VenturesLarge Non-financialFinancialSmall Non-financial
(over $5 million)(less than $5 million)
Bahrain58102523
Kuwait10361
Oman524543
Qatar33
Saudi Arabia6520441
United Arab Emirates7512647
Total2634946158
Source: GCC Secretariat and Gulf Investment Corporation, “The Intra-GCC Joint Venture Projects, Past Experience and Future Opportunities” (July 1988), Table 4.
Source: GCC Secretariat and Gulf Investment Corporation, “The Intra-GCC Joint Venture Projects, Past Experience and Future Opportunities” (July 1988), Table 4.

Policies and Institutions of the Regional Joint Ventures

The importance of the regional joint ventures as an effective approach to fostering economic integration and cooperation among the GCC states is well rooted in the GCC Charter. Article 4, entitled “Objectives,” lists among the basic objectives of the Cooperation Council “…the creation of regional joint ventures, and encouraging cooperation by the private sector for the well-being of the people.” The Unified Economic Agreement, which was signed in June 1981 (and became effective in March 1983), explicitly stressed the important role of the regional joint venture enterprises in accelerating the economic integration of the GCC region. Articles 9, 12, and 13 of this agreement spelled out the intentions of the Governments of GCC member states regarding the regional joint ventures to include

  • encouraging their private sectors to establish joint ventures;

  • paying attention to the establishment of joint ventures between them in the field of industry, agriculture, and services;

  • supporting joint ventures with public, private, and mixed capital to achieve economic integration;

  • allocating industries between member states according to comparative advantages and economic feasibility and encouraging the establishment of basic as well as ancillary industries.

Regional joint ventures between both governments and/or citizens of the GCC member states were also among the advanced priorities of the GCC Common Industrial Strategy (CIS), which was approved by the GCC Supreme Council in November 1985. A GCC Supreme Council resolution in November 1984 directed the GCC Secretariat to review the conditions of existing GCC joint ventures with the purpose of improving their performance, as well as exploring any promising investment opportunities to establish new GCC joint ventures and suggest incentives and procedures required to attract the private sector toward the feasible opportunities. In the last few years, efforts in the GCC Secretariat toward this end included the preparation of more than 40 investment opportunity, pre-feasibility, or feasibility studies. Of 39 pre-feasibility and feasibility studies prepared, 8 are in agribusiness, 17 in the manufacturing sector, 7 in services, and the remaining 7 in utilities and social infrastructure. The Gulf Investment Corporation (GIC), which was established in Kuwait by the Governments of the GCC member states in 1984 (with an authorized capital of $2.1 billion) has undertaken to promote the feasible joint ventures of these studies. Moreover, the GIC cosponsored the pre-feasibility studies of 20 of these projects together with the GCC Secretariat.

Besides individual member states, the Gulf Organization for Industrial Consulting (GOIC) in Doha, Qatar, is another important source of studies related to regional industrial joint ventures in the GCC region. Most recently (November 1988) the GOIC has been seriously promoting the establishment of a GCC Industrial Investment Company to be based in Bahrain. The company is to be a holding GCC regional joint venture investing alone or with other partners in feasible manufacturing projects in the region.

Other major developments favoring private sector participation in present and future intra-GCC joint ventures include

  • Creation of a free trade area among the GCC member states as of March 1983. Agricultural, animal, and mineral products of member states are exempt from customs and similar duties and fees. Manufactured products are also exempt provided they have a certificate of origin indicating that the producing firm is national (at least 51 percent ownership by GCC nationals) and that the domestic value added is at least 40 percent.

  • Allowing exports of national products to other states directly without the need to appoint a local agent.

  • Facilitating passage of goods in transit without any transit fee and in accordance with agreed regulations.

  • Creation of a limited customs union as of September 1983 with the adoption of an external common tariff of a minimum of 4 percent and a maximum of 20 percent.

  • Allowing nationals or national firms or companies to establish businesses in a number of sectors in any member state. These sectors include industry, agriculture, animal husbandry, fisheries, contracting, hotels, restaurants, and maintenance work in all these activities.

  • According common preference to products of national origin (qualified for free flow among the GCC states) in procurement by government, government agencies, and their majority-owned enterprises in all member states.

  • The deliberate flotation of some shares of one of the two industrial giants, for example, Saudi Basic Industry Corporation (SABIC), to citizens of the GCC in 1987.

