Sep 16, 2015 2:24 PMDuring King Salman's recent visit to Washington, DC, members of the Saudi delegation issued several announcements concerning planned commercial reforms and other developments that could prove significant to Foreign Direct Investment (FDI) in Saudi Arabia (KSA) as the Kingdom looks to broaden its economy at a time when low oil prices are projected to be the norm for the medium term. We will highlight some of the more significant announcements in this and subsequent notes.
While Saudi Arabia remains committed to continuing its current record-setting output of light sweet crude (one of the major factors contributing to low oil prices), the KSA is now facing projections of massive budget deficits and rapidly depleting cash reserves. Increased FDI, particularly from the United States, appears to be critical to the KSA's strategy for coping with the downsides of consistently low oil prices.
Reforms in the Arab world often begin with teasers that function as "trial balloons". This note will reference such a trial balloon floated by a Saudi official associated with the Deputy Crown Prince. In a closed door meeting with business leaders in DC, this official announced that the Kingdom is considering opening the Saudi banking market to permit entry of additional foreign banks - especially American ones - wishing to do business in the Kingdom. In additional to financing major projects, it is hoped that such banks would also cater to small businesses and individual depositors.
Even with the recent entry of a branch of a bank based in fellow Gulf Cooperation Council (GCC) Member State Qatar, Saudi Arabia is still seen as, perhaps, the most "under-banked" market in the world. To attract additional FDI, which has been in slight decline in recent years, some see the entry of additional Foreign banks and the capital they bring as critical. Entry by foreign banks based elsewhere in the GCC has been helpful, but it will take the power of additional American and other western banks to take a more broad-based growth to the next level.
Not stated, but understood, in this announcement is Saudi Arabia's desire that western powers continue to see that they have a stake in the stability of the Kindgom vis-a-vis its continuing conflict with Iran and, increasingly, Russia.
Of course, the devil is in the details: What will be required to gain entry? And, once in the market, how secure is a bank's investment in the Kingom and how will such a bank be regulated and taxed? How might such a venture impact an investing bank's legal and regulatory position at home?
JHI will continue to track the flight path of this trial balloon and let you know where it lands...
Oct 7, 2014 6:12 PMIn the Middle East, the old joke among Western lawyers goes something like this: “First you negotiate the contract, then you close the contract. And then, you renegotiate the contract… ”All good jokes are rooted in the truth. While there certainly are some local parties in the Middle East who are committed to keeping their word and sticking to the deal they negotiated, there does exist this unfortunately common dynamic wherein the local party will test, stretch and even flat-out ignore the terms of an agreement they just executed. One might even lose money betting against a breach occurring before the ink dries.And yet, throughout the Gulf Cooperation Council (GCC) region, billions of (US) dollars worth of business is successfully transacted each and every year by and between foreign and local parties. How does that work?It starts with understanding what local businessmen already know: going to court, dumping your local agent (or, colloquially speaking, your “sponsor”), etc, are usually your last best options. You can see your company effectively frozen out of the market if you make such a move without an almost perfect sense of deftness. And, even if eventually successful, should your company go this route, you have embarked on a long, aggravating and expensive disruption of business that will give rise to discussions that start with, “Why don’t we just pull out of there?”We will talk about arbitration clauses (and, the enforceability of them in GCC jurisdictions) in a subsequent posting. For now, you also need to understand that the local sponsor, or other local parties with whom your company does business, who busies himself with stretching the terms of your agreement is primarily (if not entirely) in the business of sponsoring foreign enterprises (or otherwise makes his money conducting business with foreign parties). Maintaining sponsorships or other replationships with foreign investors (and, protecting their reputations and pride) tend to be the top priorities of local companies. So, when such companies appear to breach their agreements, what do they hope to gain by playing around?Usually, more money. And, usually, not much more. More often than not, you can settle the matter by amending a couple of terms and (slightly) goosing up their sponsorship “fee” (or, whatever other payment, profit or compensation