Despite anticipating an influx of foreign direct investments and bilateral trade with western and emerging economies, Saudi Arabia still remains relatively closed to foreign investors and firms, particularly in the legal field. Similar to Malaysia, Indonesia and Brazil, the kingdom still has restrictions in place for foreign law firms looking to set up in the high growth emerging market. The Saudi Arabian government has pledged up to US$400 billion on infrastructure growth for the five-year period between 2009-14: specifically for roads, airports and energy projects.
The kingdom’s Islamic capital market sector, which prior to 2011 was relatively quiet, has also come alive with major issuances by SATORP and the General Authority of Civil Aviation, and is expected to continue on an upward growth trajectory throughout the year. Despite the restrictions on foreign law firms setting up as standalone entities, major law firms with an established international presence such as Vinson & Elkins and Baker & McKenzie have successfully penetrated the Saudi Arabian market via associations with local partner law firms.
Although foreign law firms and foreign-based lawyers have not shown signs of aggressively pushing for liberalization, the rapid growth of Islamic finance in the country and government support for project and infrastructure financing could potentially spark a rush to establish themselves in this market. A Dubai-based lawyer commented: “The idea behind bringing in foreign law firms is to enable the transfer of technology and expertise which local lawyers don’t possess. It is possible to create exceptions to the rule, in the case of some local bar associations which do not allow foreign law firms to practice in areas such as litigation and family law, but allow representation for capital markets, banking and corporate practice groups.”
He also believes that liberalization is crucial for reeling in foreign investments: “When foreigners come in, they will expect the law firms to deliver. Not allowing this could stifle foreign investment. It is imperative for the legal system to develop in tandem with a country’s development.” — NH