Limits and Constraints

In a survey for the GCC-GIC study on “Intra-GCC Joint Venture Enterprises, Past Experience and Future Opportunities,” five major reasons for forming a joint venture emerged: (i) to gain access to economies of scale; (ii) to gain access to markets; (iii) to gain access to capital; (iv) to gain access to preferential treatment; and (v) to achieve equity in strategic projects, for example, in basic metals, cement, and airlines.

As already noted above, the bulk of the intra-GCC joint ventures were created in the exceptional economic boom years 1975–82. This suggests that private sector intra-GCC joint ventures were originally a means of gaining access to adjacent, but protected markets of the region, and that, with the formation of the GCC and its subsequent policy successes, that motive has now weakened. In spite of all the GCC’s efforts to create a more favorable environment for the expansion of private sector investment in intra-GCC joint ventures, constraints are still numerous. These constraints are further accentuated by the sharp decline in government expenditures resulting from deteriorating international oil markets compared with the conditions that prevailed before the formation of the GCC. Changes in economic conditions have also resulted in a substantial decline in rates of return on investments and in idle capacity. The major constraints include

  • Lack of common policies, institutions, and incentives especially designed for GCC joint ventures.

  • Lack of a project allocation scheme for distributing regional joint venture enterprises among the GCC member states.

  • Absence of common policies on export promotion.

  • Lack of a binding common foreign investment code in the GCC member states.

  • Differences in the incentives and subsidies package provided to national joint enterprises and joint ventures.

  • The slow progress in the actual implementation of the Unified Economic Agreement and the Common Industrial Strategy. In this context, special reference is usually made to some of the difficulties faced by products of national origin when crossing borders of the GCC states; the multiple pegs and hence unstable exchange rates between GCC currencies; the prohibition through domestic laws on GCC nationals purchasing shares in the national stock companies and the absence of a regional stock market; the absence of common rules and procedures for tariff protection that can be provided to GCC joint ventures by all GCC states; and the hesitance or delays in the GCC Governments efforts to implement the interlinking projects of major utilities and infrastructural facilities of the GCC (roads, electricity, and telecommunications).

  • Lack of legal and procedural framework for mergers and acquisition of similar enterprises at both national and regional levels.

  • Lack of market knowledge and information on potential national and/or foreign partners most appropriate for joint venturing.

Promotion of Private Investment in Regional Joint Ventures

With the recent sharp decline in crude oil export receipts, coupled with increasing signs and indications of sufficiently trained local private sectors, privatization is gathering momentum in the GCC states at both national and regional levels. The selling of government interests in a construction and hotel enterprise in the United Arab Emirates and of Saudi Arabian Government interests in the Saudi Basic Industry Corporation and the Gulf International Bank in 1988 are good cases in point. Successful activation of the private sector role in setting up future intra-GCC joint ventures and acquiring public sector interest in already existing and operating regional joint ventures requires the creation of proper policies, favorable institutional changes, and the adoption of effective mechanisms, investment instruments, and adequate measures to help remove most of the obstacles presently impeding important expansion of intra-GCC joint ventures.

Policies and Measures

Based on the Unified Economic Agreement and the Common Industrial Strategy, the rationale behind favoring regional GCC joint ventures is not so much to benefit from their contribution to economic diversification and to promote industrial investment and economic growth in general (although this may be significant in some cases) as it is to widen and intensify the network of common economic interests between the business communities in the member states of the GCC as a step on the way toward economic and political unity. With this objective in mind, the most important policy actions would include

  • More effective commitment by Governments of GCC states toward establishing or participating in the establishment and operation of utility and infrastructure interlinking projects, the giant industrial joint ventures, and the investment projects that private sectors show inability and/or unwillingness to undertake despite their obvious capacity to achieve the objectives for social, cultural, political, and national or regional security reasons. However, once their commercial profitability has been proved, public interests in most of these joint ventures must be sold to the private sector.

  • Identifying the regionally privatizable public or mixed enterprises in the GCC member states. These enterprises may include such giant enterprises as SABIC, PETROMIN, the grain silos of Saudi Arabia, telecommunications, sea and airports, airlines, electricity generation, water desalination, and similar public-owned enterprises in the GCC member states.

  • A clear and practical definition of the GCC regional joint venture enterprise, acceptable to all GCC states, has yet to be developed and adopted.

