By Nasser Alrubayyi
Managing Partner (KSA), Co-Chair Middle East & North Africa Practice, Quinn Emanuel Urquhart & Sullivan LLP
As Saudi Arabia sets its sights on becoming a global business hub, the adaptability of companies to the rapidly evolving environment is often the key to their success or failure. Major projects such as NEOM, Diriyah, Qiddiya, and the Red Sea Development Project have garnered significant global interest, signaling a new era of growth and opportunity. However, securing effective legal support is crucial for achieving commercial goals in Saudi Arabia, particularly in the construction sector.
Shariah Law and Regulatory Frameworks
Saudi Arabia’s legal system is grounded in Sharia law, which profoundly influences all commercial regulations, including those in the construction sector. International investors must be aware that contracts, business practices, and dispute resolutions are governed by Sharia legal principles, which can differ markedly from Western legal systems. Each sovereign state has its own business rules and regulations, tailored to its unique jurisdiction.
Language barriers also pose challenges, as Arabic is the primary language for business transactions and legal documentation. International investors will need to engage translators and legal experts fluent in both Arabic and the intricacies of Saudi law to ensure compliance.
Anti-Corruption Measures
The Kingdom has made significant progress in its fight against corruption, a major concern for international businesses. A 2021 review by the Council of Economic and Development Affairs revealed that the public treasury recovered 247 billion Saudi Riyals from anti-corruption settlements over three years, representing 20% of total non-oil revenues.
The creation of the National Oversight and Anti-Corruption Authority (Nazaha) highlights Saudi Arabia’s commitment to financial transparency and accountability. Recent amendments to anti-bribery laws have criminalized both active and passive bribery and prohibit public officials from accepting gifts or payments.
International investors must comply with these anti-corruption regulations by implementing thorough due diligence processes, establishing robust internal controls, and maintaining clear records of transactions and contracts.
Evolving Labor Laws
Saudi labor laws have seen substantial reforms, including changes to the Kafala system and improvements in working conditions, such as enhanced health and safety standards and expanded maternity leave. The Ministry of Human Resources and Social Development (MHRSD) has introduced hotlines and mechanisms for workers to report violations, demonstrating a commitment to enforcing labor laws and protecting employee rights.
The Nitaqat system, which promotes the employment of Saudi nationals, requires construction companies to meet specific hiring quotas. Companies are categorized based on compliance, with those in the “red” zone facing penalties.
Environmental Regulations and Sustainability
The Saudi Green Initiative (SGI), launched in 2021, aims to combat climate change and achieve net-zero emissions by 2060. The Kingdom has designated 18.1% of its land and 6.48% of its marine habitats as protected areas. Sustainable development is a priority for giga projects, with initiatives like Red Sea Global and Zain KSA’s zero-emission 5G network receiving accolades. Diriyah’s master plan has achieved Platinum Level LEED for Cities Certification from the US Green Building Council (USGBC), a first in the Middle East. NEOM emphasizes renewable energy sources, including wind and solar, and features plans for green transportation and minimal waste.
As environmental regulations come into effect, construction companies must navigate new rules and demonstrate climate-conscious practices in material usage and waste disposal, including completing Environmental Impact Assessments (EIAs). Non-compliance could lead to significant fines or project delays.
The Need for ‘Glocal’ Legal Support
As Saudi Arabia’s legal environment evolves, understanding both local and international law is essential. Our firm has advised leading entities on construction and procurement contracts for some of the Kingdom’s largest infrastructure projects, across sectors such as hospitality, energy, and transportation. The right legal support can be a decisive factor in a company’s success.
To effectively bridge the gap, global investors should seek top law firms that offer a deep understanding of the Saudi commercial landscape combined with expertise in managing complex international commercial disputes.
