Saudi Arabia is increasing pressure on international companies to relocate their Middle East hubs to the Kingdom, posing a direct challenge to neighboring Dubai as regional rivalry intensifies.
As of January 1, 2024, the Saudi government and state-sponsored institutions will no longer sign contracts with foreign companies headquartered in the Middle East in another country in the region. This emerges from a statement by the Saudi press agency attributed to an official source. The move is designed to limit “economic leaks” and encourage job creation, the unidentified official said.
The decision is the latest move to encourage companies to step up their presence in the Saudi Arabian capital, Riyadh, and supports a broader plan to diversify the economy of the world‘s largest crude oil exporter. Saudi Crown Prince Mohammed bin Salman has pushed an 800 billion dollar strategy to double the size of the city and make it a global center. While previous steps included incentives to move, Monday’s announcement is an implicit threat – the creation of companies that lose billions of dollars in business unless they relocate their regional headquarters.
“It is not a matter of course that companies without their decision-making apparatus in the country receive the main contracts that the government and government agencies would award,” said Saudi Arabian investment minister Khalid Al-Falih in a telephone interview. “It’s a reward for those who choose to be here.”
The decision exposes a regional competition for global trade and talent that escalated when Prince Mohammed opened the kingdom’s economy and announced $ 6 trillion in investment opportunities over the next decade. The city of Dubai in the United Arab Emirates long ago established itself as the regional business hub for everything from banking to transportation and is a close ally of Saudi Arabia.
The ruling applies to government entities that go through a Treasury Department procurement process and have no impact on private sector companies or publicly traded companies, even if they are state-owned, Al-Falih said. “We believe that the combination of the infrastructure in Riyadh, the incentives that are being given and the size of the cake in terms of business opportunities will attract hundreds of companies to move rather than wait until 2024,” he said.
However, it won’t be easy to challenge Dubai. The dazzling emirate still offers international companies a number of advantages over the kingdom, even as the Saudi Crown Prince revises laws and eases social restrictions.
Last month, a group of 24 international companies, including Deloitte, Bechtel and PepsiCo, announced at an investment conference organized by the Saudi Arabian state fund that they were moving their regional headquarters to the kingdom. However, some of these firms already had offices in the UK and plan to rename them regional headquarters while still having a presence in Dubai.
Al-Falih denied that the new procurement rules were an attempt to challenge Dubai’s status as a regional center. “There is no particular city or country that we are targeting. We are really only targeting the companies themselves,” he said.
If applied rigorously, the 2024 decision could be a powerful incentive. The government official quoted by SPA said the policy “will not affect the ability of investors to enter the kingdom’s economy or continue to engage in the private sector”.
However, the UK’s private sector is heavily dependent on government contracts and many companies rely on them for most or all of their business. The related provisions will be released later this year, the official said.
“This gives companies time to think, as the decision has been made,” said Saudi economist Fahad bin Juma’a to state television channel Al Ekhbariya. “If you want to deal with Saudi Arabia, you have to come to Riyadh.”
(Except for the headline, this story was not edited by GossipMantri staff and published from a syndicated feed.)