US President Donald Trump’s speech in Riyadh, Saudi Arabia, on May 21, 2017, marked a new chapter in US-Saudi relations and a new era of opportunity for US and multinational companies seeking to benefit from increased trade, investment and overall economic activity between the two countries. While certain benefits are already apparent, such as the hundreds of billions of dollars newly committed in the Saudi defense sector, much of the opportunity resides in other areas and is driven both by the rejuvenation of the bilateral political relationship and by Saudi Arabia’s own Vision 2030, the Kingdom’s comprehensive initiative to remake itself, economically and otherwise, that is being actively promulgated by its new, dynamic leadership. It is within the context of Vision 2030, its interpretation and its implementation, that most chances and changes (and perhaps challenges) will present themselves to businesses in the United States and around the world.
A New Environment of Opportunity for Companies
Some of the significant opportunities created by this new plan and this new paradigm are particularly worthy of mention:
- US Infrastructure Investment. In concert with US arms sales to Saudi Arabia, the Kingdom has committed tens of billions of dollars to investment in the United States, specifically in infrastructure development.
- Prioritized Industries. Vision 2030 prioritizes a number of industries in which the Saudi government is actively encouraging investment into the Kingdom and in which Saudi Arabia is actively seeking to invest globally, such as:
a. Healthcare/Life Sciences
e. Renewable Energy
To entice companies in these sectors, Saudi Arabia promises a host of benefits, including (i) streamlined and favorable regulations, (ii) easy access to capital and markets, (iii) unprecedented assistance with the development and operation of local facilities and (iv) the possibility of reciprocal investment.
- Project Development. Saudi Arabia has already earmarked and approved hundreds of billions of dollars for project development within the Kingdom, particularly in the areas of transportation and infrastructure.
- Privatization. Saudi Arabia has pledged to dramatically increase the economic role of its private sector, which currently only contributes 40 percent of GDP, through a widespread plan of privatization and public-private partnerships, including in healthcare, utilities, housing and energy.
- Societal Enrichment. Saudi Arabia has formally committed to a more enlightened and vibrant approach to its society, to its culture and to the holistic well-being of its people, including working towards equal opportunity for women. This commitment in turn has far-reaching implications for those seeking to do business with or within the Kingdom, including, for example, offering unprecedented opportunities for non-profit organizations, tourism, lifestyle businesses and entrepreneurial enterprises.
Most importantly, and in contrast to years past, the Saudi government has already taken meaningful and measurable action regarding each of the areas of opportunity specified. RFPs for many projects and privatizations are anticipated to commence in earnest over the course of 2017 and 2018.
New Legal Trends and Developments
In addition to the general developments mentioned above, here are just a few notable legal trends that we are observing:
- Transactions. Saudi Arabian private sector counterparties are embracing a more international and sophisticated approach to negotiation and documentation in the transactional context. This includes, for example, a greater openness to robust terms and conditions, to due diligence processes, to compliance policies and procedures, and to limitations on exclusivity. This trend is mirrored in the public sector with a progressive relaxation of doing business rules, for example with Saudi Arabia’s recent approval to issue licenses allowing foreign investors to have 100 percent ownership of companies operating in the trading (wholesale and retail) sector in the Kingdom.
- Disputes. Likewise, in the litigation context, we are witnessing (a) a more wide-spread acceptance of international arbitration as a means of resolution (including best-practices provisions in agreements), as evidenced in part by the recent opening of the Saudi Center for Commercial Arbitration, the rules of which are based on UNCITRAL Arbitration Rules and (b) a greater willingness by Saudi parties to use non-Saudi laws and non-Saudi venues to resolve disputes.
- Employment. “Saudization,” which refers to the Saudi Government’s push, regulatory and otherwise, to increase the hiring of Saudi workers has grown in extent and intensity. It is becoming more critical than ever for the Saudi leadership to significantly increase the local employment rate, and this imperative carries with it increasing legal implications in the areas of employment and mobility for companies seeking to do business in the Kingdom. As a corollary, an encouraging trend that we are seeing is a young Saudi workforce becoming more eager, more capable and more disciplined, and that is proving to be positive for companies that are appropriately selective and strategic in their hiring.
- Intellectual Property. With a pronounced emphasis on diversifying the Saudi economy, Vision 2030 has fed a growing desire by Saudi Arabia to acquire and develop technology and know-how across a range of sectors. This ambition for intellectual property not only is creating opportunity and leverage for foreign companies but also is presenting specific legal issues that need to be properly navigated in the context of Saudi Arabia’s modernizing intellectual property laws and the very newly-decreed Saudi Intellectual Property Authority (SIPA).
- Technology Transfers and Trade Export Controls. The increasing emphasis on local assembly, technology transfer and other services (particularly in the defense sector) has placed a greater premium on implementing robust, on-the-ground compliance controls that are critical for securing continued export authorizations. For legal practitioners, advance planning and practical experience with both the complex US inter-agency review process and the on-the-ground challenges of implementing practical export control measures in the local context are becoming ever more critical to streamlining the pipeline of authorizations and avoiding costly delays or mistakes.