Saudi pressures global firms to move to Riyadh

17 February, 2021 12:00 AM printer

RIYADH: Saudi Arabia is increasing pressure on international firms to shift their Middle East hubs to the kingdom, posing a direct challenge to neighboring Dubai as a regional rivalry heats up.

From the start of 2024, the Saudi government and state-backed institutions will stop signing contracts with foreign companies that base their Middle East headquarters in any other country in the region, according to a statement from the Saudi Press Agency, attributed to an official source. The move is intended to limit “economic leakage” and boost job creation, the unidentified official said, report agencies.

It signals “competition on steroids” within the six-nation Gulf Cooperation Council, said Ziad Daoud, chief emerging markets economist at Bloomberg Economics. Still, it’s “hard to see the decision being fully implemented. Expect a lot of slippage and exemptions.”

The decision is the latest measure designed to encourage firms to beef up their presence in Saudi Arabia’s capital of Riyadh, supporting a broader plan to diversify the economy of the world’s largest crude exporter. Saudi Crown Prince Mohammed bin Salman has pushed a $800 billion strategy to double the size of the city and turn it into a global hub. While earlier steps included incentives to move, Monday’s announcement is an implicit threat—setting up firms to lose out on billions of dollars of deals unless they relocate their regional headquarters.

“It’s not natural for companies without their decision-making apparatus in the country to be getting the prime contracts that the government and government entities would be awarding,” Khalid Al-Falih, Saudi Arabia’s Minister of Investment, said in a phone interview. “It’s a reward for those who choose to be here.”

The decision lays bare a competition over global commerce and talent that has escalated as Prince Mohammed opens the kingdom’s economy and touts $6 trillion of investment opportunities over the next decade. The city of Dubai in the United Arab Emirates long ago established itself as a regional business hub for everything from banking to transport, and is a close ally of Saudi Arabia.

The GCC comprises Bahrain, Kuwait, Oman and Qatar in addition to Saudi Arabia and the UAE.

The ruling applies to government bodies that go through a Ministry of Finance procurement process, and won’t impact private sector firms or publicly traded companies even if they have state ownership, Al-Falih said.

“We believe that the combination of the infrastructure in place in Riyadh, the incentives that will be given, as well as the size of the pie in terms of business opportunities, will attract hundreds of companies to relocate and not wait until 2024,” he said.

Challenging Dubai won’t be easy, though. The glitzy emirate still offers an array of advantages over the kingdom for international companies even as the Saudi Crown Prince revises laws and loosens social restrictions.