they may be receiving).What about the law of contracts? Why can’t I look for a new sponsor and/ or seek judicial recourse?Remember that the laws requiring you to obtain a sponsor in the first place are protectionist in nature. On an unofficial level, shopping around for more pliant for cooperative sponsors isn’t designed to be easy.Also, while consideration, reliance and other concepts are necessary to show a promise made in contract is enforceable under the laws of the United Arab Emirates (UAE), such is not the case to show the existence of an enforceable contract in Saudi Arabia (KSA). In the KSA, if you make a promise, you’re stuck with it.Isn’t the other side stuck with it, too???Well, in the Middle East, there is the law the way it is written, and the law the way its enforced. And, to further complicate things, that which is enforced is not always written, and that which is written is not always enforced. If you wind up in a KSA court, you may have a judge whose primary concern is sending a signal to his government, more than adjudicating a dispute between the parties before him. In the UAE, much may depend on whether the judge enjoyed his breakfast, or if he is miserable from a belly ache, as he reads your company’s brief… (And, keep in mind, the UAE imports its judges from other countries – those judges tend to be mindful of who gave them their jobs.)As to getting another sponsor, while the UAE and the individual Emirates therein may not employ “black lists” per se (as does the KSA), you should nonetheless do your best to avoid running afoul of bureaucrats at relevant ministries and other governmental offices who may have a cousin, friend, or other acquaintance who may just happen to be your soon-to-be former sponsor or other business partner/ associate. Business licenses have to be renewed every year, and your specific business may well depend on successfully bidding on government tenders; and, while Abu Dhabi and Dubai, for example, may look like big cities, they still very much operate as “small towns” on many different levels.That’s not to say successfully changing your sponsor and/ or winning a contractual dispute with a local party in the Middle East is impossible. Such has been known to happen in Abu Dhabi, and even in Jeddah (where arbitration clauses are less likely to be deemed enforceable by local courts, even though the KSA is a party to the New York Convention). Accordingly, you should protect yourself in the governing documentation the way you would in any other international agreement.Have the standard choice of law, venue, and language clauses, as well an arbitration clause (which can be something of a contract unto itself) and, especially, a (carefully written) termination clause. If an American-based company (or, even if you are based in another Western country but have operations in the US), make sure the documentation includes language concerning your refusal to violate the provisions of the US Foreign Corrupt Practices Act (over the last several years, the trend has been increasingly robust enforcement of the FCPA). American companies might also think to include a so-called “anti-boycott” clause in the agreement, given the on again/ off again enforcement of boycotts against Israel by some Arab states.Although the general mood in the GCC seems to favor a direction wherein the laws are being changed to relax the hold local parties (especially those deemed “sponsors”) have over foreign direct investment in their respective markets/ jurisdictions, it is usually best to try to renegotiate when a breach occurs. Such renegotiation should, generally speaking, settle upon a slight increase in the amount of earnings the local party derives from the deal.
Jul 9, 2014 3:37 PMBetween the July 4 weekend and other summer holidays, high summer in the Middle East, the holy month of Ramadan, and some sort of soccer tournament, we find ourselves in the unusual position of having a little free time here at JHI.As such, watch THIS SPACE: In the coming weeks, JHI will post a brief article right here in our Notes & Comments section on Hydraulic Fracturing (colloquially referred to as “Fracking”).
Following Labor Day, JHI will publish a brief note on contracting with parties in Middle Eastern jurisdictions (in particular, Saudi Arabia (KSA) and the United Arab Emirates(UAE)); and, in a subsequent writing, JHI will share some thoughts on Arbitration Clauses when doing business internationally.
And, while there tends not to be many developments in the law anywhere in world during these summer months, JHI will continue to keep our eyes peeling concerning such developments as and when they affect Marcellus Shale Natural Gas, Charter Schools, Municipalities, Middle Eastern jurisdictions (particularly Gulf Cooperation Council jurisdictions), the law of Contracts, the laws of New York, New Jersey, Pennsylvania, the UAE (Abu Dhabi and Dubai) and the KSA, and business law generally.In the meantime, we would just like to wish all concerned a safe and happy summertime!