  • Extending all incentives, subsidies, and preferential treatment provided to purely national enterprises to the regional joint ventures in all GCC states. This includes in particular licensing, soft credits, customs duties, exemptions of imported machines, equipment, and raw materials, and public preferential purchasing policies.

  • Assuring easier access to all GCC markets and incentives in all GCC states with regard to the movements of products across borders, free site and factory building, granting of tariff protections (higher rates and longer periods), product specification and standardization, and incentives provided to foreign partners in the GCC regional joint ventures, including tax holidays.

  • Creating common export promotion measures with preferential treatment to GCC joint ventures.

  • Faster progress to complete a fully fledged free trade area and regional customs union—which would enhance the private sectors’ confidence in the credibility and seriousness of the GCC authorities to create a regional single market in the future.

  • Special measures to encourage GCC collective joint venture presence in other Arab states must be developed and adopted. Market accessibility agreements are of special importance in this respect.

Institutions

The preferential treatment and governments attitudes toward encouraging private sector investment in the feasible intra-GCC joint venture enterprises should be legislated for in a special common code spelling out the privileges and mechanisms to obtain them. However, besides supporting the presently existing institutions related to the GCC joint ventures, consideration should be given to the following additional institutions and institutional changes.

The conversion of the GIC into a fully fledged GCC Regional Development Corporation (RDC), especially entrusted on behalf of the Governments of the GCC member states to promote the formation of intra-GCC joint ventures and their balanced distribution among the GCC states. This conversion should be accompanied by full payment of the authorized capital and the necessary administrational, technical, and structural changes in the existing makeup of this corporation to serve as a generator of investment ideas in regional joint ventures; formulating these ideas; finding interested and suitable local and foreign partners; providing loans and equity financing; accommodating social, cultural, and regional integration and security considerations, and balanced distribution of the integration gains. Financing of governments or public regional joint ventures can also be partially or wholly considered through this Regional Development Corporation.

A GCC Private Investment Bank (PIB) should be created. A GCC-PIB could complement the GCC-RDC investment schemes and serve a very important role in providing loan and/or equity finance for GCC regional joint ventures on a commercial basis.

A more active role to promote GCC joint ventures must be assumed by the private sector institutions, such as the regional federation of chambers of commerce and industry, the national chambers, and their federations.

A common export promotion fund on an equiproportional basis by the public and the private sectors in the GCC member states should be created. The fund should provide priority and preferential treatment to the products of GCC regional joint ventures. Besides soft credits, it could issue guarantees and insurance. It could also be operated on an Islamic basis.

A GCC common stock market should be created, which could, among other things, facilitate large capital flotation of GCC regional joint ventures, secure much wider joint ownership of financial instruments in the GCC, help avoid duplication of projects, provide a means for free movement of capital, and attract foreign investment to the GCC region.

Location and Distribution

The commercially most sensible locations for regional joint ventures may not be acceptable in the context of a regional economic grouping, because a reasonable degree of regional balance in economic and industrial development is required as a matter of national pride. Therefore, any successful program to promote investment in regional joint ventures should include some predetermined formula on the distribution of regional joint ventures among the member states. The formula could then be applied through certain procedures to distribute these joint ventures. The joint ventures which have to be located in a less advantaged or less developed region of a certain member state must be granted extra financial incentives from a common fund. In this context it has generally been found that “operating costs for firms in remote areas, especially those requiring large amounts of machinery or parts and components from other plants can be from 15 to 30 per cent higher than they would be in a less remote area.”5 In the GCC context, if such a simple rule of thumb formula is to be applied, a common fund from the Governments of the GCC can be entrusted to and administered by the GCC Regional Development Corporation proposed earlier.

Some of the approaches to develop location and distribution formulas considered in the GCC Secretariat included the package-deal approach, which involves agreement between the member states to allocate to each state a large-scale project for which conditions will be created to enable each industrial operation to serve the entire or a significant part of the regional market. This approach has been developed in the Association of South East Asian Nations (ASEAN) economic grouping with the objective of linking and nationalizing the member states industrial development programs while maintaining equitable distribution of regional projects. According to the ASEAN package deal, projects are allocated between the participating countries as follows: primary production projects on the basis of efficiency criteria; and secondary and tertiary production projects on the basis of the market contributions of each participating country and the project efficiency.6 The package-deal approach clearly requires a sequence of regional project packages over time with the objective of maintaining equitable allocation and distribution of total industrial investment in the region over a specified period.

