New Civil Transaction Law in Saudi Arabia: ties between the UAE and the Kingdom under scrutiny

CTL - New construction regulations, Saudi Arabia
CTL - New construction regulations, Saudi Arabia

The Saudi cabinet on Tuesday, according to Saudi Press Agency, SPA, approved the controversial contracting regulations for firms that are not based in the Kingdom. 

The Kingdom has already set a deadline - January, 2024 -  for the companies in question to move their regional headquarters to the Kingdom or risk losing lucrative contracts that are worth hundreds of billions of US dollars.

The law, known as the CTL - Civil Transactions Law - covers both public and private contracts; some aspects had already set the alarm bells ringing in the business world, when it was first announced this year.

When it comes to public projects, the CTL emphasizes the need of international firms having their regional headquarters in the Kingdom. If the firms already have their headquarters in Saudi Arabia, they comply with the law. The new international companies, however, may face challenges, when it comes to entering the lucrative Saudi construction sector.

As for the private projects, the CTL sets specifics for companies to comply with: the CTL encourages the participation of local firms and businesses. That means the international firms are encouraged to partner with the local firms in a constructive manner to benefit both sides. The Saudis say it is a way of promoting being competitive in the sector.

As for resolving disputes, the law encourages mediation and arbitration to complement the existing, traditional litigation that takes time to bring about solutions that affect both parties. 

On a positive note, as far as foreign firms are concerned, the CTL takes steps to safeguard intellectual property - IP - of the firms; it throws a lifeline at technological firms when it comes to protecting their innovative technologies.

Both large firms with plenty of resources at their disposal and those are specialized in sectors with minimum local competition, will navigate the respective  domains set up by the new law easier than the rest, unless provisions evolve over the time.

Political analysts are watching how the implementation of the new law will affect the relations between Saudi Arabia and the UAE that has a thriving construction sector. The emphasis on local content requirement may deprive the major UAE firms of accessing  the expanding Saudi markets, unless a specific concession is made while taking into account the strategic and strong relations between the two countries.

Saudi Arabia, meanwhile, are promoting its tourism sector as well while emulating the success of Dubai, the jewel in the crown of the UAE as far as this particular sector is concerned. Although not being under imminent threat by the Saudi move, the development along with the new CTL will have enough ingredients, in reached a critical mass, to drive some form of wedge between the two nations.  

As the relations between Iran and the two nations are on the mend, they no longer see a common enemy in Iran an immediate existential threat, especially when the ceasefire with the Houthis in Yemen still holds. 

The relations are still fragile, though: Iran's continuous material support for the Houthis may not be welcome by both the UAE and Saudi Arabia, because up until a year ago, the latter were under attack by drones and missiles by the Houthis; in addition, the territorial dispute between Iran and the UAE about three islands in the Persian Gulf is still a bone of contention between the two regional heavyweights. 

Three islands claimed by the UAE and Iran
Three islands claimed by the UAE and Iran

A recent statement by Russia, a strong ally of Iran, in supporting the right of the UAE for claiming the islands in question drew a strong rebuke from Iran.

If Iran accelerates enriching uranium to such an extent that Iran can produce a nuclear bomb, both countries will change their political affiliation in a matter of hours; Saudi Arabia has, time and again, said that if Iran acquires nuclear weapons, they will do it too.

In this context, the strong relations between the UAE and Saudi Arabia are mutually beneficial to both. The impact on that relations between the two countries with the implementation of the  CTL  remains to be seen in the New Year. The strong trading links between the two countries, perhaps will offer a buffer to offset any mutually-harmful development, if it ever comes to that.

If it strains, by extension, it will affect the way they do business in the OPEC+ as well. With Angola's impending departure in January next year, the group cannot afford to let yet another fault line crisscrossing the 60-year old alliance. 


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