The Aramco initial public offering, or IPO, is a big deal, but it should not be. In essence, the three-year hype of the Aramco offering will conclude with the sale of a very small portion, perhaps just 1%, of the mammoth company to a small pool of domestic investors, some bullish institutional investors and maybe a government investment arm of China. At a $1.7 trillion valuation, a 1% sale of shares would earn the government just $17 billion. (For analysis on just how far a 1% or 2% share sale goes to meet Saudi Arabia’s fiscal needs, read here.) 

The gap between the expectation and the outcome of the “world’s biggest IPO” only underscores the region’s failure to incubate and nurture new business giants. Aramco is a large and successful state-owned monopoly, forced to sell off shares to citizens and friends of the government. However, it does not inhabit a regulatory environment or rules-based economy that can make it a global, investor-owned, publicly traded powerhouse.

Across the region, the volume of IPOs of firms is low. Part of the reason is that it is difficult for businesses to grow. For most people in the private sector, they end up working in small businesses. Researchers at the World Bank find that small‐scale activities provide the majority of jobs in the Middle East and North Africa, or MENA, with some variation across countries. The share of employment in microbusinesses with less than five employees dominates the private sector in Egypt and the West Bank and Gaza, reaching almost 60%. It is significantly lower in Jordan (40%) and Tunisia (37%), and the lowest in Turkey (34%). The share of jobs in establishments with at least 1,000 employees is below 10% in all five countries. In high‐income countries, larger firms are more likely to employ a large portion of the workforce (and to train and promote them). The World Bank study on "Jobs or Privileges" compares firms' growth in MENA to that in the United States, where 48% of all employees work in firms with more than 10,000 employees. Because many medium and larger firms in the Middle East become part of a cycle of elite "state capture," they tend not to continue growing, productivity lags, and there is little reason for meritocracy in promotion.

IPOs in the Middle East fall into three categories: toxic and inefficient state-owned assets; amalgamations of real estate holdings (often via REITs, or real estate investment trusts) that do little to boost economic productivity; and the rare unicorn of a real business, which may also be partially or fully government-owned. Aramco is the latter. For investors in the Middle East, there are slim pickings. Aramco’s listing drives home the reality that citizen investors are starved of opportunities and frequently cheated by their governments.