Skyline of Riyadh in Saudi Arabia.
Simon Dawson | Bloomberg | Getty Images
DUBAI, United Arab Emirates — Saudi Arabia, in a bold and unexpected move, announced late Monday that by 2024 its government would cease doing business with any international companies whose regional headquarters were not based within the kingdom.
The news has investors, bankers and expat workers buzzing — and scratching their heads.
Saudi Arabia in recent years has pitched itself as a location for HQ offices in its campaign to create private sector jobs and diversify its economy as part of Crown Prince Mohammed bin Salman’s Vision 2030.
But what began as a pitch to global head offices has now become an ultimatum for some: either relocate your headquarters to the kingdom, or lose out on lucrative government contracts. And the move, regional analysts and finance professionals say, appears to be targeted at the region’s current headquarters hub: Dubai.
“The Kingdom of Saudi of Arabia intends to cease contracting with companies and commercial institutions with regional headquarters not located in the Kingdom. The cessation will include agencies, institutions and funds owned by the government and will take effect January 1st, 2024,” Saudi state agency SPA reported on Monday.
So far, the policy appears only to apply to firms doing business with the government; those that don’t move their head offices to Saudi Arabia can still work in the private sector.
The Saudis are “trying to lure companies out of Dubai, I expect, and elsewhere,” Ryan Bohl, a Middle East analyst at risk consulting firm Stratfor, told CNBC.
One UAE-based financier, who spoke anonymously due to having business operations in Saudi Arabia, described the move as “clearly targeting the UAE” and a “jab in the face” to Dubai.
“It’s a terrible decision,” the financier, a longtime veteran of the region, added. “It’s anti-common market, it’s anti-competition, and it’s essentially corporate bullying.”
Saudi officials feel differently. While the kingdom’s finance and investment authorities did not respond to CNBC requests for comment, Minister of Investment Khalid Al-Falih tweeted that the decision “will be reflected positively in the form of creating thousands of jobs for citizens, transferring expertise, and localizing knowledge, and it will also contribute to developing local content and attracting more investments to the Kingdom.”
The government aims to significantly increase Saudi Arabia’s current share of less than 5% of the region’s HQ offices.
UAE officials have so far been quiet, but Dubai’s former finance chief Nasser Al-Shaikh had some critical words for the kingdom.
The decision “contradicts the principle of the unified Gulf market,” Al-Shaikh wrote on Twitter Monday night.
“Forced attraction is not sustainable and most effective is to improve the environment,” he said, arguing that as the largest market in the region already undergoing major development, Saudi Arabia’s move is unnecessary.
Indeed, the oil-rich kingdom — the region’s largest market, with a 34 million population, 70% of which are younger than 30 — has attracted a wave of new investment in recent years, coinciding with its liberalizing economic and social reforms.
Invest Saudi, the kingdom’s investment promotion arm, previously launched “Programme HQ,” offering special tax breaks and other incentives to blue chip multinational companies. Consultants from top American consulting firms were flown in weekly from Dubai to develop strategy on how the conservative metropolis of Riyadh could compete with and supplant Dubai as the region’s preeminent business hub.
Google Cloud, Alibaba and Western Union are some of the latest big names to establish stakes in the kingdom. And during Saudi Arabia’s annual Future Investment Initiative in January, 24 international companies announced their plans to move their regional head offices to Riyadh, including PepsiCo, French oil services company Schlumberger and Canadian chain Tim Horton’s.
The Saudi government is investing $220 billion in projects aimed at putting Riyadh in the world’s top 10 city economies, and is offering competitive tax-free salaries to employees willing to relocate there.
Woman sunbathers sit along a beach in the Gulf emirate of Dubai on July 24, 2020, while behind is seen the Burj al-Arab hotel. After a painful four-month tourism shutdown that ended earlier in July, Dubai is billing itself as a safe destination with the resources to ward off coronavirus.
KARIM SAHIB | AFP via Getty Images
But will that be enough to lure expats out of Dubai, where they can drink, wear bikinis on the beach and enjoy a far more liberal lifestyle, comparable on many levels to the West?
“The lifestyle in Saudi is not comparable,” said one Dubai-based venture capitalist, speaking anonymously because of her firm’s financial interests in the kingdom. “You don’t have the same freedoms you have here — here I can go on a public beach and hang out… Dubai is a global city, Riyadh is far from that. It lacks the diversity that Dubai has. That’s a big deal for me.”
Indeed, one of Dubai’s allures for foreigners is its majority expat population — 90% across the UAE as a whole. The success of Dubai’s global openness model manifests itself in numbers as well: according to the UN’s trade database, the UAE in 2019 received 300% more foreign direct investment than Saudi Arabia, despite its economy being about half the size.
And the UAE ranked 16th on the World Bank’s 2020 Ease of Doing Business Index, while Saudi Arabia ranked 63rd.
There’s also the reputational issue. Ask many foreigners what they think of Saudi Arabia, and they immediately associate it with a poor human rights record and oppression of women.
“A country that actively silences women? No thanks,” one American expat working in Abu Dhabi said. Riyadh has come under fire from rights groups and foreign governments for the killing of Saudi journalist Jamal Khashoggi in 2018 and for the jailing of several female driving activists, among others.