Saudi Arabia Remains Tough Place to Do Business, Despite U.S. Deals
May 21 2017 - 07:31PM
Dow Jones News
By Margherita Stancati in Riyadh and Nicolas Parasie in Dubai
The U.S. and Saudi Arabia touted more than $400 billion in deals
and potential investments during President Donald Trump's visit to
Riyadh, collectively sending a message that the kingdom was open
for business.
That was the easy part. Saudi Arabia remains a tough place for
foreign companies, observers say.
Challenges range from the lack of bankruptcy legislation to a
culture of personal connections. Government policy decisions are
sometimes abruptly reversed. And there is a lack of clarity on
legal matters, too, due to the coexistence of both civil law and
Islamic Shariah law.
Despite some positive changes, "the current system remains
treacherous for foreign investors to navigate," said Riyadh-based
lawyer Christopher Johnson, who is also vice chair of the American
Business Group of Riyadh, a body that promotes U.S. business
interests in the kingdom.
Some officials acknowledge change will require time and
patience. "The Saudi government is not very efficient," said an
economic adviser to the royal court. "It's an area in which we're
not doing very well."
Many blue-chip companies aren't deterred.
The U.S. and Saudi Arabia over the weekend unveiled a raft of
multibillion-dollar agreements in sectors including energy,
technology and health care. Among them is a partnership between
General Electric Co., Saudi Arabia's ministry of oil and a
government program for joint ventures. The deal, valued at $12
billion, focuses on power generation, digitization technology and
oil and gas.
The scope and size of the agreements are in tune with Saudi
Arabia's desire to develop new industries at home. That is a
central goal of a government effort to reduce the country's
dependence on oil. That change, Saudi energy minister Khalid
al-Falih said Sunday, "requires our industrial base to grow in the
order of magnitude."
But as oil prices have fallen, the business environment has
become more challenging. The Saudi government stopped paying
construction giants such as the Saudi Binladin Group, resulting in
tens of thousands of layoffs of mostly Asian blue-collar workers
but also Western engineers and project managers.
Many international banks are positioning themselves to reap the
benefits of Saudi Arabia's economic liberalization, including the
public offering of the world's largest oil company, Saudi Arabian
Oil Co., or Saudi Aramco, which could fetch the Saudi government as
much as $100 billion.
But many global lenders have struggled to find their footing in
the country. BNP Paribas SA and Standard Chartered PLC lent to
Ahmad Hamad Algosaibi & Brothers, a troubled Saudi Arabian
conglomerate that defaulted on its debts almost eight years ago,
forcing its creditors into a $6 billion restructuring that still
hasn't been fully resolved.
Two years ago, HSBC Holdings PLC's Saudi Arabia unit came under
investigation by regulators in the kingdom for its role in a stock
listing that has left investors nursing heavy losses. HSBC's Saudi
unit last year said it has taken provisions to settle issues
related to the regulator's investigation, without elaborating.
Last year, the Saudi stock-market regulator banned the local
unit of Deloitte & Touche LLP from providing accounting
services in the kingdom for two years because of its work with a
local contracting company that allegedly had breached market
regulations. Deloitte said it was disappointed but respected the
regulator's decision.
In the World Bank's Doing Business Index, Saudi Arabia ranks 94
out of 190 economies. In terms of starting a business, Saudi Arabia
ranks 147, trailing its Gulf neighbors in the United Arab Emirates
and even Iran.
The kingdom has said it is determined to quickly improve the
business environment. The government recently established new
arbitration centers to handle commercial disputes and is working on
a new procurement law for government agencies and on an insolvency
law, according to the kingdom's investment agency.
It also introduced a business law last year that includes
measures to better protect minority shareholders, and officials
have pledged to bring government bodies into the digital age by
allowing more business transactions to be handled online.
"The authorities are beginning to make good progress in
identifying and reducing obstacles to private-sector growth," said
Tim Callen, the International Monetary Fund's mission chief for
Saudi Arabia. "These efforts should continue."
Write to Margherita Stancati at margherita.stancati@wsj.com and
Nicolas Parasie at nicolas.parasie@wsj.com
(END) Dow Jones Newswires
May 21, 2017 19:16 ET (23:16 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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