Lack of cohesive legal system across the Middle East may deter investors, a senior banker and financial expert has said.
Hussain Rifai, CEO, Injazat technology Fund, a leading Venture Capital firm in the MENA region, said in an interview that stable legal infrastructure in a few countries has led to visible and positive economic change.
He said that few governments in the Middle East have embarked on ambitious plans to streamline legal framework to open up the economy to foreign investment.
“The lack of legal clarity may impede overall growth in the region,” he said, adding that the UN body in its World Investment Report 2003, has contended that national policies were crucial in attracting foreign direct investment (FDI).
“There has been a rise in foreign investments in certain countries in the Middle East due to the implementation of transparent legal systems and efficient economic policies,” he said.
“A few countries in the region have taken massive strides in developing a vibrant business environment, based on a clear legal framework. This has attracted a number of leading international companies to set up foreign affiliates in these countries. These countries are moving away from traditional economic activity and exploring new avenues for commercial and economic development. Tourism, entertainment, technology and health are just a few of the sectors that are gaining prominence in these emergent non-oil economies. But there is still a long way to go,” said Rifai.
“As an example, each country in the Middle East has different laws for setting up and operating a business,” said Rifai. “In today’s fast-paced world, such an approach is self-harming and will deter investors from taking them seriously. This encourages poor systems of corporate governance and lack of transparency in procedures, which are often reasons why a few economies still face resistance from foreign investors. New business laws should take care of this aspect as well, because clear-cut laws regarding registration, licensing and managing private and public companies are very important for investors.”
“First, there is an urgent need to establish a qualified commercial offences court, instead of letting these offences be tried in an ordinary criminal court. Commercial crimes need a different kind of expertise, with judges who are well-versed with business intricacies and commercial law, if proper justice is to be delivered. Moreover, a small claims court should also be set up, so that businessmen can pursue defaulters and settle these claims quickly, without going through the lengthy waiting period associated with more serious offences,” stated Rifai.
“Secondly, the new legal framework should also seek to remove some of the negative aspects of community and business life in some countries by ensuring that the principle of secularism is maintained in the judiciary. For example, discrimination on the basis of nationality, religion or any other factor should be eliminated, because in front of the law everybody should be equal, local or expatriates. This principle needs to be enshrined in the laws of all countries, so individual rights of citizens are well protected and respected in the court of law. This would also ensure that labour laws are not discriminatory, especially as there is a high percentage of immigrant employee work-force in the Middle East,” said Rifai.
“With businesses getting increasingly complex, the legal system in the Middle East has to be revamped to reflect modern business demands. The region’s countries that have outdated or complex laws concerning registration and licensing of new business have to draft a new set of business laws that will build confidence among local and foreign investors and allow new businesses to be established without any complications or bureaucratic hurdles,” said Rifai. “These laws can be based on business laws that have been successfully implemented by other countries. This is very important, because business is becoming increasingly globalised and standardised.”
“The need for a standard set of business laws is crucial because in many Middle East countries the law is open to interpretation. Unlike the Common Law system, which is governed by judicial precedents, the Middle East countries tend to decide each case on its merit. Such a legal system is fraught with dangers, especially when it comes to economic offences,” Rifai said. “By establishing a watertight legal system that is not open to misinterpretation, the interests of citizens as well as business can be well-protected.”
Last update on: 6-1-2004