Analysis of Privatization Best Practices for Delivery of Public Service: the Case of Saudi Arabia

Analysis of Privatization Best Practices for Delivery of Public Service: The Case of Saudi Arabia

Awwadh M. Almutairi

A Thesis Submitted to the Department of Public Policy and Administration

California State University, Bakersfield

In Partial Fulfillment for the Degree of

Masters of Public Administration

Fall 2017

Awwadh Almutairi

2017

A Program PrClll

Analysb of Privatization Bcol Pructices for Delivery oll'ubllc Service: The Caoe of Saudi Arabia

By Awwldh M. Abnutairi

c.;...... Chandra C

Acknowledgments

First of all, I would like to privilege the succeed of this thesis to the grace of GOD. I would like to extend my acknowledgment to my Mother for her support during my journey through her motivational expressions. My deep thanks to my wife and Daughter for unforgettable supports to complete the adventure successfully.

My warm respect and appreciation to Dr. Thomas Martinez for his collaboration during my time in the program. And I couldn’t forget the role of Dr. Sun and Commuri for their guidance and support.

Abstract

Privatization has increasingly gained prominence as one of the engines for economic growth and development. In fact, the success of this process in some nations has prompted others to consider implementing it because of its benefit in stimulating economic growth. Countries, including Saudi Arabia, have already laid down operational privatization programs in an attempt to encourage their economic growth and development.

The purpose of this study was to conduct a comprehensive assessment of the Saudi

Arabia privatization program by proposing the challenges that the policymakers are likely to experience in an attempt to integrate a successful privatization program. Specifically, the study explored the best-suited model for privatization, it examined the adoption of a healthcare system, as well as, look into the factors promoting economic growth via privatization. The study also highlights the factors that are likely to make privatization fail based on post-privatization experience, also known as the common stumbles.

The investigation determined that the availability of appropriate technology, skilled human capital, and other human resources play a central role in the successful implementation of a privatization effort. Having a robust legal framework is key to successfully executing privatization programs. Privatization laws provide authority to the government agencies make clarification about the right of the investors, both foreign and domestic to participate in the privatization effort. Other laws, including capital markets and corporation’s laws, support such privatization laws.

Keywords: Privatization, Saudi Arabia, Legal Framework, Technology, Economic Growth.

Table of Contents Chapter One: Introduction ...... 1 Background ...... 2 Statement of the Problem ...... 3 Purpose of the Study ...... 3 Importance of Study ...... 4 Chapter Two: Review of Literatures ...... 5 Definition of Privatization ...... 5 Synthetic Definition of Privatization ...... 6 Historical Background of Privatization ...... 6 Objectives of Privatization ...... 7 Forms of Privatization...... 10 Theories of Privatization ...... 12 Best worldwide Practices of Privatization ...... 15 Best-Succeeded Model of Privatization ...... 17 Unsuccessful Experiences of Privatization ...... 19 Economic Growth and Privatization ...... 21 National Center for Privatization ...... 23 Saudi Arabia in the Contexts of Privatization ...... 24 Chapter Three: Program Proposal ...... 30 The Best-Suited Model of Privatization ...... 30 Factors Promote Economic Growth Via Privatization...... 36 Avoid Common Stumbles ...... 38 Chapter Four: Conclusion and Recommendation ...... 41 Implementation Recommendations: ...... 42 Research Recommendation:...... 45 References ...... 47 Appendix ...... 51 Institutional Review Board (IRB) Letter ...... 51

ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 1

Chapter One: Introduction

Privatization is increasingly gaining prominence as one of the tools for promoting robust economic growth and development. Nations, including Saudi Arabia have laid down an operational privatization program in an attempt to stimulate its economic growth and development. As an economic growth and development method, privatization refers to a method used to transfer functions and assets from the public to the private sector. The economic policy makers in Saudi Arabia believe that privatization when properly integrated with the vision 2020 is likely to play a central role in the country’s quest for growth. The fact that many nations are currently espousing privatization as an economic development strategy confirms its effectiveness in initiating fundamental structural change through formalization and establishment of property rights that directly influences positive economic growth.

In this 21st century, characterized by a free market economy, growth and development largely depends on well-defined property rights where individuals are able to make decisions that positively affect their personal interests. Modern market economies are known to generate growth because widespread formal property rights allow massive low-cost exchange, hence promoting not only specialization but also greater productivity. In addition to creating stronger incentives, that fosters productivity; privatization also enhances efficiency, encourages wider ownership, offers fiscal relief, and escalates credit availability for the private sector.

In Saudi Arabia, the need for privatization is driven by the economic woes that the country has been experiencing. The economists and policy makers have recommended the need to privatize the public sector to enable the country regain its original economic glory. As

AlArabiya (2017) explains, realizing the Saudi’s vision 2030 reforms plan is anchored on the success of the ten programs that have been identified as the main driver of sustainable economic ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 2 growth and development. The privatization of the public sector has been identified as among the programs likely to drive the country towards realization of the vision 2030. It not only enhances the effectiveness and efficiency of the private sector in providing healthcare, municipal, and educational services but also boosts the effectiveness and efficiency of the transport sector.

This program proposal conducts an elaborate assessment of the privatization program for

Saudi Arabia. It looks into the best succeeded model for privatization, unsuccessful experiences of privatization, the economic growth and privatization, the national center of privatization, social issues and privatizing the social sector, the current system of health care and higher education, and the factors fostering economic growth via privatization.

Background

The main reason for privatization in Saudi Arabia is to reform the economy and strengthens its performance. The need to privatize the public service sector rests on many factors.

One, the major source of revenue in Saudi Arabia is Oil, which has decreased significantly, and therefore, likely to have adverse impacts on the country’s budget (El-Katiri, 2016). A large number of the Saudis people are in the public sector, further putting pressure on the country’s budget. Other sectors, including education, healthcare, and transportation are expected to perform better than they are right now. Despite the sector costing nearly half of the country’s budget, it is surprising that they are not performing as expected. It is anticipated that privatization of these sectors will significantly boost their efficiency and performance in the economy. In addition to the above, other factors justifying the need for privatization include nepotism and corruption leading imprudent use of the available limited resources. Despite the enormous expenditure on the primary sector, including education, healthcare, and transportation, the outcomes have not been able to support fully the economy as anticipated (James, 2016). ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 3

Besides, they have not been able to attain the required level of quality when compared to the cost spent on the government services. Therefore, economists argue that privatizing public service sector will bring many advantages, including new jobs while guaranteeing the provision of high- quality services.

Statement of the Problem

There is a need to assess the implications of the public service to the public, government, and economy of privatizing public service in Saudi Arabia. For long, the government has relied on oil production as the primary source of revenue. However, the volume of oil is steadily declining. In addition, the efficiency of the various sector, including healthcare, education, and transportation has declined significantly, both, in terms, of the cost and the quality of the services offered. Therefore, the government is considering moving towards privatization in a bid to enhance the efficiency of the services offered. The proposal assesses privatization in Saudi

Arabia by determine the best privatization model for the case of Saudi Arabia, as well as, look into the factors promoting economic growth via privatization.

Purpose of the Study

The purpose of this study is to conduct a comprehensive assessment of opations and strategies for a Saudi Arabia privatization program assessing the challenges that the policy makers are likely to experience in an attempt to integrate successful privatization programs of delivery of some public services. In particular, the proposal investigates the following:

1- The best-suited model of privatization for the case of Saudi Arabia

2- Examines the adoption of existing healthcare system

3- Highlights the factors promoting economic growth via privatization ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 4

4- Based on the privatization experiences of other countries, the study explores the factors

that are likely to negatively affect successful privatization or make it to fail.

Importance of Study

This proposed study will be of great importance to the householders in the society and the policy makers. To the householder, this study is critical because it provides valuable information regarding the challenges of privatization, as well as, the factors and best models that when adopted can promote successful privatization. The proposal equips and promotes the householders with detailed information about the consequences of privatization to the essential services such as healthcare and education.