Another approach is the traditional cost-benefit approach with common levels of percentage adjustment for disadvantaged locations. A central licensing procedure is then adopted to assure the actual distribution of projects. The percentages can be changed over time as the comparative advantages of the member states change. Five steps are involved in the reassessment of an investors proposed location approach (recommended in a recent draft study to the GCC):

  • determining whether there are any overwhelming arguments in favor of one particular location;

  • assessing the project against four standard criteria involving the need for proximity to customers, input sources, utilities, etc.;

  • drawing up a short list of possible locations;

  • determining which of the shortlisted locations to support and in which order; and

  • convincing the investor of the new location from a position of some strength.

The modeling approach involves the construction of a mathematical programming model, the collection and organization of a great deal of numerical data, the use of a large computer to process the data and information following instructions contained in the model, and the interpretation of the results obtained. The model allows for treatment of scale economies and seeks to determine the optimum location of a set of projects based on efficiency criteria. If for any reason, such as politics or equity, the resulting location is to be changed, the cost of this decision can easily be calculated. The model can also serve as a powerful tool to trace changes in integration policies and/or individual member states incentives on the optimum (most efficient) location of the projects under study.

Despite the special importance of project location and distribution for sparking private sector investment in the regional joint ventures, let us not forget that it is important first to take the cake and then to find a way to distribute it.

Conclusions

The central argument of this paper is that privatization in a developing country and in a regional joint ventures context has some additional considerations and dimensions. Conceptually, it should explicitly include efforts made to encourage private sector investment in the enterprises concerned and in regional joint ventures. Its objectives and justifications are broader and different; it has some distinguished pros and cons; and its successful execution requires well-designed promotional policy and measures. Moreover, privatization in this context must be adopted as a long-term strategy, because in the near and medium term there is no alternative to the public sectors initiating role in starting giant GCC joint ventures and in guiding and leading the private sectors to establish such regional joint ventures. It has also been noted that although privatization has recently been one of the most widely supported policies in the GCC member states at both national and regional levels, no mechanism has so far been developed to promote the private sectors investment in the GCC regional ventures.

Other conclusions emerge from the paper: the main objective of privatization in the GCC region is to replace gradually the public sectors investment as the main engine of economic and industrial growth and diversification in each member state and in the region. Although coinciding with deteriorating economic conditions, the free trade area and the policy harmonization that followed the formation of the GCC have done little to encourage investment in the intra-GCC joint ventures. A large number of regionally privatizable joint ventures exist, and feasibility and pre-feasibility studies of a large number of projects that can be established by the private sector in the GCC on a regional basis are also available.

A common framework—especially designed to promote private sector investment in the intra-GCC joint ventures—is urgently needed. The most important elements include selection of privatizable enterprises on a regional scale; firm commitment by GCC Governments to extend all incentives, subsidies, and preferential treatment provided to national enterprises to regional joint ventures; assurance of easier access to all GCC markets; creation of a common export fund with measures favoring GCC joint ventures; preferential treatment with regard to a number of national incentives (such as tariff protection, government purchases, and customs duty exemptions); conversion of the Gulf Investment Corporation to a full Regional Development Corporation to serve as a generator of investment ideas in regional joint ventures, to formulate these ideas, find interested and suitable local and foreign partners, provide loans and equity financing, accommodate social, cultural, regional integration and security considerations and balanced distribution of the integration gains; creation of a GCC regional stock market to facilitate large capital flotation of GCC giant regional joint ventures; development and adoption of acceptable project allocation and distribution rules and techniques among the GCC member states; development and adoption of common policy measures to encourage competition, initiation of efficiency pricing of candidate enterprises and concessional purchasing prices for small investors and employees of the privatizable regional joint ventures; action on a collective basis to improve existing accounting and auditing practices (to assure tighter control, independence, and adequate objectivity) for companies in general and joint ventures in the GCC member states in particular; and creation of a regional legal framework and institution, which should be entrusted with settlement of disputes associated with the privatization movement and regional joint ventures.

Finally, let us not forget what Napoleon was fond of saying: “Strategy is a simple art, it’s just a matter of execution.”

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