The Middle East is never boring. The West has long been fascinated by its geo-strategic importance and abundant oil and gas reserves, and frustrated by its variable codification of commercial laws and (in some cases) capricious political stability.
With the possible exception of Bahrain, member states of the Cooperation Council for the Arab States of the Gulf (formerly known as the Gulf Cooperation Council or GCC), which also include Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE), have largely escaped the political turmoil and security problems affecting much of the rest of the region.
As oil and gas producers, these countries are still dominated by the energy sector, despite fears about the longevity of hydrocarbon reserves over the next generation, particularly in Bahrain and Oman (although not Saudi Arabia).
Growth opportunities remain in these traditional energy strongholds, and beyond. An up and coming player in this sector is Iraq, where the major oilfield in the south of the country is relatively far away from the conflict with ISIS, although the Iraqi Kurdistan region, closer to the ‘Caliphate’, has suffered a recent suspension of operations.
But with such dependency on oil and the products derived from them, the drop in oil prices has led to uncertainty regarding the future of projects in the Gulf. Afshan Akhtar, first vice president of legal at Arab Banking Corporation, comments that, ‘if you read the paper or watch the news, typically many non-essential projects have been deferred across the region as governments adjust to lower budgets,’ and Qatar Railways Company (Qatar Rail) GC Stephen Hibbert predicts a delay in discretionary projects. However, many downplay the effects in real terms – for now – while acknowledging that it is a looming risk.
Outside the Gulf, despite an absence of oil and gas reserves, Jordan is still not free of the sway of the oil economy. Says Mohannad Al Nabulsi, GC of Samsung Electronic Levant: ‘Oil prices affect all industries and sectors. The dramatic increase that happened a couple of years ago has inflated the prices of almost all products in all sectors. Inflation happened when the price of oil increased, but the impact after the decrease was not as much as it should have been.’
Branching out
Not everyone thinks that low oil prices are a bad thing, however. Olof Arnman, the Dubai-based Eastern Hemisphere manager for legal and commercial at Grey Wolf Oilfield Services, has this to say: ‘The falling oil price, to a degree, has made governments take a step back and look at other opportunities to invest in for more diversified economies.’
Attempts at diversification are widely seen, even in those countries with the most plentiful oil reserves, albeit with varying degrees of success. In Saudi Arabia, the government is encouraging heavy industries such as steel and aluminium, auto and equipment manufacturing, ship building and dry docking. Oman, too, has focused on shipping, as well as ongoing commitments to tourism and domestic infrastructure development. Qatar has seen a proliferation of investment in infrastructure projects, not to mention the construction of the 2022 World Cup stadia.
The GCC region has embarked on a substantial improvement of regional transport links, including a considerable rail-building programme. Says Stephen Hibbert at Qatar Rail: ‘Various rail projects… will, in the not-too-distant future, enable freight or a passenger to join or board a train in Bahrain, travel through Qatar and the UAE and go down the Omani coast to Muscat.’ He predicts that, with governments openly talking about seeking private investment for such infrastructure projects, the seeds of PPPs are being sown. However, Hibbert warns: ‘Abu Dhabi attempted in 2010-2011 to PPP a major highway to the KSA border… I was told that, in the final analysis, the life-cycle cost to the government was close to three times the price of a government build and maintain. So it was canned. International financiers might struggle if they can’t get a typical security package and be able to charge the assets in the usual way.’ But, he continues, ‘there is a growing appetite to at least explore private sector participation, a topic that has been the subject of a number of public statements by the government of Qatar in particular.’
Another key area of economic diversification across the region is renewable energy. Even some of the world’s biggest oil exporters are looking to meet a growing domestic energy demand, and those based in importer states like Jordan and (currently) Lebanon welcome attempts to offset the high cost of generating electricity. Many believe there is massive growth opportunity in alternative energy sources, particularly solar and wind power. The UAE is leading the charge here, having invested billions into developing solar plants in recent years. ‘It’s not as well-known internationally yet, but I think that in ten years’ time we’re going to see that influence in the energy markets,’ says Olof Arnman.