To the policy makers, the study highlights some of the challenges that are likely to be experienced in the course of privatization effort, as well as, models that economy like Saudi

Arabia can adopts to ensure that the goals and objectives of privatization are fully realized. Oil, which for long has been the backbone of the Saudi economic growth and development, is increasingly declining. As a result, the efficiency of the various sectors, such as education, healthcare, and the transport sector has also declined considerably, both, in terms of the quality of services provided and the revenue generated. Therefore, to restore the dignity of the above- mentioned sectors, the government is considering privatization because of its perceived benefits in boosting the effectiveness and efficiency of the various sectors in the economy. Against this backdrop, the study provides a blueprint upon which the policy makers can use to guarantee successful privatization efforts in Saudi Arabia. For instance, it suggests to the National Center for Privatization the most suitable model for privatization in the case of Saudi Arabia.

ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 5

Chapter Two: Review of Literatures

The review explores the definition of privatization, historical background of privatization, and the objectives of privatization. Additionally, the review investigates the different forms of privatization, theories of privatization, and the best worldwide practices and model of privatization. Finally, the review turned to explores the different related factors of privatization, for the case of Saudi Arabia, taking into consideration the economic view, political view, legal view, and the social view, and current system of healthcare and education.

Definition of Privatization

There is no universally accepted definition of privatization because of the different definitions from different scholars. According to Abbas (2016), privatization refers to the process involved in the transfer of ownership of an enterprise, business, public service, and agency from public to the private sector. The scholar argues that until the late 1970s and early 1980s, privatization as a term never gained global coverage. Nonetheless, with the rise of the conservative governments in the United States and the United Kingdom privatization meant two things, one a shift of the production of services and goods from the public to the private sectors, and two, a shift of functions or activities from the state to the private sector. The Commission on

Government Forecasting and Accountability (2006) defined privatization as the transfer of property, the management of an activity, or a service from public to private ownership from a government to a private sector. They further opined that privatization takes different forms, including complete or partial, or sometimes carry conditions to an ownership change.

According to OECD (2010), privatization is any material transaction between the state and the private sector in which the state’s ownership of corporate entities is significantly reduced. On the other hand, Nightingale and Pindus (1997) assert that there is no single ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 6 definition of privatization since it covers a broader model and methods, including voucher programs, contracting services, and the sale of the public services to a private sector. Therefore, they defined privatization as the provision of activities and services that are publicly funded by non-governmental entities. Shirley (1991) defined privatization as the transfer of ownership of public asset to the private sector. Therefore, despite the different definitions of privatization, it is apparent that they all lead to the same thing, the transfer of ownership from public to the private sector.

Synthetic Definition of Privatization

Privatization refers to a method or technique of reallocating functions and assets from the public to the private sector with the sole objective of enhancing productivity, as well as, the quality of goods and services offered. It is geared towards boosting the effectiveness and efficiency of various sectors, including healthcare, education, and the transport sector to boost economic growth and development (Dholakia, & Dholakia, 1994). To Saudi and its citizens, privatization would mean increased efficiency and quality of services delivered and more involvement of the private sector hence reducing government burden to the sector administratively and financially. Additionally, privatization would mean escalated economic growth and development, which indirectly would further enhance the citizen’s standards of living.

Historical Background of Privatization

The last three decades have witnessed an unprecedented rise in the number of economies considering going the privatization way. As a result, many governments across the globe have privatized state-owned enterprises (SOEs), as well as, the other state-owned assets. According to

Hrab (2003), in the United Kingdom, the era of privatization was ushered in the early 1980s. The ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 7 privatization program had many objectives, including lowering the public sector borrowing, enhanced efficiency, generating revenue, and significantly reducing government influence within the economy. In the United Kingdom, the original publicly privatized properties included Cable and Wireless, British Aerospace, and the Enterprise Oil. As evidenced above, these publicly owned properties were privatized to boost their effectiveness and efficiency, in terms of service delivery.

The Thatcher government by way of share offerings, which began with the initial public offering (IPO) of the British Telecom in 1984, followed a series of privatizations. Many companies, such as the British Gas and the British Airways, eventually followed this. Hrab

(2003) writes that in the late 1980s and 1990s, electricity and water distribution became privatized. Between 1979 and 1997, Tories lowered SOEs GDP share from nearly 10% to zero.

During the first decade, Hrab argues that the sale of the privatized assets generated to the government over £15 billion. After Britain reporting, remarkable success in the privatization program, many other nations, including Japan, France, Spain, Canada, and New Zealand integrated privatization in their reform programs. For instance, the France government between

1986 and 1988 privatized twenty-two SOEs valued at US$12 billion. The privatization of

Telephone and Nippon Telegraph in Japan raised approximately US$80 billion. Currently, developed economies like South Africa and Nigeria and the transition economies, such as Russia and the original Soviet Republics have undertaken remarkable privatization programs due to their perceived benefits in boosting GDP growth. Therefore, it is apparent that it was after the

British conducted successful privatization efforts that other countries, including South Africa,

Russia, and Japan integrated it into their plans.

Objectives of Privatization

ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 8

There are many reasons the government participates in privatization. This section highlights the objectives of privatization. One of the reasons is the desire to transfer risk from the public sector to the private sector. Another reason for privatization is to reduce cost trough cost sharing. Privatization is also seen as a new source of revenue and a strategy for guaranteeing the provision of a high quality service. In addition to the above, some governments also consider privatization as a way of attracting expertise that may not be available within the government.

Other objectives of privatization include the flexibility that is provided by the public sector the timeframe upon which a project is to be completed.

Cost reduction

Many governments consider outsourcing operations because of their potential cost savings. According toCommission on Government Forecasting and Accountability (2006), private sectors are capable of conducting similar functions conducted by the government at a lower cost. This is because they are not constrained by restrictions on the collective bargaining and the service system agreement.

Risk Transfer

Another objective of privatization is to transfer risk from the public sector to the private sector. As Government Forecasting and Accountability explains, the government is always willing to transfer the risks of particular projects to the private sector through transacting with the government. In the transactions, the private sector acquires monetary rewards for accomplishing the services while at the same time taking the risks that come with the delivery of such services. In certain instances, the private sector sometimes faces what is known as capital finance risks in circumstances where they agree to finance a project jointly. By striking an agreement to the above forms of deals, the government indirectly transfer the risks to the private ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 9 sector.

Source of Revenue

Most governments consider privatization because of its ability to generate revenue. The

Commission on Government Forecasting and Accountability posits that the government as a new source of revenue may use a lease of the sale of public assets. The leasing or selling or toll bridges, roads, buildings, loan portfolios, and lotteries provide huge revenue to the government.

Quality service

Another objective of privatization is to boost the quality of services delivered. The private sectors are capable of providing high quality services at a similar cost that the public sectoroffer. While the government may be willing to provide quality services to the public, they might not be in a position to accomplish this objective. As a result, they consider privatizing the sector.

Expertise

In addition to the above objectives, lack of expertise is another reason why the government may consider privatization. Private entities may be in a position to hire expertise that the government is not able to afford to offer in-house services. Some of the expertise that are regularly contracted include engineering and architecture for construction and building. Other objectives of privatization are to ensure timeliness and flexibility in service delivery.

Flexibility

Another important objective of privatization is flexibility. Because of the collective bargaining agreement, the public sector is unable to hire, as well as, release employees as the private sectors could do. In this respect, private contractors are very capable of coping with seasonal demands of certain projects that are labour intensive in certain parts of the year, and less ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 10 in some parts of the year. Therefore, such arrangements enable the public sector to finish projects without cost hiring, hassle, or firing employees.

Forms of Privatization

There are different forms of privatization. According to Gilroy (2010), there are different forms of privatization. They include contract, divestiture, and franchises. (See Figure 1.1).

Contract:

Gilroy argues that contract is the most common form of privatization. He opines that it occurs when the public sector or the government contracts services from the private sectors for profit or non-profit to deliver public services, such as custodial services, road maintenance, water system operations, and fleet maintenance among other services. Regularly, local governments contract the public firms to deliver administrative support functions, such as accounting, information technology, and human resources. Besides, the local governments are now using the so-called “bundled” service contracts, which incorporate more responsibilities and functions into one contract, such as outsourcing a whole city public works sector.

Divestiture:

Another form of privatization is divestiture. This is a form of privatization in which the government entirely handover of an activity, service, or an asset to the private sector through outright sales. The local governments regularly sell off underutilize or aging buildings, land, and equipment, by getting them back to the private commerce where they can be used productively.

For instance, the New York City in the late 1990s sold two radio stations and a television station that was under the ownership of the city. They also sold an Orange County. Such privatization generated over $300 million through asset sale-leaseback and real asset sale arrangements for eighteen months. The reason for selling these properties was to help the government recover ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 11 from the collapse into bankruptcy that happened in 1995.

