Saudi Arabia Firm on January 1 Deadline for Companies to Relocate Regional Headquarters to Riyadh or Risk Forfeiting Government Contracts

29 Oct, 2023

Saudi Arabia Firm on January 1 Deadline for Companies to Relocate Regional Headquarters to Riyadh or Risk Forfeiting Government Contracts

Saudi Arabia remains steadfast in its requirement for foreign companies to establish their regional headquarters within the kingdom, or risk exclusion from lucrative government contracts. This deadline is set for January 1, 2024.

In an unexpected and bold move in February 2021, the Saudi government declared its intention to cease engaging with international companies by 2024 if their regional headquarters were not located in the country. This announcement startled investors and expatriate workers, as it was perceived as a direct challenge to Dubai, the United Arab Emirates' commercial hub, which hosts a significant number of regional headquarters in the Middle East.

Faisal Al Ibrahim, the Saudi Minister of Economy and Planning, confirmed to CNBC that the plan is progressing and elaborated on how the kingdom intends to support foreign companies through this transition.

When asked by CNBC's Dan Murphy if the deadline remains unchanged, Al Ibrahim responded with a firm "Yes" and emphasized the incentives and benefits that would accompany the move.

The minister made these remarks during the Future Investment Initiative, an annual three-day finance and investment conference organized by Saudi Arabia's Public Investment Fund as part of the Vision 2030 project.

He explained that there are various incentives, evolving support mechanisms, and ongoing discussions with these companies, highlighting the positive aspects of this transition.

Vision 2030, initiated by Crown Prince Mohammed bin Salman in 2016, seeks to generate private-sector employment and diversify the economy away from its heavy reliance on oil. The drive to establish regional headquarters is a crucial component of this vision.

Initially met with skepticism and criticism, especially from regional investors and analysts, the HQ ultimatum questioned Saudi Arabia's capacity to attract foreign talent due to its conservative image and human rights concerns. Expatriates in Dubai, the regional HQ hub, expressed doubts about the kingdom's ability to provide essential services such as international schools, housing, and elements of a more Western lifestyle.

However, with more companies exploring Saudi Arabia's sizable and untapped market, the kingdom is witnessing a surge in interest and substantial investments. The presence of numerous foreign investors and financiers from around the world at the FII conference in Riyadh is a testament to this growing interest.

Minister Al Ibrahim emphasized the importance of companies that bring value creation to the local market, create high-quality jobs for Saudi and non-Saudi workers, and contribute to achieving the kingdom's quality goals. He noted that the kingdom is receiving daily applications from interested companies.

In light of these developments, the minister highlighted that this shift benefits not only Saudi Arabia but also the companies involved and the surrounding economies, as it can lead to a stronger economic ecosystem.

While the World Bank predicts a 0.9% economic contraction in Saudi Arabia for 2023 due to lower oil production and prices, the International Monetary Fund highlights robust non-oil growth, with an average of 4.8% in 2022 and an expected continuation near 5% in 2023, driven by strong domestic demand.