Saudi Arabia, the world’s largest oil producer, has been undergoing a major transformation in recent years as it looks to diversify its economy and reduce its reliance on petroleum revenues. As part of this process, the government has laid out a plan to transform Saudi Arabia into a more business-friendly environment. Part of this transformation includes reforming the legal system with respect to commercial law.
Dispute resolution is a key area of commercial law, and Saudi Arabia’s legal system is currently undergoing a process of reform in this area. As the nation begins to attract significant Foreign Direct Investment (FDI), international businesses are set to benefit from greater transparency and confidence in the legal system with respect to disputes.
KSA’s Economic Changes & the Legal System
Saudi Arabia’s legal system is based on Islamic law (sharia) and is therefore distinct from the common law systems of many Western nations. The government has been working to standardise the legal system in recent years, and this process has accelerated in light of the Kingdom’s plans to diversify its economy. These changes are designed to make Saudi Arabia a more attractive destination for Foreign Direct Investment (FDI) and to create a more business-friendly environment.
Some of the key changes that have been made in recent years include:
As part of a move to provide greater protection to consumers, the government has informed e-commerce enterprises that they must now apply for a licence in order to operate in Saudi Arabia. Online retailers can either make this application via the Ministry of Commerce or the Freelance Platform. This registration can be performed entirely electronically, removing barriers to entry for businesses.
New Companies Law
In 2022, the Saudi government signed off on a new companies law, which is designed to make it easier for businesses to set up and operate in the Kingdom. The law includes a number of key reforms, such as the introduction of a new type of company called a Simplified Joint Stock Company with an aim to meet the needs of entrepreneurs.
This new law also addresses ownership, governance and employment to help simplify the process of setting up a business while also regulating the business landscape. Speaking to Asharq Al-Awsat, Osama al-Obaidi, Professor of Commercial Law at the Institute of Public Administration (IPA), said that these legal changes will “boost corporate governance principles, facilitate regular procedures, and reduce disputes.”
The Saudi government has also been working to promote arbitration as a means of dispute resolution and this is an area where businesses can expect to see further reform in the future. The Saudi Center for Commercial Arbitration (SCCA) was established in 2014 and is working to promote the use of arbitration among businesses operating in the Kingdom. It provides training and education on the benefits of arbitration and assists businesses amid disputes.
The Impact on Dispute Resolution
The reforms to Saudi Arabia’s legal system will have a significant impact on commercial disputes. Businesses operating in the Kingdom will benefit from greater clarity and certainty with respect to their legal rights and obligations. While Saudi’s business leaders are still slightly hesitant to engage with arbitrators, there is a growing recognition of the benefits of arbitration as a means of dispute resolution.
This will position Saudi Arabia as a more attractive destination for investment since foreign enterprises will be afforded greater protection thanks to the recognition of transnational arbitration awards and the availability of impartial dispute resolution. It removes an element of risk for international businesses and will encourage more companies to invest in Saudi Arabia.
As Saudi Arabia continues to evolve as an economy, businesses can expect to see further reform in the legal system. Overall, these reforms are proving to be a positive development for businesses operating in the Kingdom and will help transform the nation into a safe and profitable destination for FDI.