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Sat 27 Sep 2008 04:00 AM

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Saudi's long road to being business-friendly

Despite a recent report, much work remains for Saudi Arabia to truly be a friendly place to do business.

Before we get all giddy about the report jointly published by the World Bank and the International Finance Corporation that Saudi Arabia is leading the GCC countries as the best place to do business, let’s step back, take a deep breath and consider reality for a moment.

It's true that the business climate in Saudi Arabia has improved greatly in the past seven or eight years. Much of this should be credited to Saudi's King Abdullah, who has implemented a number of reforms since he ascended to the throne in 2005. His vision of building six economic cities and the King Abdullah University of Science and Technology will more than likely be regarded as his lasting legacy.

His vision has created tens of thousands of jobs, brought in foreign investors and created a friendly climate between Western and Arab businesses.

And perhaps more important is Saudi Arabia's entry into the World Trade Organization in late 2005. It took the Kingdom 12 years to obtain membership. Not only was it required to pass stringent requirements to conduct trade with other countries, but it also signed on to adhere to specific human rights requirements. And while Saudi Arabia continues to boycott Israeli goods, it has dropped its secondary and tertiary boycotts of companies that do business with Israel.

While Saudi Arabia has reached out to Western businesses for trade and has brought contractors and developers to Jeddah, Riyadh and Dammam, there remains much work to truly make the country a relatively friendly place to do business.

Perhaps the biggest obstacle is the lack of codified laws. The Kingdom only recognises Shariah as the law of the land.

That means little to Western companies that want to be protected if disputes arise. Most business and labour regulations are issued through a royal decree. Commercial courts have been established since the founding of the country, but commercial disputes are generally settled by two Shariah judges and one legal adviser. Decisions by this committee can be appealed to the Ministry of Commerce.

In addition, non-Saudis are not permitted to act as commercial agents. If a non-Saudi wants to open a business he or she is required to have a Saudi sponsor. Another obvious impediment to doing business in Saudi Arabia is the requirement that all women must be accompanied to the Kingdom by a male guardian, such as a father or brother or even a son. There is a large segment of independent businesswomen who could do well in Saudi Arabia, but are excluded due to guardianship issue.

There are other issues that would take an entire issue of Construction Week to address: Wasta, the mind-numbing bureaucracy, poor infrastructure that in many cases make large projects virtually impossible to get off the ground, and the lack of coordination between various ministries.

It also should be noted that the World Bank's report is not entirely glowing in its praise for Saudi Arabia. While positive reforms have been implemented, the report notes that no progress has been made in issuing construction permits, employing workers, obtaining credit, paying taxes (there are no taxes in Saudi Arabia) and enforcing contracts.

Yes, much has improved, but Saudi Arabia has a long road to hoe before it becomes the most business friendly.

Rob Wagner is the editor of Construction Week.

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