Franchising:

Besides contracts and divestiture, another form of privatization is franchising, which also known as leasing. In this arrangement, the government characteristically awards a private firm an absolute right to offer run a public asset or offer a public service in exchange for an annual lease payment, subject to the set performance expectations required by the public sector. Common utility services in many jurisdictions, including gas, telecommunications, and water are always delivered through long-term franchise agreement (Gilroy, 2010). Privatizations that are franchise-based sometimes entail privatization of the existing government asset, including wastewater plant, toll road, and the airport.

In addition to the above, Commission on Government Forecasting and Accountability. (2006) also identified different forms of privatization, including privatization of operations, complete privatization, and open competition.

The complete privatization is a form of privatization where a private sector is granted an exclusive right over a government asset. This implies that the private sector has the outright right to sell a government property. Besides conferring assets, it also grants other related ownership responsibilities to the private sector. Another form of privatization is the privatization of operations. It entails turning over the operational and managerial responsibilities of the facilities that are publicly owned to the private sector firms. This form of privatization is majorly seen while running concerts and sports. Under the arrangement, the private sector is anticipated to generate revenue through various ways, including a collection of fees from customers. A typical example of privatization of operations is in the New York City. For instance, the baseball team managing the facilities, though run by the New York City Department, manages the sports ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 12 stadium in this city.

Figure 1.1: Privatization Forms and its Functions:

The form of privatization The function of the form

Contract Is the most prevalent and a convenient way to

preforming government services. Example of this

form is contracting entire city public works.

Divestiture A government gets out the asset of entity for

short time or forever. Example of this form

would be Orange County in 1995 sold real assets

to recover the bankruptcy.

Franchising Transfer the authorities of the public entity to a

private firm to offer public services with annual

returns to the government. Examples are

Telecommunication and electricity services.

Theories of Privatization

There are different theories that argue the privatization, including institutional, contingency, agency, and the transactional cost economics theory.

Contingency Theory

According to Carter (2013), contingency theory argues that the policy makers must be able to correctly interpret the environment, as well as, maintain fit through changes. Concerning privatization, Carter contends that a country’s social norms, culture, and resources, as well as, external (geo-political coalitions and global competitions) are critical constraints in the form of privatization a country is pursuing. Such environmental factors pile great pressure on the ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 13 country’s economic, political, and social subsystems. The theory holds that privatization decisions that are based and justified on welfare ground ought to mirror the norms of cultural, social, and political domination. The scholar further noted that the uniqueness of the country’s environment calls for privatization policy makers to absolutely consider the political, economic, and social environment, as well as espouse experimentation contingent upon the environment.

(see Figure 1.2).

Country's Internal Culture - social norms Enviroment - current resources

Contingency Theory

Country's external Global Competitions- Enviroment Geopolitical Alliance

Figure 1.2: Contingency Theory:

Agency Theory

Besides contingency theory, as Eisenhardt defines agency theory is about the dynamic function of an organizations in the relationship between the agent and the principal. Also, it fails into two stages that share mutual concept which about people and entities )Eisenhardt ,1989). In the case of privatization, the government becomes the principle while the privatized enterprise the agents. Based on this theory, for privatization to be successful, there must be a good working relationship between the government (principle) and the privatized enterprises (agents). This theory holds that all privatized organizations have their respective objectives that majorly focus on the maximization of shareholder’s wealth and profit. According to Eisenhardt, the principal- agent problems arise whenever the there is conflicting goals, and varied risk preferences between ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 14 principal and agent.

In order to manage the principal-agent relationships existing between the private firm and the government, the government ought to write absolute contracts, including regulations and laws that not only sufficiently protect the public interests but also deters the privatized firms what is known as opportunistic behaviours. Moreover, relevant existing regulations and laws that apply privatized firms ought to specify the privatization deal, as well as, the enforcements of contracts. The agency theory also assumes that people are risk aversive implying that privatized firms presumes a higher costs or risks for engaging in the opportunistic behaviours against the government, particularly in cases where effective control and monitoring mechanisms are put in place.

Institutional Theory

The institutional theory depicts large institutional structures, such as government agencies, organizations, and countries as rational coherent autonomous actors (Carter, 2013).

Their behaviours according to this theory are guided by social structures, including culture, law, and norms (Carter, 2013). In the case of privatization, the policy makers from the government under the guidance of the laid down social structures can rectify the market failures through legitimization and institutionalization of privatization. The theory holds that the success following the implementation of a first round of privatization, highly likely to contribute to embracing the program in the subsequent rounds while failure leads to the other alternatives.

Against this backdrop, it is apparent that efficient and effective institutional system is vital to the success of any privatization deal. Carter gave an example of the sale of Chile Telecom where he opined that in such a deal, the labour, consumers, buyers, and the government, all benefited.

Besides, the productive efficiency of a company escalated due to the well-developed and ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 15 administered regulatory framework. Therefore, putting in place robust institutional framework is a step in the right direction as far as ensuring that privatization succeeds is concerned.

Transaction Cost Economics Theory:

Another important privatization theory is the Transaction cost economics (TCE). The theory describes an entity as an efficiency-inducing administrative instrument, which promotes exchange between the economic actors. From the perspective of this theory, privatization refers to an economic exchange whereby the sum of operation cost and total transaction ought to be minimized. Therefore, it is imperative to analyse the transactional cost of privatization before making the decision on whether to go the privatization way or not. The TCE theory presumes that people are bounded self-interested and rational. The theory maintains that when facing enforceable outcomes and uncertain environment, privatization, bounded rational policy makers often tends to find it extremely difficult to design or develop a perfect privatization program, write an absolute regulations and contracts, as well as, effectively monitor the program.

Best worldwide Practices of Privatization

Privatization is a global trend that is increasingly taking shape because of its perceived benefits, such as increased efficiency, cost reduction, delivery of quality services, a source of revenue, and expertise among other factors. Goldstein (1997) posited that the extent and method of privatization depends not only the prevailing state of the economy but also the regulatory and legal system existing before the privatization program is undertaken. According to Sappington and Stiglitz (1987), as cited in the Goldstein (1997), privatization is known to influence the cost involved in government interaction in the decisions made by the firm. Therefore, for countries like the United Kingdom and the United States of America that have already developed a market economy, as well as, established regulatory and legal frameworks, an emphasis of the ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 16 privatization is to lower political influence on business decisions through the transfer of the state assets to into a private economy. In this respect, it is apparent that establishing an operational legal and regulatory framework constitutes a best practice towards privatization.

The voucher privatization is one of the legal mechanisms used in some countries to successful privatization efforts. Some of the countries employing the voucher system in their privatization effort include The Czech Republic and Albania. Goldstein (1997) contends that under the voucher schemes system, vouchers are specifically used in auction to ascertain the preliminary distribution of shares of the SOEs. Boycko et al. (1994) as cited in Goldstein writes that many countries have used the method, including Mongolia, Czechoslovakia, Russia, and

Lithuania. Because of using the vouchers in auction, the original compositions of the citizen’s final endowment shares differ depending on an individual’s bid during the action period.

According to Goldstein and Gultekin (1997), one of the major problems with the voucher auctions is that the cost of setting the voucher auction mechanism is the dead-weight loss to society following the completion of the process. Goldstein argues that the voucher system calls for the creation of a new additional market, bidding market, the sunk cost, and therefore, worthless as long as the auction process is terminated. A higher fixed cost entailed the voucher system, including the cost of educating the populace, designing such system, and the creation of a proper infrastructure in the bidding process.

Another best practice for privatization is formulation of relevant policies to ensure prudence in the privatization effort. Factually, privatization is expected to boost effectiveness and efficiency in the provision of services. However, without appropriate policies, privatization is unlikely to achieve its intended objectives. Against this backdrop, the best worldwide practices of privatization should include setting robust legal and regulatory framework, and ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 17 setting policies that ensure that it specifically meets its intended objective.

Best-Succeeded Model of Privatization

Countries across the globe have pursued different models of privatization based on the political ideology of the political party in power and the original conditions of the country’s economy. The fact that one model is suitable for one country does not necessarily mean that it is suitable for all countries. The privatization process is easy for small institutions but very complex for larger enterprises. Therefore, for any country’s privatization efforts to be successful, the most suitable model must be adopted. This section explores the most suitable model of privatization for Saudi Arabia, specifically focusing on Singapore and Malaysia experiences.

