The end of lockdowns has meant, for many, a return to sitting in traffic jams. While a source of frustration for motorists, the situation is likely only to get worse over time: Dubai’s population is set to increase by 70% over the next 20 years, and more people inevitably means more cars. This is why Salik’s IPO, announced on Monday 5 September, is not only a smart move in terms of revenue collection for government, but also holds important implications for addressing growing congestion on the roads.

The move to offer private and institutional investors an opportunity to purchase a 20% stake in Dubai’s toll road operator – equivalent to 1.5 billion shares – may have come as a surprise to some citizens, who might even find themselves questioning the Salik’s efficiencies in view of continuing heavy traffic volumes. But, as IMEA Head of Transportation and Services Practices at Oliver Wyman, I believe that it spells good news for all stakeholders.

Salik – which was first introduced in 2007 and now manages eight main toll gates in Dubai – has proved a noteworthy success from the perspective of road users and government alike.

As a highly automated system with low operating costs, it has helped bring in significant revenue for government: it currently runs at approximately 80% EBIDTA margins, making it a solid cash flow generator.

Meanwhile, road users are seeing the benefits of this cash flow in the efforts of Dubai’s Roads and Transport Authority to improve and develop the road network. For instance, revenues collected from tolls have been invested to expand roads from three lanes to six.

At the same time, the implementation of tolls means that traffic is frequently diverted to other routes as motorists try to avoid toll fees. This is, in fact, part of Salik’s strategy for addressing congestion – it’s all about incentivizing road users to drive on different roads during peak traffic periods. Similar systems are in place in many other parts of the world, from Europe to Australia and the Americas, and I have little doubt that other countries in our region will consider following suit, given Salik’s success.

Importantly, the IPO doesn’t only benefit shareholders: it is a critical part of the strategy for improving the road network for the anticipated population boom, as monies will be reinvested in operations to improve the quality of roads and introduce additional mechanisms to stabilize traffic flows.

This is key, as controlling traffic requires a multi-pronged approach. While the role of basics such as improving infrastructure and diverting traffic by implementing toll roads cannot be ignored, we also need to consider regulations which will influence road users’ behaviour. Public transport is another part of the solution, while the impact of technology should also be explored.

What’s more, as we look at ways to combine these elements in order to have the greatest impact, we need to take into account other factors such as sustainability and the effect on the environment. And that’s not all: as alternative transport options develop, we will have to find ways to accommodate them within the existing road infrastructure. Electronic scooters and cars are appearing on our roads with greater frequency, and this is certainly a positive development: users of these vehicles no doubt find it easier to navigate congestion, while they have a lower impact from an environmental and sustainability point of view. The flipside, however, is that other road users will need to adapt to the challenges that these vehicles pose – which isn’t always easy, as anyone who has had to swerve out the way of an electric scooter will aver. Road users will be tested further still when vehicles like drones and self-driving cars become more commonplace, so it’s probable that new regulations will be introduced to offer guidance for unfamiliar situations that are likely to arise, along with new technologies to handle traffic flow.

All told, I believe that Salik’s IPO move is a shrewd one. The success of DEWA’s IPO in March, which raised an initial $6.1 billion, shows that an appetite exists for such offerings; moreover, it stands to provide a welcome cash injection that will support future investments in the road infrastructure. It will, furthermore, create support for Dubai’s financial markets, and will, I am sure, get the eyes of institutional investors in the region looking towards us. We may even find that the IPO becomes a model of best practice for others to learn from, especially as other countries will increasingly find themselves grappling with similar issues.

The IPO is, indeed, a bold move – but I have no doubt that it will prove a successful one.

André Martins, Partner and Head of Transportation, Services and Infrastructure, published this article on LinkedIn on September 08, 2022.