By Nasser Alrubayyi
Managing Partner (KSA), Co-Chair Middle East & North Africa Practice, Quinn Emanuel Urquhart & Sullivan LLP
As Saudi Arabia aims to become a global hub for commercial enterprise, the ability of businesses to adapt to the rapidly evolving landscape often determines their success or failure. Giga projects like NEOM, Diriyah, Qiddiya, and the Red Sea Development Project have captured the attention of global investors and industry leaders, signaling an era of unprecedented growth and opportunity. However, access to adept legal support can make or break your commercial ambitions in Saudi Arabia, especially in the construction sector.
Shariah Law and Regulatory Frameworks
Saudi Arabia’s legal system is deeply rooted in Sharia law, which influences all commercial regulations across the Kingdom, including the construction sector. International investors should beware that contracts, business practices, and dispute resolutions may be governed by Sharia legal frameworks, which differ significantly from Western legal practices. As expected, each sovereign state has its unique set of business rules and regulations tailored to its jurisdiction.
Language barriers also pose significant compliance challenges. With Arabic as the predominant business language, many legal documents and communications with government agencies must be conducted in Arabic. This necessitates that international investors employ translators and legal experts proficient in both the language and the nuances of Saudi law.
Anti-Corruption Measures
In recent years, the Kingdom has made significant strides in combating corruption, a major concern for international businesses. According to a 2021 review by the Council of Economic and Development Affairs, the public treasury recovered 247 billion Saudi Riyals from anti-corruption settlements over the past three years, accounting for 20 percent of the total non-oil revenues.
The establishment of the National Oversight and Anti-Corruption Authority (Nazaha) underscores a commitment to financial transparency and accountability, aiming to ensure that both public and private sector projects adhere to legal guidelines. Furthermore, the recently amended anti-bribery law criminalizes both active and passive bribery, prohibiting public servants from accepting gifts or payments.
International investors must adhere to these anti-corruption regulations by implementing comprehensive due diligence processes, establishing robust internal controls, and maintaining clear records of transactions and contracts.
Evolving Labor Laws
Saudi labor laws have undergone significant reforms, notably changes to the controversial Kafala system. Recent reforms have also improved working conditions, including enhanced health and safety standards, maternity leave, and other benefits. The Ministry of Human Resources and Social Development (MHRSD) has established hotlines and other mechanisms for workers to report labor violations, demonstrating a commitment to enforcing labor laws and protecting employee rights.
The Nitaqat system, which aims to increase the employment of Saudi nationals, requires construction companies to comply with specific hiring quotas. Businesses are categorized into different zones based on their compliance, with those in the “red” zone facing penalties.
Environmental Regulations and Sustainability
Launched in 2021, the Saudi Green Initiative (SGI) seeks to combat climate change and achieve net zero emissions by 2060. Saudi Arabia has designated 18.1% of its land and 6.48% of its marine habitats as protected areas. Giga projects are spearheading sustainable development practices, with initiatives like Red Sea Global and Zain KSA’s zero-emission 5G network earning the ‘Best Green Technology’ award. Diriyah’s master plan has received Platinum Level LEED for Cities Certification from the US Green Building Council (USGBC), a first in the Middle East. NEOM focuses heavily on renewable energy sources, including wind and solar, and features plans for green transportation and minimal waste, demonstrating a commitment to environmental protection.
As environmental regulations take effect, construction companies must navigate new regulations and demonstrate climate-conscious practices in material usage and waste disposal, while completing Environmental Impact Assessments (EIAs). Non-compliance could result in substantial fines or significant project delays.
The Need for ‘Glocal’ Legal Support
As Saudi Arabia’s legal landscape continues to evolve, understanding the nuances of local and international law becomes crucial. We have advised some of the region’s most prominent entities on construction and procurement contracts related to the Kingdom’s largest infrastructure projects, including in sectors like hospitality, energy, and transportation. The right legal support can be a determining factor in a company’s potential for success.
To bridge the gap, global investors should seek top law firms that possess both an excellent command of the Saudi commercial landscape and renowned international expertise in navigating complex commercial disputes.