First Appropriate Model of Privatization (Singapore)

The first appropriate privatization model for the case of Saudi Arabia is Singapore. As

ChweeHuat (1990) puts it into perspective, it is apparent that the 1950s and 60s witnessed a direct government involvement in economic growth and development among developing countries. During this time, the public sector enterprises were formed in large numbers for purposes of stimulating economic growth and development. Nonetheless, ChweeHuat opines that following two-decades of experimentation, many public enterprises have completely failed to realize their set objectives. These public enterprises required huge volume of subsidies, in the process becoming a big financial burden on the side of the government. As a result, interest has been drawn towards privatization as an option for economic development. ChweeHuat describes privatization as a global interest in lessening direct government involvement in economic growth and development through improving the scope of private ownership. The need for privatization is to embrace superior economic growth and the need for a lesser government intervention.

According to Bhakti (2014), privatization is a robust tool for restructuring state owned ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 18 enterprises (SOEs), as well as, the engine for economic growth and export earnings. He describes two effects of privatization as coping with economic efficiency and high industrialization efficiency. Since it initiation, the government of Singapore has remained committed to initiating programs that could stimulate economic growth in the country to bring about higher standards of living. One of the strategies the government of Singapore adopted to stimulate economic growth was rapid privatization of the government sectors.

Such privatization efforts were meant to compel the government to withdraw from commercial activities that were no longer required to be pursued by the public sector.

Privatization was also to deepen and broaden the Singapore stock market not only through introduction of new counters but also realization of more shares within the existing counters. The

Singapore government directed that many government companies were to be privatized through by putting in place sufficient control, monitoring, and direction. Therefore, Saudi Arabia can consider integrating the privatization model employed by the Singapore government to realize its privatization objectives.

Second Appropriate Model of Privatization (Malaysia)

In terms of privatization, Malaysia is among the first few developing countries to have executed large-scale privatization programme targeting public enterprises. According to

Dholakia, & Dholakia (1994), its Prime Minister originally announced Malaysia’s privatization policy program in March 1983. The approach mirrored news approach, which signaled the intension of the government to reduce its presence considerably in the economy, allows the economy to be governed by the market forces, and to reduce the scope and level of public spending. In Malaysian model, the objective of privatization was to enhance productivity and efficiency, relieve the administrative and financial burden of the government, attain national ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 19 economic policy targets, facilitate economic growth, and reduce the presence and size of public sector within the economy. Malaysia employed different privatization methods for the process to be successful.

One of the methods employed was lease of assets; encompasses the transfer of rights to use assets for a given period in return for payment. Another method used was management of contract, which involved contracting the private sector managed expertise to guide the management of government entities for a certain fee. Management contract encompasses the transfer of management responsibilities. A pertinent example of this type of privatization involves the management of water treatment plant. Another means of privatization employed by

Malaysia is known as Build-Operate-Transfer (BOT) and Build-Operate (BO). The BOT method is applicable for privatizing new projects, which includes water supply projects and roads. The

BO, though similar to BOT does not necessarily involve the transfer of facility to the government. Additional methods employed included sale of assets. Therefore, the fact that

Malaysia and Saudi Arabia falls under the same level implies that Saudi can employ the privatization methods employed by this country to execute successfully their privatization efforts.

Unsuccessful Experiences of Privatization

Not all privatization efforts are always successful. Some privatization initiatives may not be successful because of one reason or another. For instance, employing a wrong privatization model that does not fit the prevailing economic circumstances of a country may lead to unsuccessful privatization. However, most developing countries always tend to adopt a privatization program that mirrors the western model. A research study by King demonstrated how radical economic policy developed by western economists placed the former soviet states on ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 20 the path to corruption and bankruptcy.

A study by King (2012) demonstrates that the privatization programs adopted by former

Soviet states never achieved what they were intended to achieve but instead led to corruption and economic failure. The western economists had developed the mass privatization program. The program was indeed a radical one and geared towards largely privatizing large parts of the country’s economies of countries, such as Russia during early 1990s. The International

Monetary Fund, The European Bank for Reconstruction and Development (EBRD), and the

World Bank played a significant role in pushing for the integration of the policy. The aim of these institutions was to foster swift transition to capitalism prior to the soviet sympathizers seizing the reins of power.

Rather than experiencing an economic boom, many ex-Communist countries that adopted the mass privatization program experienced severe recession that was at par with the Great

Depression of Europe and the United States in the 1930s. In fact, researchers have not been able to ascertain why skyrocketing poverty and economic collapse was experience in certain countries like Russia and not in others like Estonia. However, such difference is attributed to the adoption of the wrong privatization program that does not fit the countries’ prevailing economic circumstances.

King (2012) described privatization as a popular treatment for different economic inefficiencies, such as graft, corruption, and market distortions. King organized privatization failure into three major pitfalls. The first pitfall is the “muckraking syndrome” that entails compiling a list of the alleged criminal activities. While it is considered an interesting exercise, it lacks in theory, implying that it provides no valid policy lessons. The second pitfall rests on the insignificancy of the entire topic. The fact that government manages privatization implies that its ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 21 failure is a consequence of government failure. Though privatization is aimed at deterring government failure, in most circumstances, the government ends up corrupting the entire system for their selfish gains.

The third pitfall according to King is the checklist approach. This is determined by counting the indicators for failure and finally deducting the numbers for non-failure. Therefore, privatization failure can be because of failure in regulation, in method, failure in outcomes, and finally, failure in processes. To overcome the above documented failures, proper planning is inevitable. Based on these assertions, selecting the most suitable privatization model and proper planning are the keys to successful privatization. The failure of privatization in countries, such as

Russia was because of adopting a wrong model that never fit its economic system. In this respect, Saudi Arabia must conduct extensive research to ensure that it adopts the most appropriate privatization model.

Economic Growth and Privatization

Economic Growth:

There is no universally accepted definition for economic growth and development because of many definitions presented by authors. The term economic growth refers to an escalation, in terms of capacity of the economy to produce services and goods within a certain period. Nitisha asserts that in the context of economics, economic growth describes a long-term expansion in the country’s productive potential to meet the wants and needs of individuals within society. Sustained economic growth can significantly positively affect a country’s national income, as well as, level of employment, in the process resulting in higher standards of living. In a country, economic growth is measured through comparing the country’s level of Gross

National Product (GNP) of the current year with one of the previous year. Critical analysis of the ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 22 weaknesses and strengths of an economy makes it very possible to analyze comprehensively a country’s economy. Growth occurs when the number of people in a workplace escalates, when there is a discovery of new metal deposits and minerals, escalation in capital and machineries, and when there is an improvement in technology.

Economic Factors and its Impact on Privatization:

There are many economic factors influencing privatization, and eventual economic growth and development. Technological development is one of the factors influencing economic growth and development. In particular, technology entails the application of production techniques and scientific methods in production. As Nitisha puts it, technological development helps in escalating organizational productivity using scarce resources. In this 21st century, technology is the main driver for economic growth and development. Countries that have heavily invested in technology always experience rapid technological development compared to focus less on technology. It is also important to note that the selection of a right technology is central for economic growth while inappropriate technology results in higher production cost.

Another factor promoting economic growth and development is capital formation. In fact, capital formation not only promotes economic growth and development but also provides the foundation that promotes privatization. Nitisha describes capital formation as involving building, land, power, machinery, medium of communication, and transportation. Capital formation escalates the availability of capital per worker that further escalates capital/labor ratio. The productivity of labor escalates, ultimately resulting in an increase in growth and output of the economy. The human resource is another incredible factor fostering economic growth and development. The quantity and quality of the available human resource directly affects economic growth and development of a country, hence must be considered. The success of any ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 23 privatization effort depends largely on the quality of the human resource. Some of the factors influencing the quality of human resource include creative abilities, skills, education, and training.

Natural resources also constitute factors affecting economic growth and development.

Natural resources encompass resources, which are produced by nature, beneath the land or on land. Resources on land encompass landscape and water resources. On the other hand, resources that are underground or beneath the land include natural gas, oil, non-metals, metals, and minerals. These resources make privatization possible, and at the end, positively affect economic growth and development. Shukurov, Maitah, and Smutka (2016) documented different factors promoting economic growth. They included investment in employment growth and education.

