The recent decision by the Saudi Arabian General Investment Authority (Sagia) to suspend the local operating licence of Spain’s Tecnicas Reunidas (TR) is a good example of the potential pitfalls facing international firms in the kingdom.
Foreign companies in Saudi Arabia have to form a partnership with a local. This usually means giving away a 10-20 per cent share of the business. Like all deals, there are pluses and minuses to this arrangement. Usually a local partner will understand the kingdom’s bureaucratic processes and will help in obtaining the requisite permits and visas for personnel. They will also usually possess the local influence and contacts that can mean plenty of development opportunities for any fledgling Saudi Arabian operation.
The firm now faces a tough December trying to iron out all its local administrative problems
However, TR’s problems have arisen because it thought it had liquidated a previous local partnership and registered a new one with Sagia. This turned out to be wrong and following an investigation by Sagia the firm’s administrative error resulted in the cancellation of its licence.
TR now says that the decision has been changed and its operating licence is suspended pending the submission of additional information. It is also confident that a new licence will be issued shortly.
TR is keen to stress that so far the situation has not affected any of its day-to-day operations in the kingdom.
After winning more than $2.5bn of work in Saudi Arabia this year alone, TR now faces a tough December trying to iron out all its local administrative problems as well as settle with its previous local partner.
Fortunately, it has a good reputation with some of the kingdom’s largest state-owned firms. The debacle illustrates once again that although Saudi Arabia may be a land of opportunity, it is also fraught with difficulties.