International law firms first came to Saudi Arabia in the late 1970s in the wake of the 1973 oil price explosion, when prices per barrel increased from $1.90 (96p) to $34.23 (£17.38) within a decade. Despite the high cost of establishing a presence, it was an attractive market, with associates seconded to the region charging their time at around four times their London rates.
However, from the mid-1980s international law firms ceased to view Saudi Arabia as an attractive market for legal services, as oil prices dropped and dragged fee levels down with them. Foreign investment was restricted and the economy was driven by state-owned corporations engaging contractors, the ‘take it or leave it’ character of which left little room for real deal structuring.
By the mid-1990s few international firms were left, with Baker & McKenzie and national oil company Saudi Aramco’s lawyers White & Case the notable exceptions. The other international law firms with a presence in Saudi Arabia operated what were in effect marketing offices, with two or three fee-earners on the ground, if that. In one instance a foreign firm’s presence in Saudi Arabia was an answering machine directing callers to the firm’s head office in the US.
The turnaround began with the enactment of the new Foreign Investment Regulation of 10 April 2000, which followed a policy decision made in 1998 by the then Crown Prince Abdullah Bin Abdulaziz (crowned King Abdullah in 2005) to open up and privatise large parts of the Saudi Arabian economy.
Since then more than 50 major new statutes have been enacted, transforming the legal landscape beyond recognition and culminating in Saudi Arabia being admitted to the World Trade Organisation (WTO) on 11 December 2005. Being a lawyer in Saudi Arabia in 2007 is completely different to what it was like 10 years ago, especially because local lawyers now have to read laws and cannot use 20-year-old precedents any longer.
It is often assumed that the growth in demand for legal services in Saudi Arabia is due to current high oil prices. This is wrong, because without the opening up of the economy we would still be faced with contractor type situations and no real scope for cross-border financing.
What makes Saudi Arabia today such an attractive market for legal services is the involvement of the private sector in major infrastructure projects and the participation by international financial institutions in such transactions.
However, planned projects, with estimated values in the region of $300bn (£152.31bn), have not yet resulted in a significant increase of lawyers with international capabilities in Saudi Arabia. Indeed, Bakers and Clifford Chance, with their affiliate Yousef & Mohammed Al-Jadaan, are the only international law firms with real presences in Saudi Arabia today, with others just following the old model of a marketing office with one or two associates seconded to a Saudi Arabian affiliate.
It is unknown whether any more international firms will set up full offices in Saudi Arabia, but any firm wishing to gain an effective foothold should bear in mind that there is no system of judicial precedent and law reporting, which means that one needs the cooperation of experienced Saudi Arabian lawyers with active litigation practices to give reliable and practical advice.
Moreover, a general knowledge of Islamic law falls well short of the in-depth knowledge of Islamic law as interpreted in Saudi Arabia. There are certainly no readily available reference works that would allow someone entering the market to pick up the requisite knowledge as they go along.
•Andreas Haberbeck is a partner at The Alliance of Abbas F Ghazzawi & Co and Hammad & Al Mehdar