Additional institutional components that were specific to transition process, including small- scale privatization, capital market, and the private market development are critical determinants for economic growth and development.

National Center for Privatization

The National Center for Privatization refers to a body in Saudi Arabia tasked with the responsibilities for executing the privatization of selected government entities. Such effort is part of the Saudi vision 2030 blueprint for its economic future. The mission of this organization is to facilitate privatization efforts in the Kingdom of Saudi Arabia through provision of assistance in the formulation of regulations, creation of suitable privatization frameworks, and preparing government entities that have been identified for privatization to be successful. The organization is involved in the creation of privatization pipeline that includes proposing government functions, sectors, and organizations that are either to be privatized or enhanced through public- private investment. The organization is also in charge of developing effective and efficient ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 24 privatization processes, which specifically targets entities for successful privatization. The

National Center for Privatization provides different expertise, including financial, legal, strategy, advisory, marketing, risk management, and human resource management. The vision of this organization is to be the center of excellence as far as the Kingdom of Saudi Arabia (KSA’S) privatization program is concerned. The core values include sustainability, flexibility, efficiency, value creation, and productivity.

Saudi Arabia in the Contexts of Privatization

Saudi Arabia has already drafted vision 2030 reform plan, which is anchored on the success of ten critical programs, including privatization. As already noted, oil reserve is increasingly reducing, and the efficiency of services and productivity of sectors, such as education, healthcare, and the transport system are at stake. Therefore, the government is doing everything possible to regain the country’s original economic glory. The government has put in place an effective regulatory framework to fully satisfy their privatization efforts. The reasons for the regulatory framework is to protect the consumers from the possibility of exploitation from those running as a monopolistic business, to protect investors through regulation of the economy, and to encourage higher productivity, as well as, escalate competition among different companies within the sector. Besides setting an operational regulatory framework, creation of a suitable climate for successful privatization program is also critical. Three major critical components of the environment include the human resource development, the capital market, and the regulatory environment.

Economical View:

According to Aleesa, in the Middle East, Saudi Arabia remains the largest economic market after undergoing rapid transformation from pastoral and agricultural society to regional ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 25 and even global economic power. The Oil discovered in Saudi dissert in 1936 propelled the country to among the top richest countries globally. Therefore, for long, the country’s economic growth and development has largely depended on oil production. Nonetheless, the oil prices is gradually decreasing, hence significantly lowering, and hence negatively affecting their economic growth and development (Mekay, 2017). As a result, they are privatizing most of their publicly owned services to boost their economic growth. According toMekay the Saudi government aims at escalating non-oil revenue to nearly $120bn by 2020 through privatization.

Most of their publicly owned services are to be privatized by 2030 to boost gross domestic product (GDP) growth.

Political View:

Successful privatization effort requires good political will. Therefore, whether privatization succeeds or not depends on the ability of the state to create the physical and social infrastructure that economies need to operate effectively in a competitive environment and the required regulatory framework among other factors (Middle East Journal). Privatization is part of the country’s ten programs geared towards the realization of the Saudi’s vision 2030. The political class has already set the required regulatory and legal framework to ensure successful implementation of the intended privatization programs by 2030.

Legal View:

Legally, Saudi Arabia is a complete hereditary monarchy, mostly dominated by the Al

Saud family. Therefore, there are no elections in Saudi Arabia. The Kingdom is not only the head of the government but also responsible for assigning a Crown Prince, second in line to the throne (Aleesa, 2014). For privatization to succeed there should be a robust legal and regulatory framework laid down by the leadership. The country understands that privatization will ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 26 significantly boost economic growth and development of the country, and therefore, must lay down a good legal and regulatory framework to tap into the economic benefits that come with privatization. Without a functional legal and regulatory framework, privatization is unlikely to yield what it is anticipated to in the Kingdom of Saudi.

Social View:

At the crux of Saudi Arabia’s reform programs is the society. The leadership of Saudi wishes to see its citizens enjoy a healthy lifestyle, good quality life, and an attractive living environment. As the vision, 2030 is implemented, including privatization of the various public enterprises, remarkable changes are likely to be witnessed within the public level (Al Sabban,

2016). Privatization will not only enhance the effectiveness and efficiency with which services are provided to the citizens, but also boost productivity, hence escalating the living standards.

Social Issues and Privatizing Social Services

The government of Saudi Arabia values its people. Therefore, most of its social services, such as education and healthcare are offered free of charge. The government has heavily invested in the production of qualified human resources and use of appropriate technology to ensure delivery of quality healthcare services. In fact, the Ministry of Health and other government agencies have established many healthcare facilities across the country. The government is also encouraging greater private sector involvement through provision of long- term interest free loans for purposes of establishing more clinics, hospitals, and pharmacies. The leadership of the country believes that investing in its people by offering quality education is a step in the right direction because it guarantees economic prosperity and sustainability. The government has assured its citizens that education and healthcare services will continue to be free despite the wave of privatization that is presently sweeping the country. ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 27

Current System of Healthcare in Saudi Arabia

In the Kingdom of Saudi Arabia, healthcare is generally free. According to Royal

Embassy of Saudi Arabia, the country has strived to implement a modern health care system, which is known to offer free care services to the public, as well as, some of the most multifaceted specialized care. The government has also been sponsoring many social services programs geared towards making sure that every citizen earns a decent living standard. Prior to 1932, before the establishment of the Kingdom of Saudi Arabia, the local healers offered health care.

The first initiative taken by King Abdulaziz was to provide free health care for both the citizens and the pilgrims who came for purposes of visiting the Islamic holy sites. Health care initiatives spearheaded by the Kingdom saw the setting up of medical facilities across Saudi Arabia in a short period that led to the eradication of epidemics, such as smallpox and malaria. The system of healthcare also contributed to a significant reduction in mortality rate and a rise in life expectancy. The Kingdom of Saudi Arabia Health care system has also benefited profoundly from the government five-year development plans, which was first initiated in 1970s. Such plans foster development in different areas, such as commerce, agriculture, transportation, industry, education, communication, and health.

Presently, the ministry of healthcare together with the other government agencies has established many healthcare facilities across the country. Additionally, the government is encouraging greater involvement of the private sector through provision of long-term interest free loans. This offer is to encourage widespread establishment of clinics, hospitals, and pharmacies. The Kingdom is not only focused in the delivery of free healthcare services but also ensuring that health care services offered meets the set quality standards. There is no discrimination in the delivery of healthcare and every person; including the disables have the ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 28 right to access quality healthcare. Despite moving towards privatization of the country’s healthcare facilities, the ministry has reiterated that they will continue to provide free-quality healthcare to the citizens.

Privatization of the health sector will contribute towards restructuring the government and the economy, hence in the process-enhancing healthcare services (Hamed, 2017).

Nonetheless, Alkhamis (2017) contends that there exist weak evidence, as well as, low scientific validity supporting the assertion that privatization can significantly escalate accessibility to medical care. He further opines that before going full privatization, Saudi Arabia should consider reforming its healthcare financial, including efficiency and auditing. He also suggest that following privatization, one should develop a policy to ensure most vulnerable populations can access quality healthcare while at the same time controlling costs for the care providers.

Current System of Higher Education in Saudi Arabia

The higher education sector in Saudi Arabia has witnessed unprecedented rise in privatization efforts. As Lavine puts it, six forces are presently spurring privatization in higher education sector. They include changes in demographics, rise in an information-based economy, advent of new technologies, escalation in public scrutiny, decline in the public trust in government, and the convergence of knowledge-based organizations. Lavine opines that the governors can help address the above problems by helping to eliminate overlap, define student’s achievement, academic quality, ensuring accountability, duplication, and efficiently making use of the capacity of the private providers to enhance the quality of learning in postsecondary.

The Saudi Arabia government believes that the citizens constitute the true wealth of the nation. The prosperity of any nation’s economy depends on the ability of the country to not only manage its existing resources but also identify and develop new ones. The Kingdom of Saudi ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 29

Arabia remains steadfast to ensure that its people are equal to the task of meeting the developmental needs of the country. In this respect, the government has devoted huge volume of resources to programs that cover the primary, secondary, and higher education. All developmental plans of the kingdom take into consideration the educational aspirations of its people by providing free education to all. The Kingdom has expanded the system continuously and systematically to accommodate the growing demand for educational services by ensuring delivery of quality education for all people.

ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 30

Chapter Three: Program Proposal

1. The best-suited model of privatization for the case of Saudi Arabia.

2. Examines the adoption of existing healthcare system.

3. Highlights the factors promoting economic growth via privatization.

4. Based on the privatization experiences of other countries, the study explores the factors

that are likely to negatively affect successful privatization or make it to fail.

The Best-Suited Model of Privatization

From this study, only two models, Malaysia and Singapore were proposed. This section expounds on the best suited model for privatization in the case of Saudi Arabia. As a matter of fact, the Singapore model squarely fits the case of Saudi Arabia, hence justifying its choice in this context. The privatization in Saudi Arabia was not only meant to facilitate the transfer of public ownership to the private sector, but to also boost the operation efficiency of the country.

Therefore, the model used by this country rested on the prevailing economic circumstances in the country, as well as, a suitable method that could be used to realize the goals of privatization, including promoting robust economic growth and development.

The country progressively divested itself of the so-called loss making functions of the government through constantly transferring the state of ownership from public to the private.

Some of the areas where privatization effort will commence include subsidizing health care and housing, hence in the process transferring the management of these public institutions to the ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 31 private sector. Therefore, with time, the government should privatize all major sectors of the economy, including the transport industry, health care, and any other bigger industry in the country. For instance, privatization of healthcare sector as was done in Singapore will ultimately boost the quality of health care services offered. Likewise, privatization of the public transport sector would results in effectiveness and efficiency of this industry as far as transport is concerned. In this model, the government simply plays the role of either the director or overseer of the wider range of privatized social, private, and the business institutions. Following this model will see Saudi Arabia successful in its privatization attempt. Therefore, just like

Singapore, the government should privatize public institutions, more so the bigger ones such as health to widen their competitive advantage both locally and internationally. Monitoring organizations and institutions that have been privatized is a step in the right direction as it will guarantee success. Against this backdrop, since Singapore succeeded in its privatization efforts by using the above described model, it is clear that Saudi Arabia will most likely be successful because the two-economies are more or less the same.

To successfully implement the program proposal using the best-suited model of privatization, it is imperative for the government and National Center of Privatization to working in tandem with targeted ministries involved to consider the following:

Prepare a favorable Legal Environment:

One of the steps that must be taken by the decision makers in Saudi Arabia is to invest effort to ensure that robust legislations for privatization are established. These legislations must be clear not only to the government but also to the investor. Privatization laws provide authority to not only the government agencies but also make clarification about the right of the investors, both foreign and domestic to participate in the privatization effort. Other laws, including capital ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 32 markets and corporation’s laws, support such privatization laws. As Mullan and Ceddia (2003) opine, laws about privatization offers procedural requirements and authority to ensure that transfers are done in a responsible and transparent manner. Undoubtedly, laws shape institutions.

Therefore, those institutions that always serve public purposes like in this case are anchored on public law. Therefore, for the government of Saudi to ensure successful privatization effort, they must ensure that robust and relevant legal framework is put in place. Hamm, Stuckler and King

(2010) posit that the quality of any system, particularly the public law relates to enforceability, clarity, and commitment, and that should be done by the government of Saudi Arabia.

Megginson (2006) documented benefits of privatization laws. They include defining not only the objectives of the government but also establishing commitment to the privatization processes. Megginson also advised on the need to create institutions with authority of implementing privatization, amend the existing laws that could be an impediment towards successful implementation of the privatization laws, allow financial restructuring of the enterprise prior to sale, and providing allocation for the sale proceeds.

Against this backdrop, it is clear that robust legal framework is necessary for successful privatization. There is a need to develop a well-developed legal framework of governance that not only market operations but also regulate sales. As Estrin et al., (2009) highlight, international experience and best practice requires that privatization programs, process, and institutional framework be underpinned using primary legislations. Estrin et al., argue that the adoption of privatization legislation offers political legitimacy to privatization, in addition to giving or offering legal authority to acts on the specialized unit.

Instituting a legal framework is crucial because it lays ground for enforcing the contracts, ensures that the minority shareholders are respected, conflicts are resolved in good time, and for ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 33 the above all, proper regulation of the transactions between the economic agents. Guislain (1997) documented some of the important factors that ought to be addressed while preparing for privatization. They include how laws on property rights are enforced and defines, the constraints in the transfer of property rights, how efficient is the judicial system, any restrictions on foreign ownership, and how individual’s rights ought to be protected. In conclusion, where the legal framework is properly constituted, privatization effort is most likely to be successful.

Focused on Ready and Capable Entity to Privatized:

In addition to putting in place a robust legal framework, it is also important to focus only on ready and capable entities for privatization. While there are different, government owned entities in Saudi Arabia awaiting privatization not all are ready and capable. Focusing on entities that are not ready and capable would be a waste of time and resources. In this regard, the government and the involved entities should solely focus on ready and capable entities. The first process after building robust legislations setting is to focuses on one entity to privatize. This program proposal suggests the need to start with entity that offer service to public like

Pharmaceutical Services, and that through franchising or “leasing” in short term the private entity will take care of all pharmaceutical service with annual revenue. Focusing on ready and capable entities would be a move in the right direction because it would promote faster and proper privatization.

The Adoption of Healthcare system

Saudi has implemented a modern health care system, providing free care services to the public and specialized care. The government has also been sponsoring many social services programs geared towards making sure that every citizen earns a decent living standard. Prior to

1932, before the establishment of the Kingdom of Saudi Arabia, the local healers offered health ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 34 care. Even as the government, privatize the healthcare sector, it should implement a robust control and monitoring plan to ensure that quality standards are met. Monitoring and control will also ensure that quality healthcare services are offered free of charge as has always been.

As Liu and Haseltine put it, the Singapore healthcare system is made of different components. The first component is the government, which is responsible for building, planning, and developing the country’s public health care system. The government regulates both private and public enterprises in the country. The Singapore Ministry of Health administers the country’s health care system. It assesses the quality of health needs for purposes of planning and delivery of services through network. The ministry also ensures that governance and financing policies are integrated into the public health care system. Singapore provides universal health care coverage that is based on affordable health care for all and the individual responsibility.

The Singapore health care system is among the few systems known to offer quality health care globally. Already, health care is privatised, and perhaps, that is the reason why it is meeting the quality standards required. Therefore, Saudi Arabia should adopt this system by ensuring privatization of the entire health care to deliver quality health services to its citizens.

Offering Healthcare Insurance to all Citizens:

In the Kingdom of Saudi Arabia, healthcare remains one of the major critical areas that the government has given priority. In fact, the government has been offering free health care through its various agencies. The private sector role in healthcare is increasingly gaining prominence. Currently, people fear that privatizing the health care sector implies that the citizens will be charged on any healthcare service they receive. Therefore, the first step to avoid the conflict and resistant from citizens against privatizing the healthcare industry, it is imperative to offer healthcare insurance to the entire citizens of a country. Doing so will attract people ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 35 towards the new system, hence creating an enabling environment for privatization, that is free from possible interference.

Experts have asserted that the move to privatize the health sector and introduce comprehensive insurance systems among citizens was geared towards both the national economy and the public sector with the sole objective of enhancing the quality of health services.

Therefore, the principal objective of privatizing the health care sector was to improve the quality of services offered. A health insurance expert by the name Dr. Tariq Al-Fayez contended that privatizing the sector of health would not only contribute towards enhancing the healthcare services but also restructuring the economy. Against this backdrop, allowing free insurance cover is a step in the right direction and would enables citizens to access quality healthcare irrespective of their background.

Operate Health Care Services:

The ministry of healthcare in Saudi Arabia has been categorical that healthcare will remain free for the entire citizens even after privatizing healthcare sector. It has denied many press reports that have indicated that the ministry was planning to charge a fee from citizens while at the same time offering health services through public hospitals. The ministry of health in the country is planning to privatize its entire health services through the so-called National

Transformation Program 2020. Such efforts are intended to escalate the contribution of the private sector, in addition to altering government hospitals to semi-companies.

Despite the significance of privatization, it is imperative for the government of Saudi

Arabia to consider monitoring the privatization efforts while it is still in its early stages to ensure that citizens receive high quality healthcare. Health is extremely critical to human beings; hence, the government must do everything possible to ensure that citizens receive high quality health ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 36 care services. In this regards, it is imperative that they operate health care services to guarantee the provision of high quality care services. The move by the government to privatize healthcare will help to lower government expenditure on healthcare, enhance internal systems to monitor health service, enhance performance, as well as, expand the contribution of the private sector towards strengthening internal economy.

