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Fri 13 Sep 2019 12:24 AM

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Saudi reforms: Is this just the tip of the iceberg?

A raft of laws and relaxations have had a huge impact on Saudi Arabia in a relatively short space of time. As the kingdom prepares to open its doors to the masses with new tourist visa laws to be introduced, Paul Latto and Basma Khashoggi from DLA Piper reveal why they are not surprised and why they are expecting even more yet to come

Saudi reforms: Is this just the tip of the iceberg?

For an outsider looking in it would be easy to think that Saudi Arabia has finally been dragged into the ball game with the rest of the world.

In a short space of time, the ultra-conservative kingdom has opened up cinemas to the masses, women are allowed to drive and those over the age of 21 can now obtain passports and leave the country without the permission of their male guardian; while the strict laws governing female guardianship have been relaxed to almost extinction.

But legal experts working in Saudi Arabia have stressed that this is just the tip of the iceberg and the organic evolution of the country has been a work-in-progress for some time.

Paul Latto, partner, head of finance and projects, DLA Piper which operates in collaboration with Amer Al Amr law firm (which he is seconded), has been in the country for ten years. He tells Arabian Business: “The atmosphere has totally changed and my perception is, everyone is always asking ‘where’s the backlash, there’s bound to be a conservative backlash any minute?’ I haven’t seen anything. There’s bound to be voices somewhere, there’s 30 million people in the country, but I’ve not seen it.”

Saudi Arabia is implementing a broad range of policies, which include the issuance of tourist visas this month

Arguably an even stronger voice to comment is his colleague Basma Khashoggi, legal director of Amer Al Amr law firm in collaboration with  DLA Piper, a Saudi national who received her license from New York after graduating, before she could get one from her native country.

“When I heard all of these changes, when they came out, I was also sceptical. I’d never known Saudi where women are allowed to drive,” she says.

“This was a good example which I believe will be replicated across the board with all these changes. I myself had underestimated how ready people were. But it makes sense. It make sense that a woman can drive. It makes sense that you start privatising or you increase the availability in certain sectors. Honestly, they’ve always tried to introduce different measures that prepare the environment for this change so as long as that continues to be the trend, I think the changes will be implemented smoothly, the reception will continue to be positive.”

Visa changes

The latest seismic shift will see tourist visas issued from the end of this month.

The visas will be available to people from about 50 countries, sources have said. Initially they will be issued online or on arrival for a fee of SAR440 ($117) starting September 27.

Saudi Arabia is making steps to boost tourism as a key plank of its economic diversification plans

Saudi Arabia has long been one of the hardest countries in the world to visit, largely limiting visas to business trips, religious pilgrimages or family reunions. But in 2016 – as the oil price rout wreaked havoc on its finances – the government said it wanted to develop tourism as part of Crown Prince Mohammed Bin Salman’s economic diversification plan.

It is building major tourism projects, transforming its Red Sea coastline to bring in holidaymakers and developing an entertainment city near the capital of Riyadh. The government opened limited online visas last year for foreigners attending special events, seen by many as a trial run for the tourist visa.

Kingdom-based industries in direct contact with tourists are expected to generate more than $25bn this year, about 3.3 percent of Saudi Arabia’s GDP.

Saudi Arabia’s overall number of tourist trips is on course to hit 93.8 million by 2023, up from 64.7 million in 2018, according to a research from Colliers released earlier this year.

The once unthinkable scenario of women driving a vehicle in Saudi Arabia has now become the norm

“The country is ready for tourist visas. It’s been announced previously and I think now is the right time to launch it. We’ve already seen it happening on a smaller scale. The country’s ready for all the changes that will hopefully take place, they’re ready for these building blocks,” says Khashoggi, who is head of the company’s Jeddah office and a legal director in the corporate practice.

Construction pipeline

Saudi Arabia currently holds the greatest potential for the construction sector within the GCC, with more than 5,000 capital projects worth well over $1.6 trillion in the pre-execution stage.