Marcellus Shale Legal Update: Land/ Natural Gas Owners Challenge Constitutionality of Forced Pooling
May 29, 2014 1:05 PMA few individual private parties owning rights to the Marcellus Shale Natural Gas beneath their land have succeeded in adding themselves as litigants in an action between an energy company and the Pennsylvania Department of Environmental Protection (DEP).In successfully inserting themselves as parties to a suit filed by Hilcorp Energy (to compel the DEP to approve more applications for horizontal drilling permits), five private land owners holding three affected parcels of land are seeking to have the court declare that forced grouping, or “Forced Pooling” violates the Constitution of the Commonwealth of Pennsylvania. As the additional drilling Hilcorp Energy seeks to perform partially depends on the enforcement of forced pooling, the court recognized the land owners as having standing and admitted their participation as parties to the case at bar.Forced Pooling is akin to the concept of “Eminent Domain”, wherein the owners of mineral rights and other such natural resources are compelled to lease their rights along the same terms and conditions as their neighbors for economic reasons.The court’s decision on the constitutionality of Forced Pooling will impact individual property rights in the Commonwealth of Pennsylvania and have economic repercussions across Pennsylvania and beyond. Also, regardless of the outcome, the court’s decision is likely to trigger off a series of appeals, separate suits and legislation (as well as impact the current course of pending legislation) that could well shape the success or failure of the development of Pennsylvania’s infant natural gas industry.JHI will continue to track developments affecting the rapidly changing Marcellus Shale legal landscape.
May 15, 2014 12:16 PMby R. Jason Huf
Jokes about snakes in the road aside, I have always considered being an attorney to be a great honor and privilege. I practice law, and the law is the ultimate guardian of equality and fair play. I cannot imagine wanting to do anything else for a living.Some of the really great aspects of being a lawyer, especially one with my particular practice areas, are the things I learn and the people I meet.Meet Renad!
Just last year, young Miss Renad T. Amjad became only the third lady in the entire history of the Kingdom of Saudi Arabia to officially register as a Female Trainee Lawyer with the Saudi Ministry of Justice.You can imagine how deeply honored I was when Renad asked to meet with me in New York. She is a fascinating, intelligent, courageous and cheerful young lady who, after being one of those to break a Concrete Ceiling, has a bright future ahead of her. In my line of work, this was akin to meeting Jackie Robinson, and was one of the great thrills of my career.
(I should note here that, being modest and outwardly humble, Renad is not entirely comfortable with the comparison to Jackie Robinson, citing her lack of experience as a lawyer thus far. I will also note here that as she becomes more experienced as a lawyer, she will get used to it - because she's stuck with it.)That's on a personal note. Professionally, Renad is a living, breathing demonstration of the fact that change is coming to Saudi Arabia.Such change may be incremental, but incremental does not mean insignificant. Just look this young lady in the eye and tell her that her accomplishments are "insignificant". I dare you.There are those who advocate for a faster pace of reforms in Saudi Arabia on the subject of women's rights, and more generally. However, I strongly believe that King Abdullah has been shrewd in his implementation of incremental, but meaningful, reform. A broader, faster-paced program of reform would risk destabilizing the Kingdom, which would, in turn, risk destabilizing the region and threaten to send economic shock waves throughout the world.Saudi Arabia may be insular, but it's not isolated. Just as events there impact the global economy, international economic activity - including and especially trade - has had an impact on the Kingdom. And, it shall continue to do so.I have never been one to liberally laud Middle Eastern rulers, but King Abdullah knows his people and is familiar with the different elements in his country with whom he exercises power. To maintain stability, his people need to enjoy greater freedom and feel a larger sense of "ownership" of their lives and their country. But, to move too quickly in that direction would innately threaten such stability. It is a difficult balance beam to walk successfully.The subject matters and pace of reforms in Saudi Arabia have been thoughtful, and ably executed, thus far. We will see how things progress from here.For now, I think I will just enjoy drinking tea with Jackie Robinson.- Jason Huf
New York, NY, USA
May 15, 2014
Oct 2, 2013 7:29 PMIrrespective of generally good relations with Western countries, Kuwait is rarely mentioned by Western companies looking to expand into the GCC region. While the United Arab Emirates, Qatar and Saudi Arabia have attracted billions of dollars worth of Foreign Investment capital over the last 10 years, oil rich Kuwait has quietly relied on its most famous resource for economic growth.This could change, however, with the implementation of Kuwait’s new Commercial Licenses Law. Not traditionally seen by potential foreign investors as one of the more “business friendly” Gulf States, the new law consolidates the function of approving applications for commercial licenses into a single government office.Kuwait is awash in disposable income and should be an attractive target for businesses looking for an expansion opportunity. Simplifying the application process for commercial licenses is a step in the right direction. And, JHI will continue to keep abreast of legal developments impacting Kuwait’s business environment.
Jason Huf International, pc
"Exploring the Boundaries of Your Business."