Saudi of Arabia will stop all government contracts with foreign companies and commercial institutions that do not have regional headquarters (RHQs) located in the Kingdom from 1 January 2024, according to a Saudi Press Agency (SPA) announcement on 15 February 2021. Quoting an unnamed official source, the SPA – the Saudi government’s press agency – said that the cessation of contracts will include all agencies, institutions and funds owned by the government.
The decision aims to incentivise more businesses localisation by foreign companies in a bid to create more jobs; limit economic leakage; increase spending efficiency; and guarantee that the main goods and services purchased by government agencies are made in the kingdom with appropriate local content. The source also stressed that this will not affect the ability of any investor to enter the Saudi economy or continue to deal with the private sector, adding that the relevant measures will be issued during 2021. Even so, the kingdom’s private sector is heavily dependent on government contracts, with many companies relying on them for most of their business.
During the recent Future Investment Initiative forum held by Saudi Arabia’s sovereign wealth fund, 24 international companies announced plans to move their regional headquarters to Riyadh, including Deloitte, Bechtel and PepsiCo. However, according to a Bloomberg Quint report, some of the 24 companies already have Saudi offices, and will simply rename them as regional headquarters, while still maintaining a presence in Dubai, considered the premier regional location for RHQs.
In an interview with Bloomberg, Khalid Al-Falih, the Saudi Minister of Investment, said: “There is no specific city or country that we are targeting, we’re really just targeting the companies themselves.” Nevertheless, Saudi Arabia is trying to rapidly diversify and strengthen its economy, which has been hard hit by the coronavirus pandemic. Economic necessity is likely to drive increasing competition between the Gulf states as a result.