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Doing Business in the GCC: A Region of Competing and Contrasting Opportunities

Posted in ACC Europe, In the House, In-House Practice, On the Road

Guest Blogger: Alex Morrall is a consultant to ACC based in London. He has worked in the international legal services market for 15 years, mostly in publishing and events.

The business opportunities opening up to international companies in the Cooperation Council for the Arab States of the Gulf (GCC) are fast increasing, but the six Persian Gulf countries that comprise it have different commercial attractions and potentially competing economic goals, participants learned at a recent Doing Business in the GCC conference held in London.

Hosted by law firm Norton Rose, and drawing on the practical experience of panelists from Aegis Group, Boston Consulting Group, Celerant Consulting, Citigroup and Everything Everywhere, the advice offered to ACC members was both insightful and practical.

In seeking to do business in the region, international companies must ensure that they undertake the requisite due diligence not only to confirm the depth of demand for their offering but to also understand the right markets to enter. In order to operate successfully, companies must also ensure that they choose the right local partner, understand the relative regional legal and political differences, and have in place mechanisms to unwind any local operations should the need arise — getting into the GCC may actually be easier than leaving, cautioned some experts.

The drive for diversification

The GCC has enjoyed an oil and gas-fueled boom lasting over half a century, with the past two decades particularly demonstrating the dynamism (and drive for diversification) of the leading regional economies — the dramatically changing skylines of Abu Dhabi, Doha and Dubai reflect the scale of regional investments being made.

Established in 1981, the GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) — itself a federation of seven autonomous emirates, with the most high profile being Dubai and the capital Abu Dhabi. The combined population of the GCC is around 50 million (most people are under 30), and two other countries, Jordan and Morocco, have now been invited to join, with a goal of membership by 2015.

Oil and gas remain the regional economic drivers, and it is petrodollars that underwrite major government projects and spending, with the public sector still the major regional employer. But across the GCC, finite resources mean that there is a strong drive towards economic diversification, and it is this that is pulling in more foreign businesses, in the construction, finance, manufacturing, telecoms and services sectors, said participants.

Despite the evident current natural-resources wealth, the region is not immune to social or economic tensions, said Jane Kinninmont, senior research fellow on the Middle East and North Africa (MENA) Programme at Chatham House in London— including rising social-security and public-spending costs and issues around the centralisation of political power. Greater integration is bringing populations together and causing absolute monarchies to rub shoulders with nascent democracies.

The region is not an amorphous mass, and there are clear cultural, as well as legal and business, differences between individual states that must be understood, or at least appreciated, if a business is looking to establish an on-the-ground operation, noted Darryl Coulter, Solicitor and Group Legal Manager at Celerant Consulting.

*Panel – ACC Europe Doing Business in the GCC event, London *

Finding the right local partners

Politics and business are also often intricately linked throughout the GCC. To operate locally (beyond the region’s dedicated International Finance Centres — IFCs), companies will inevitably need to find a local partner or sponsor, and this can bring its own issues, emphasized the panelists.

The local partner will likely need to control 51 percent of any joint venture, but in reality, will often have little to do with the day-to-day affairs of the business. To find the right partner, therefore, requires considerable due diligence; individuals may have ties with the local political establishment but lack the right business expertise for your industry, or already have well-established ties with your competitors.

Local legal rules can also bring obvious challenges. Islamic law prevails, and outside of the Dubai or Qatar IFCs, it will dominate local contracts and courts. Alternative legal options are available, including the use of a neutral foreign law (with Switzerland increasingly used), but the best guarantee of enforcing an agreement is to operate in good faith, emphasized the panelists. The way business is done and negotiations conducted, and the relative size of the GCC business community, combine to mean that preserving the “good” name of an individual party is often a key goal, whatever the issue presented.

To operate within the GCC, businesses inevitably have to adapt, and executives have to be culturally aware, but outside of Saudi Arabia, there are few practical issues presented to non-locals (including women), in terms of living or working in the GCC, emphasized Kim Hilton, Head of Regulatory Law at Everything Everywhere.

Fundamentally, however, international businesses must see themselves as guests in the host country, believe many, and to build a sustainable operation means committing to the GCC for the long-term.