Opening up
Many countries are working to become more attractive to foreign investors with the development of free economic zones and the adoption of laws favouring international business standards – the UAE being a prime example, with its recently amended Commercial Companies Law. Nevertheless, even in the largest GCC economy, Saudi Arabia (which has also made efforts to attract foreign investment and reduce bureaucracy), veterans like Saudi Arabian Oil Company (Saudi Aramco) GC David Kultgen still report hearing of frustrations in setting up business in the Kingdom. In Oman, Ooredoo’s GC Jim Maxwell cautions that corporate counsel ‘won’t always be able to have clarity in terms of the advice that you give and you’re often recommending the way forward based on what you perceive as the best choice in a less-than-perfect situation.’
Despite significant improvements in compliance, corporate governance and regulatory frameworks, the region remains relatively immature in this regard, making a strong corporate compliance policy a must for multinationals. Yet this can be an opportunity for the expat in-house lawyer keen to build a compliance culture, in contrast to the West, where compliance discussion is often met with a wall of fatigue. ‘You really get some good conversations going because people see things a little differently… and that is perfect ground for a good dialogue,’ says Arnman. Again, the UAE is a leading player, appearing 22nd on the World Banking Group’s index of favourable regulatory regimes for doing business (www.doingbusiness.org/rankings) – the highest of any Middle Eastern country.
Flammable substance
Of course, newcomers to the region can’t ignore the political volatility of certain territories. Although based in stable Jordan, Mohannad Al Nabulsi’s remit at Samsung Electronic Levant encompasses Iraq, Lebanon, Palestine and Syria. He cites the low levels of foreign investment and consumer spending that come with conflict, but also emphasises the value that multinational general counsel can add in such situations – once they get to grips with the lay of the land. ‘The expectations of investors are much higher than the actual achievements on the ground… So you have to manage the expectations of the investor, plus the expectations of the multinational company. [GCs] have to understand the culture, they have to understand the region, they have to understand that… they are operating in a very hard, unstable region,’ he says.
Building trust
Those accustomed to western regimes must absorb unfamiliar laws, customs and practices. The language barrier might mean an over-reliance on bilingual colleagues, but in a region where ‘wasta’ (roughly translated as ‘connections’ or ‘personal influence’) is all, building relationships and trust with colleagues, customers and suppliers is critical. Adjusting to a different pace of business might also be challenging. Says Arnman: ‘Decisions tend to take just a little bit longer here and perhaps with a larger influence of intuition.’
Good local counsel can be invaluable in helping the new entrant navigate the legal and commercial environment, although in Saudi Arabia, David Kultgen warns against engaging local partners or agents without thorough research: ‘In some cases a local partner or representative can be of immense value and assistance; in most cases they don’t add value, and they just increase costs and reduce the foreign party’s return on its investments. And once you establish one of those relationships, if you find late that it was with the wrong person or entity, or it wasn’t required, then it’s very difficult to unwind those relationships from a legal/contractual standpoint.’
The ‘youth bulge’ in the region should provide a wide pool of potential recruits, but some complain of difficulties in finding good local talent in specialised fields, despite policies such as the ‘Omanisation’ agenda pursued by the Omani government to foster jobs and training. Companies must be prepared to invest in people and development. For instance, at Saudi Aramco, potential Saudi lawyers are selected from other professional ranks within the company – usually engineering or finance – and sent to the US to pursue JD degrees.
A GC role in the Middle East is a stimulating opportunity, most agree. There is equal scope to learn from a new environment and to share best practice, and the maturing legal and business infrastructure provides the chance to become involved in the very development of the law. Says Oman-based Jim Maxwell: ‘There’s no question that your scope here in developing not only local talent but the way things are done across the country is far greater than it would be elsewhere – and that’s exciting.’