Factors Promote Economic Growth Via Privatization

For Saudi Arabia to experience a robust economic growth via privatization, it should heavily invest in quality human resource personnel through quality education and training, capital formation, make effective use of the available resources, implement appropriate technology, and promote political stability.

Human Resource Personnel:

According to Price (2011), human resource is an integral part of economic development in the private sector because it is only through highly trained and qualified personnel that the private sector will be able to experience high productivity and quality outputs in form of goods and services. Wetherly and Otter (2013) also argue that well-trained employees help reduce production wastage thereby reducing costs and increasing profits in the private sector.

In writing, Wothington and Britton (2009) points out that the availability of investment capital in the private sector makes it easy and quicker for entrepreneurs to set up new businesses and develop the economy. Studies by Paul (2008) also confirm that countries with banks willing to give more startup loans and other forms of investment capital achieve faster economic growth than those that do not. Therefore, Saudi Arabia should consider promoting the availability of investment capital to the public for entrepreneurship and privatization to thrive.

Technology Implementation: ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 37

According to Ahmed (2017), technology enables faster service delivery and ease of business operations. Therefore, the Saudi Arabian entrepreneurs should consider adopting technology in their business processes and value chains to enable efficiency, quality, and convenient service or product delivery for customers, thereby promoting business growth through increased revenue.

Studies by Paul (2008) reveal that businesses operating in a stable political environment tend to perform better than those whose political environment is unstable. Wothington and

Britton (2009) are also of the opinion that unstable political environment makes it difficult to access suppliers besides changing the consumption patterns of potential customers. Thus, there should be a continuous political stability in Saudi Arabia if private businesses are to flourish.

Saud Arabia can Work on Promoting Economic Growth By:

Human resource personnel the significance of human resource personnel in boosting economic growth and development cannot be underestimated. Therefore, the first step to promote economic growth and development, it is imperative that the Saudi government heavily invest in building the available human capital because doing so would significantly improve the quality of the labor force. Some argue that the quality of the human resource depends on its creative abilities, skills, education, and training. Where human resources are highly skilled, the productivity is most likely to be high. Offering free training and development is a step in the right direction as far as enhancing the quality of the labor force is concerned. In fact, skilled labor force significantly affects growth and development. Therefore, to boost productivity, the

Saudi government should focus on training and developing employees by equipping them with additional skills needed to boost their performance.

Technology Implementation: In addition to the human resource personnel, another ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 38 equally crucial factor that Saudi government should consider to boost economic growth and development is investing on and implementing the right technology. Implementing the right technology has the potential of significantly boosting organizational productivity, hence economic growth. Technological developments or applications are known to escalate productivity using limited resources. Countries that have adopted the right technology and where there is a political goodwill is likely to experience robust technological advancement that directly affects economic growth and development.

Avoid Common Stumbles

There are different common stumbles that jeopardized the ability of countries' privatization effort to be successful. Therefore, Saudi Arabia should avoid such common stumbles, which included adopting the western privatization model that never fit its economic system. Other stumbles include the adoption of inappropriate technology, legal aspects, including the existing laws, and ineffective privatization policies among others. Further, the is need by the

Saudi government to enact legislations towards making the working conditions better for the private sector to be able to attract nationals (Al Rajhi, Al Salamah, Malik & Wilson, 2012).

Proposals on making better working environment seek shorter working hours, a weekend two day period for all the nationals as well as the earlier closure of the retail sector for the Saudi nationals to spend more time with their families. Many Saudi nationals opt for a more relaxed public sector as opposed to the longer hours in the private sector.

According to Niblock and Malik (2007), more legislative requirements for the government also include the establishment of labor regulations that will affect penalties or on the other hand incentives for the multinationals to hire more Saudis. The presence of employment quotas in the country makes businesses struggle due to their close monitoring. One of such ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 39 requirement is to have three Saudis in the event of hiring top executives more than seven which will be expensive as a business expands. In the implementation of this requirement, it is hard to find such a high qualified Saudi and keep him in a single firm knowing he is highly qualified(Al

Rajhi, Al Salamah, Malik & Wilson, 2012). Further, foreign workers have flooded the market, and their wages are way cheaper compared to Saudis who lack the skills to deliver on jobs. In the long run, it is the Saudi education system that has been dominated by religious studies for a long period as opposed to delivery of marketable skills.

Comprehending the Nature of Saudi Arabia Environment:

First step toward avoid the common stumbles that that are likely to negatively affect successful implementation of privatization, that the policymakers and implementers must conduct an extensive research to ascertain the nature of Saudi Arabia environment. Most countries have failed to successfully privatize due to failure to conduct research to comprehend the nature of the country settings and environment. Additionally, rationality to fulfil the privatization of all the entire sectors has also becomes increasingly pertinent in an attempt to make decisions about the rationality to full privatization in all sectors.

Many privatization efforts in some countries, such as Russia failed simply because of instituting the wrong privatization means. Additionally, they never took their time to understand the nature of the environment. Therefore, comprehending the nature of the Saudi Arabia environment is a step in the right direction because it ensures that proper environment needed for privatization is cultivated. Understanding the environment will also ensure that ideal institutional structure needed for privatization is implemented. As Guislain (1997) puts it, it is of utmost importance to define the respective roles and powers of major authorities during the privatization process. Lovei and Gentry (2002) asserted that under the right environmental conditions, ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 40 privatization could always yield plethora of benefits, in addition to contributing to the so-called sustainable development.

Rationality to Fulfill Privatization of All Sectors:

The concept of rationality has widely been explored in philosophy. By definition, it refers to the habit of acting based on reason, which implies according to the facts of reality.

Privatization is an extremely sensitive area and the actors must base their actions on reason and logic to realize its intended objectives. Factually, privatization plays a central role in promoting economic growth and development. However, that can only be realized if the entire process is based on logic and critical thinking. Formulating legal framework and deciding on the firms to privatize first requires the principle of rationality.

The rationality theory holds that human beings in their actions and decisions are as economically as possible. They base their decision on cost-benefit analysis and guided by the principle of profit maximization. Such rationality principle is applicable in all sectors while making decisions on whether to privatize or not. For instance, the decision will be based on cost- benefit analysis regarding the benefits that the country is likely to reap against the cost. Only public institutions that when privatized then the benefits will outweigh the cost should undergo privatization.

ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 41

Chapter Four: Conclusion and Recommendation

The primary objective of this study was to conduct a comprehensive assessment of the

Saudi Arabia privatization program by assessing the challenges that the policy makers are likely to experience in an attempt to integrate a successful privatization program. From this study, it is apparent that the different sectors, including education, healthcare, and transportation are important to a country’s economy, and therefore, must be able to function optimally. They must ensure continuous delivery of quality, reliable and cheap services to the public. Despite government effort to spend nearly a half of its annual financial budget in improving these sectors, they have failed to meet the required standards, hence their current inefficient state. To address these problems, there is a need to establish rapid interventions, including privatization by adopting the most relevant and appropriate privatization model to successfully privatize these sectors and enjoy the benefits that come with privatization, such as delivery of efficient and high quality services. From this study, it is apparent that the initiative to go full privatization will ensure proper management of resources and promote quality service delivery.

The study explored the best model for privatization in the case of Saudi, examined the adoption of the existing healthcare system, and looked into factors promoting economic growth via privatization. Additionally, the study emphasized the factors that are likely to make privatization fail based on post privatization experience. The study highlighted the best succeeded model for privatization, the national center of privatization, the social issues involved in privatizing the social sector, economic growth and privatization, barriers to successful privatization, and the factors that fosters economic growth via privatization.

The study also conducted a detailed review of literatures related to the study phenomenon. Specifically, the review explored the definition of privatization, historical ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 42 background of privatization, and the objectives of privatization. Additionally, it investigated the different forms of privatization, theories of privatization, and the best worldwide practices and model of privatization. Finally, it reviewed the different related factors of privatization, for the case of Saudi Arabia, taking into consideration the economic view, political view, legal view, and the social view, and current system of healthcare and education. In addition to the above, the study also investigated the best-suited model of privatization for Saudi Arabia, the adoption of the existing healthcare system, and the factors promoting economic growth via privatization.

Further, it highlighted the factors that are likely to make privatization fail based on privatization experience of other countries.

