From January 1st 2024, the Kingdom of Saudi Arabia will only award government contracts to companies that have setup their headquarters in the Kingdom. The rule states that all international companies, agencies and institutions funded by the government will be allowed to do business with the government as long as it has a HQ setup in the Kingdom.
Saudi Minister of Investment Khaled Al-Falih has clarified what a regional headquarters would include, saying; “We would want to see the companies having a major headquarters office with executive staff; their C-suite being here; operations in other countries reporting to it; and support functions, whether it’s training, product development, consolidation of regional operations, all taking place within their regional headquarters. A superficial nameplate saying ‘this is the regional headquarters’ will not fly.”
Al-Falih also clarified that it would be up to the companies to decide the reach of their new KSA headquarters, adding that, ”As a government leader now but previously a leader within a private-sector enterprise, I see the Middle East and Africa and part of Western Asia as an integrated global market, and we see Riyadh as the anchor capital for that broader region.”
Companies can, however, continue to work with and have contracts with the private sector. Additionally, there will be some sectors that will be exempt from this new regulation. Further details of this will be released by the end of 2021.
The Kingdom also insisted that this rule will not affect the ability of a potential investor to enter into the KSA market, nor will it affect a business’ relation with the private sector. However, many businesses in the private sector rely on the government for most, if not all of its contracts. “If they want to deal with Saudi Arabia then they need to come to Riyadh.” Said Fahad bin Juma’a, a Saudi economist to Al Ekhbariya, a state television channel. If you are a foreign firm and would like to set up your headquarters in KSA, reach out to us at email@example.com.
January 2021 saw a group of 24 international companies, including PepsiCo, Bechtel and Deloitte, announce their intention of moving their regional headquarters to the Kingdom at an investment conference organized by KSA’s sovereign wealth fund. While some of these companies have offices in KSA, the firms plan on naming their KSA offices as the regional headquarters, and keep their office in Dubai as well.
Benefits to KSA
According to Gulf News, this decision will motivate foreign businesses that deal with the Saudi government to create a headquarters in the Kingdom. The move will create more jobs in the Kingdom and improve economic investment in the region.
This new initiative is part of Crown Prince Mohammed bin Salman’s Vision 2030 to create private sector jobs and diversify the Kingdom’s economy. The Crown Prince has promised to strengthen its economy, currently the region’s largest economy and the world’s largest oil exporter, by aiming to diversify the economy, generate millions of jobs for Saudi nationals and attract more foreign investment.
With Riyadh containing less than 5% of the regional headquarters despite having the largest economy, Mohammed al-Jadaan, Saudi’s Finance Minister, told Reuters by phone, “Saudi Arabia has the largest economy and population in the region, while our share of regional headquarters is negligible, less than 5% currently. You can imagine what does this decision mean in terms of FDI (foreign direct investment), knowledge transfer and job creation.”
The Crown Prince told the Future Investment Initiative in January 2021 that the Kingdom plans on making “Riyadh one of the 10 largest city economies in the world.” It is currently number 40.
The large-scale initiative also includes doubling the size of its population to more than 15 million by 2030. Its population is currently 7.5 million. To achieve this goal, the KSA government will invest around $220 billion into major projects in the region, which could be matched by the private sector investors. Invest Saudi, The Kingdom’s national investment agency, had previously launched “ Programme HQ”, a relocation initiative which provided generous tax breaks among other benefits for multinationals, to encourage them to relocate.
Riyadh vs. Dubai?
Many international companies have been using Dubai as their headquarters for their regional operations, and have worked with the Kingdom from there. Al-Falih stressed that the Kingdom is not targeting a particular place, stating, “There is no specific city or country that we are targeting, we’re really just targeting the companies themselves.”
The Saudi Finance Minister Jadaan said that the Kingdom will complete all regulatory and judicial reforms, including improving quality of life in the Kingdom so companies and its employees are comfortable moving to Riyadh, stating that there is room for improvement. He also emphasized Dubai’s competitive advantage, saying “We will continue to complement each other and have a healthy competition