Heading into summer, the GCC region has seen a burst of pre-Ramadan deal activity as buyers and sellers race to complete their transactions. The dynamic deal environment casts into sharp relief a few of the more notable trends and changes in the Gulf countries that impact corporate and real estate acquisitions.
First, new and soon-to-be effective companies laws have been passed by the Parliament of Kuwait and the Federal National Council in the United Arab Emirates (UAE). Although the new UAE law omits the most highly anticipated change - a revision to foreign-ownership restrictions - it reportedly will permit single-member limited liability companies.
Similarly, the new Kuwait companies law offers the option to have sole-shareholder companies and attempts to put into effect a "one window" system to streamline the company formation process.
Perhaps even more importantly, the Dubai International Financial Centre (DIFC) has authorized creation of "special purpose companies" that may be used for financing transactions, without the requirement of letting office space or maintaining bank accounts. In combination, these and other changes seem to show a trend toward more and better investment-structuring options.
RULES OF ARBITRATION
Second, in Saudi Arabia a new arbitration law allows the parties to choose any arbitration rules that they wish, any language for the arbitration and any arbitrators - as long as the chair (or the sole arbitrator) of the arbitral panel has a university degree in Shari'ah. As importantly, Saudi Arabian court involvement is now limited, as are the grounds and time for appeal of an arbitral award.
Meanwhile, the courts in the DIFC - which can hear cases in English, and under English common law, and are therefore more appealing to foreign parties - will now accept disputes relating to matters outside of the DIFC.
Furthermore, in several recent instances, the courts in the UAE have upheld arbitral awards rendered outside of the GCC. This should not be remarkable, as the UAE acceded to the New York Convention in 2006. Until recently, however, the local courts refused to enforce foreign awards, consistently finding a public policy exception to enforcement, often on the basis that the award was somehow inconsistent with Shari'ah.
The changes may represent a trend towards better enforcement of both contracts and arbitral awards - historically an area of weakness for the Gulf countries - and better enforcement creates a more favorable investment climate.
CREDIT ENVIRONMENT
Third, as Zawya and others have noted in May, the UAE is set to roll out a federal credit bureau in July of 2013 to track credit histories of businesses and individuals.
At the same time, the new UAE companies law reportedly stipulates that "shares" in a limited liability company may be pledged, and that the pledge may be registered in the commercial registry of the relevant emirate, offering protection for secured parties.
Saudi Arabia has also enhanced the environment for lenders and creditors with the 2012 introduction of finance, mortgage and enforcement laws. The developments, which seem to be aimed in all cases at stimulating the finance and real estate markets, also provide greater security for investors of all stripes.
There are some less-favorable trends and changes. As a general matter, most of the negative developments seem to come from protectionist sentiments, and they represent the continuing tension between the drive opening the Gulf economies to foreign investment - partly as a way to foster economic diversification and the knowledge transfers - on the one hand, and on the other hand the desire to shelter local businesses and workers from competition and, in some cases, to avoid disrupting rent-seeking behavior.
In Saudi Arabia, for example, the General Investment Authority has slowed its process of licensing foreign investors to a crawl and now will often make novel demands for documents or information.
And in many of the Gulf countries, increased emphasis is being placed on hiring national citizens and providing them with good salaries and good training. In spite of these occasional impediments, however, the general direction of the trends and changes seems to be in favor of openness and investment.
Benjamin Newland is partner at the Dubai office of international law firm King & Spalding.
© Zawya 2013