That includes over 150 development projects worth $3.27bn for the Tabuk region that were announced in November last year. King Salman Bin Abdulaziz Al Saud also launched more than 600 projects in Qassim, 400km northwest of Riyadh, worth $4.36bn and around another 200 new projects in Hail, also in the northwest of the kingdom, valued at $1.14bn. That’s before even mentioning Saudi Vision 2030’s mega-projecs: Neom, Qiddiya, Red Sea and Amaala.

Latto says: “What has consistently surprised me in Saudi Arabia is that things which you were told for a long period of time were unthinkable, become thinkable and then become a reality.”

Labour market reforms are needed to increase the competitiveness of Saudi nationals in the private sector, the IMF said

While that might well be the case from a cultural point of view, Latto believes the greatest challenge in the kingdom will come from the actual delivery of these projects.

The Saudi government has previously stated that its aim is to raise some $200bn by 2030 through privatisations, as well as another $100bn through the sale of a 5 percent stake in state energy giant Saudi Aramco, which is currently in the throngs of finalisation.

Public-private links

Saudi Arabia’s Ministry of Health embarked on its first public-private partnership (PPP) project earlier this year, one of numerous such deals expected in the kingdom. It was the latest move in a huge push for PPP projects and privatisations in Saudi Arabia.

Latto explains: “They’ve (Saudis) a long history of successfully doing PPPs in the power and water sector. They’ve been doing these IPPs (Independent Power Projects) and the IPWPs (Independent Power and Water Projects) for several decades now. Those are continuing apace and we’ve been involved in every single power and water project in the last decade.

Paul Latto is a partner of DLA Piper seconded to Amer Al Amr law firm

“They have the National Centre for Privatisation at the top who are guiding things and we are now seeing the request for proposals (RFPs) going out.”

Latto also says he can see a new PPP law coming into force in the country “which would be helpful”.

“I think people just want to see it. It will increase confidence in the environment and people have been expecting it for so long that just having it is an important step,” he says.

“If it’s a well drafted law, it should create greater certainty. One of the issues traditionally in Saudi Arabia has been a lack of confidence in the consistency of legal precedencies. I think that would be a helpful thing and I would expect it to come through.”

The large majority of changes have been implemented by Crown Prince Mohammed Bin Salman Bin Abdulaziz Al Saud since January 2015.

Large youth base

But according to Khashoggi, the wave of change is being driven by the younger generation of Saudis.

She says: “You have to remember Saudi’s demographics. I don’t know the exact numbers but it’s definitely in the majority, about 60 percent, are younger than 18 or 24. This is a generation that grew up with access to information, social media. That’s really the standing voice of the kingdom and they’re part of the world, they’re part of the global world.”

Basma Khashoggi is a legal director and head of the Jeddah office of Amer Al Amr law firm

So at this rate of change, what does the future hold for the kingdom?

Khashoggi says: “It is essential to stay positive and see the changes for what they are. We are changing history. Always noting that, of course there are things that take time and they should take time because they must be planned properly so you ensure a more efficient and successful result.”

Kingdom rising

Saudi Arabia is pursuing economic diversification under Vision 2030

Home to an estimated 15.7 percent of the world’s proven oil reserves and the single largest economy in the MENA, Saudi Arabia is a key player not only in the region, but also globally. Since its establishment in September 1932, the kingdom has poured its considerable resources into a series of large-scale economic development, diversification and modernisation initiatives. In the last few years, Saudi Arabia has also attracted global attention for the momentum of its socio-economic transformation taking place under the auspices of the Vision 2030 economic development blueprint.

The government has worked hard in terms of opening up the kingdom to foreign investment in recent years. Saudi Arabia is ranked 92nd out of 190 nations in the World Bank’s Doing Business 2018 report, and its conducive business environment and reputation for stability have made it one of the top destinations for foreign direct investment (FDI) in the region. According to data collected by the World Bank, Saudi Arabia received a total of $7.5bn of FDI in 2016, with the government aiming to increase this figure to $18.7bn by 2020.

(Information courtesy of the Oxford Business Group)