Financial News by the People, For the People

Time’s Up For Businesses To Set Up HQs In Saudi Arabia

Saudi Arabia.

Saudi Arabia shocked the region and foreign investors back in 2021 when it announced that it will stop doing business with international companies that don’t have headquarters in the country by 2024.

In October 2023, the Saudi minister of economy and planning confirmed that the kingdom is sticking to the 1st of January deadline, exerting more pressure on global organizations.

This new policy is Saudi Arabia’s strategy to create more jobs for nationals and find a new growth engine for the economy that depended on oil for so long, but there’s also a geopolitical reason behind it.

The policy is seen as Saudi Arabia’s attempt to lure international companies out of the United Arab Emirates, which is home to more than 70% of regional headquarters for international companies in the middle east.

Can Saudi Arabia succeed in achieving its goals?

Saudi Arabia’s Unexpected Move

Back in 2021, Saudi Arabia made an unexpected bold move when it announced that it would, by 2024, cease doing business with foreign companies that don’t have regional headquarters in the country. This will take effect on the 1st of January, 2024.

The plan is still in motion, according to the Saudi minister of economy and planning Faisal Al Ibrahim, who said that the kingdom would offer incentives to international companies to support them with the move.

When the plan was first announced, it confused many investors, bankers and expat workers based in the country, since it originally started as a pitch to global companies to open offices in the country, as part of Crown Prince Mohammed bin Salman’s Vision 2030.

However, what started as a simple pitch gradually became an ultimatum for foreign companies, who were told to either move their regional headquarters to Saudi Arabia or lose out on doing business with the Saudi government.

Why Is Saudi Arabia Doing This?

This has to do with the growing Saudi population which reached 32.2 million in May of this year, with 63% of Saudis under age 30.

This large and young population is one of the main drivers for the Crown Prince’s plans to diversify the kingdom’s economy away from oil, which accounted to 40% of its GDP in 2022, and create jobs for nearly 10 million Saudi nationals in order to significantly boost Saudi’s economy.

The need to create new jobs for Saudi nationals is directly linked with the new regulations, with the Saudi government stressing that international companies have profited from the government procurement for decades, without actually leaving any economic impact on the oil-dependent country.

Targeting The UAE?

Besides Saudi Arabia’s desire to boost and diversify its economy, the new policy could also be the kingdom’s way to end the United Arab Emirates’ (UAE) monopoly on hosting international companies’ headquarters.

In 2021, Saudi Arabia was hosting only 5% of international companies’ regional headquarters, while the UAE was home to 76%, despite having a GDP that is half the size of Saudi Arabia’s, which were $415 billion and $833.5 billion respectively.

Even though the difference between the two countries’ GDPs is massive, the UAE still received more foreign investment since 2013, and most recently in 2021, Saudi Arabia received $19 billion in foreign direct investment, while the UAE received $20 billion.

So, Saudi Arabia isn’t satisfied with the current status quo between the two countries, and desires to change it. However, the UAE isn’t going down without a fight, as it responded by offering different incentives to attract foreign companies, in addition to a corporate tax rate of 9%, which is less than half of Saudi Arabia’s corporate tax rate at 20%.

When it comes to opinions on the new Saudi policy in the two countries, Saudi professionals see it as good competition for businesses and the region that would benefit all, as Atlantic Council empowerME Chairman Amjad Ahmad said.

However, Dubai’s former finance chief, Nasser Al-Shaikh, disagreed. He wrote on Twitter that the decision contradicts the principle of the unified Gulf market, and that what Saudi Arabia is doing is forcibly attracting foreign firms, which is not sustainable.

Is The UAE Worried?

Despite ringing alarm bells in the UAE when it was first announced, many foreign expats in the UAE, who make up around 90% of its population, believe that Saudi Arabia doesn’t have what it takes to overtake the UAE.

Foreigners prefer the UAE because it’s more liberal than Saudi Arabia, and believe that life in Riyadh or any other major Saudi city can’t even be compared to life in Dubai with its strong diversity that Saudi Arabia lacks.

In addition to that, there’s also the reputation that follows the country. While many foreigners would associate the UAE with tall skyscrapers and modern infrastructure, ask them what they think of Saudi Arabia and they’ll probably come up with things like poor human rights and oppression of women.

So, in order to truly compete with the UAE, Saudi Arabia needs to dramatically lift lifestyle restrictions. To compare, the UAE’s policy of opening up to the rest of the world paid off, and it ranked at the 16th place on the World Bank’s 2020 Ease of Doing Business Index, while Saudi Arabia ranked 63rd.

Is Saudi Arabia’s Plan Working?

In addition to strong competition from the UAE, Saudi Arabia faces another challenge that has to do with its own prices. The cost of living in the country is really high for foreigners. Utilities’ bills increased by 6% in 2022, and the costs of acquiring housing and offices jumped by as much as 40% in Riyadh, in preparation for the demand the new policy would create.

However, the kingdom is willing to compensate companies by offering a ten-year exemption on quotas for hiring a certain percentage of Saudis.

Despite all the challenges and skepticism, many international companies have agreed to establish headquarters in the kingdom, including PepsiCo, DiDi, Philips, SAP and Unilever.

It seems that international organizations will always be welcoming to doing business with Saudi Arabia, as demonstrated by new business deals this year, including a $37 billion airplanes deal between Saudi airlines and Boeing, and Oracle’s announcement of a $1.5 Billion in the country.

But the kingdom wants more than business deals, and plans to establish itself as a financial and trade global hub. Saudi Arabia’s goal is to get 480 companies to open regional headquarters by 2030, but this goal can be achieved only when the downsides to living and working in Saudi Arabia decrease significantly.

Disclaimer

Please visit and read our disclaimer here.

Everything Else..

Share this article
Shareable URL
Prev Post

Smartphone Brand Xiaomi Reveals Its First EV

Next Post

7 of Saudi Arabia’s Megaprojects

Leave a Reply

Your email address will not be published. Required fields are marked *

Read next