Trouble for Dubai? Ripples in Arab world as Saudi govt asks foreign firms to ‘make a choice’

International companies that want to participate in the Saudi government’s investment opportunities “will have to make a choice” and establish regional headquarters in the kingdom as of 2024 or they will not win government contracts, the Saudi finance minister told Reuters on Monday. Saudi Arabia, the region’s largest economy and the world’s largest oil exporter, plans to cease contracting with companies and commercial institutions whose regional headquarters are not located in the Kingdom in a move aimed at encouraging foreign firms to open a permanent, in-country presence that would help create local jobs.

They will, however, be free to work with the private sector. “If a company refused to move their headquarters to Saudi Arabia it is absolutely their right and they will continue to have the freedom to work with the private sector in Saudi Arabia,” Mohammed al-Jadaan said by telephone. “But as long as it is related to the government contracts, they will have to have their regional headquarters here.”’

He added that some sectors will be exempt from the decision, and detailed regulations will be issued before the end of 2021.”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,” Jadaan said.

Saudi Arabia’s de-facto ruler, Crown Prince Mohammed bin Salman, has pledged to open the kingdom and strengthen its economy under an ambitious reform strategy that aims to diversify the oil-dependent economy, attract foreign investment and create jobs for millions of young Saudis. Foreign firms have for years used neighbouring United Arab Emirates as a springboard for their regional operations, including for Saudi Arabia.

Jadaan said the current business environment has room for improvement and that the government will complete judicial and regulatory reforms and improve the quality of life so that companies and people feel comfortable moving to Riyadh. At the same time, he stressed that Dubai as a major regional business hub has its own competitive advantage. “We will continue to complement each other and have a healthy competition,” he said.