There are recommendations made with respect to this study. One of the recommendations in this study is that the Saudi government should integrate the most appropriate privatization model for their privatization efforts to be successful. Secondly, the government of Saudi Arabia should adopt privatization in order to salvage sectors such as education and health whose quality has declined significantly. Thirdly, for privatization efforts to be successful, the government should institute a robust legal and regulatory framework, as well as, a favorable environment because they are inevitable for any privatization to be successful. Fourthly, the government must closely monitor privatization to ensure that it is successful. Any deviation from the norm should be rectified in good time before they jeopardize its success.

Implementation Recommendations:

Implementation Recommendation1: The first step in the implementation is ensuring that a suited privatization model is adopted. Considering the significance of privatization in boosting the efficiency of sectors, such as the healthcare, and education, it is imperative to ensure that the most appropriate model for privatization is adopted. Many privatization attempts, including ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 43

Russia failed because of incorporation of a wrong privatization model, the western model that never rhymed with the prevailing economic conditions in the country. While researchers have not been able to ascertain why skyrocketing poverty and economic collapse was experienced in certain countries like Russia and not in others like Estonia. Such differences have been attributed to the adoption of a wrong privatization program that does not fit the countries’ prevailing economic circumstances. In this respect, it is imperative to ensure that the right model is adopted.

Therefore, to implement this recommendation, the government must conduct an extensive research study to ascertain the best privatization model. Conducting an elaborate research study will enable the Saudi government to determine a model that suits its prevailing economic situation. Additionally, the government will be able to ascertain the procedures followed in the successful implementation of the model so that it can adopt to make it successful in the country.

In the case of Saudi Arabia, Malaysia and Singapore presents a perfect model that have been confirmed beyond any reasonable doubt to be successful. In this respect, there is need to conduct a proper economic survey to assess the original economic situation of the country; before rolling out the privatization model. It is also important to have the government’s efforts and political will during the entire process to facilitate successful transition to a full-blown privatization.

Implementation Recommendation 2: The robustness of the Singapore’s health sector justifies the need for Saudi Arabia to adopt such system to boost the effectiveness and efficiency of its healthcare system. Currently, the quality of healthcare in Saudi Arabia is not only low, but also declining at an alarming rate. Therefore, to revive the original glory of the healthcare, and ensure that it satisfies its quality needs, it is recommended to the ministry of health, working together with the government should consider restructuring the system to make it operational.

The ability of any nation to guarantee a healthy society depends on the level of investment in ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 44 their healthcare sector. In this respect, to implement this recommendation, the government working in collaboration with the ministry of health should consider restructuring the healthcare sector. That can be achieved by conducting an elaborate research to ascertain what makes the healthcare system highly effective and geared towards the delivery of quality services to the consumers. The government should adopt control and monitoring of the system to ensure quality standards of the health sector even as it is being privatized in Saudi Arabia. More specifically, both the government, Ministry of Health, and the private sector should coordinate and collaborate in pre-privatization and after the privatization process to ensure that the quality of health services offered to the public is maintained and regulated. Additionally, effective implementation of the above areas should consider taking the views of the public and the legislature to ensure that it is successfully implemented. The legislature and the citizens are vital stakeholders in a healthcare system, hence must be involved in the restructuring processes to boost the quality of healthcare services delivered.

Implementation Recommendation 3: Another recommendation made was for the government to put in place mechanisms and strategies that can boost significantly economic growth and development. To promote economic growth by privatization, this study recommends the need for the government to offer a conducive business environment, including provision of affordable land, electricity, and water to stimulate economic growth in the private sector. Likewise, Saudi

Arabia’s privatization initiatives should fit the country’s economic conditions and circumstances to ensure that the program integrates well in the economy. The privatization process should be steered by a qualified expert capable of analyzing the costs and benefits of the plan so that control measures can be taken in case things are not going as planned.

Implementation Recommendation 4: The fourth recommendation is for the Saudi government to ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 45 avoid common stumbles. There exist common stumbles that endanger the ability of the privatization effort to be successful. Some of the common stumbles include an adoption of inappropriate privatization model, inappropriate technology, and ineffective privatization policies. These common stumbles have the potential to either curtail or slow down the ability of an organization to realize the intended goals for privatization. Therefore, efforts to provide a perfect environment for the successful implementation of privatization should be geared towards addressing the above stumbles. For instance, it recommended for the government to institute a robust legal framework that defines the actions of the investors and the government. They should also work in tandem with the ministry involved should institute proper policies that can guarantee successful implementation of the proposed privatization effort. Therefore, addressing the above impediments to successful privatization is a critical government undertaking.

Research Recommendation:

The significance of further research in the effective implementation of the proposed recommendations cannot be underestimated. One of the reconditions cited as being critical in the successful implementation of the privatization initiatives in Saudi Arabia include the use of the best-suited model. Searching for the best-suited privatization model requires an elaborate research. Despite the fact that at the time of conducting this study the researcher was able to unearth some successful privatization models, including the case of Singapore and Malaysia, there is a need for further research to ascertain the best ways such models can be implemented in the case of Saudi Arabia, for example, further research is needed with regard to:

1- The environment of Saudi Arabia is extremely distinct. In regard to this fact it is

imperative to exploring more privatization practices that favorable to Saudi Arabia. The ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 46

analysis of diverse experiences might allow increasing the possibility of adopting the

most viable model for Saudi Arabia environment.

2- The Saudi Vision 2030 has drafted privatization program as the main instrument to

reforming the public sector. One of the targeted agency to be privatize is the department

of social development and security. Significantly exploring the consequences of

privatizing department of social development and security on the middle class and below

is imperious.

3- The successful privatization program lies on various factors such as the flexibility of

political interferes and the availability of solid legal framework. Though one of the most

substantial phases to preparing for privatization is building a robust legal framework,

therefore it is imperative to look at the impact of Saudi Arabia regime authority on the

ability to prepare a practical legal framework. ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 47

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ASSESS THE BEST PRACTICES OF PRIVATIZATION OF PUBLIC SERVICE 51

Appendix Institutional Review Board (IRB) Letter

CSU Bakersfield Academic Affairs Mail Stop: 24 DOH Room 108 900 1 Stockdale Highway Oflice of Grants, Research, and Sponsored Programs (GRaSP) Bakersfield, California 933 11-1022 (661 ) 654-223 1 (661 ) 654-3342 FAX www.csub.edu

Human Subjects Institutional Review Board

Date: 21 August 2017 Chandra Commuri, Ph.D. Department of Public Administration To: Awwadh Muteb Almutairi, Master of Public Administration Scientific Concerns Program Student Steven Gamboa, Ph.D. Department of Phil/Rel Studies cc: Thomas Martinez, Faculty Advisor, Master of Public Nonscientific/Humanistic Concerns Administration Program

Grant Herndon Nate Olson, Interim HSIRB Chair Schools Legal Service Community Issues/Concerns From: Isabel Sumaya, Research Ethics Review Coordinator

Roseanna McCleary, Ph.D. Masters of Social Work Scientific Concerns Subject: Protocol M17-01: Not Human Subjects Research IRB/HSR Chair

Colleen McGauley, MPA Thank you for bringing your Protocol M17-01, “Program Proposal to Assess the Community Issues/Concerns Best Practices of Public Sector Privatization: Case of Saudi Arabia," to the Executive Director, attention of the IRB/HSR. On the form “Not Human Subjects Research CASA of Kern County Ack nowledgement Form?” you indicated the following: Nate Olson, Ph.D. Department of Phil/Rel Studies I want to interview, survey, systematically observe, or collect other data from Nonscientific/Humanistic Concerns human subjects, for example, students in the educational setting. NO

Isabel Sumaya, Ph.D. Department of Psychology I want to access data about specific persons that have already been collected Research Ethics Review Coordinator by others [such as test scores or demographic information]. Those data can and IRB/HSR Secretary be linked to specific persons [regardless of whether I will link data and

persons in my research or reveal anyone’s identities]. NO

Given this, your proposed project will not constitute human subjects research. Therefore, it does not fall within the purview of the CSUB IRB/HSR. Good luck with your project.

If you have any questions, or there are any changes that might bring these activities within the purview of the IRB/HSR, please notify me immediately at (661) 654-2381.

Thank you.

Isabel Sumaya, University Research Ethics Review Coordinator

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