Saudi Arabia answers questions on regional HQ policy

02 March 2021 5 min. read

Saudi Arabia is sticking by its plans to exclude non KSA-headquartred foreign companies from doing business with state entities, but has clarified some points around what a regional HQ should entail. 

Doubling down on its 2019 edict banning foreign public sector consultants, Saudi Arabia has announced that by 2024 all international companies would be barred from doing business with the government unless their regional headquarters were located in the Kingdom. Aimed at luring investment to the capital, the bold gambit follows Crown Prince Mohammed bin Salman’s recently stated aim of developing Riyadh into one of the world’s ten greatest cities by the end of the decade.

To achieve its goal of more than doubling the city’s population to 20 million in the space of ten years, the Saudi government will pour around $220 billion into major local projects, a figure it hopes will be matched by private sector investors. Previously, the Kingdom’s national investment agency Invest Saudi had launched its “Programme HQ” relocation initiative, offering generous tax breaks and further incentives for multinationals to base themselves locally.

Saudi Arabia answers questions on regional HQ policy

According to reports, the investment marketing strategy follows a period of consultation with leading US management firms, ironically flown in from Dubai on a weekly basis to help develop a plan for Riyadh to overtake the emirate as the region’s foremost business hub. As it stands, it’s estimated that the Saudi capital hosts a less than 5 percent share of regional headquarters, despite having the largest local economy and, in consulting terms, these days accounting for the bulk of the work.

As for the latest exclusion-focussed measure, the order extends to “agencies, institutions, and funds owned by the government,” potentially ruling out dealings with entities such as Saudi Aramco and the Saudi sovereign wealth fund PIF for non-compliant foreign businesses. The new decree had also raised a number of questions in respect to what exactly constitutes a regional headquarters, as well as speculation over whether companies might attempt to effectively relocate in name alone.

Saudi Minister of Investment Khaled Al-Falih has since clarified the point; “We would want to see the companies having a major headquarters office with executive staff; their C-suite being here; operations in other countries reporting to it; and support functions, whether it’s training, product development, consolidation of regional operations, all taking place within their regional headquarters. A superficial nameplate saying ‘this is the regional headquarters’ will not fly.”

Forming part of the country’s ongoing push to diversify the economy away from oil, as per its Saudi Vision 2030 agenda, government officials have stated that the new policy aims to limit economic leakage and transfer expertise, increase spending efficiency, guarantee that primary government-bought goods and services originate from the Kingdom, and create scores of local jobs. However, employment quotas for Saudi nationals won’t be enforced for relocating companies.

In an interview this week, Al-Falih also addressed another question raised by the new procurement policy – the definition of regional – saying that it would be up to companies to decide the reach of their KSA headquarters, adding however that, “As a government leader now but previously a leader within a private-sector enterprise, I see the Middle East and Africa and part of Western Asia as an integrated global market, and we see Riyadh as the anchor capital for that broader region.”

Companies on the move

The government’s push for committed corporate investment has already achieved some results, with twenty-four notable international companies having signed MoUs to establish regional headquarters in Riyadh prior to the recent policy announcement – leading Big Four professional services firms PwC and Deloitte among them. Other companies to declare their intentions at last month’s Future Investment Initiative summit included PepsiCo, Schlumberger, Bechtel and Boston Scientific.

“We are proud of our longstanding relationships in the Kingdom of Saudi Arabia and continue to support the Kingdom’s remarkable transformation from our regional consulting headquarters in Riyadh,” said PwC’s KSA country head Riyadh Al Najjar, a near thirty-year local consulting veteran who in 2018 saw PwC’s Saudi-based headcount hit the 1,000-mark. “With a large number of mega cross-sector projects Riyadh is quickly becoming a global destination.”

Deloitte Middle East CEO Mutasem Dajani, who took over the helm in the middle of last year, added: “Riyadh is undergoing a remarkable transformation to reinforce its position as one of the world’s major global centres for business, tourism and quality of life. Deloitte is honoured to be a strategic partner for the city on its journey to achieve its ambition under Vision 2030.” Saudi Arabia is believed to already host the largest share of the firm's 5,000-plus regional employees.

Meanwhile, Alex Nasr, Principal Consultant at Q5 Partners, scoffed at suggestions lifestyle differences would prevent Riyadh from ever supplanting Dubai as the region’s premiere hub. “There’s no doubt that Saudi Arabia will compete with Dubai,” he told CNBC. “With Vision 2030 and the radical changes the nation is pushing through, it will begin catching up on the quality of life front. As soon as the veil is lifted on the lifestyle restrictions, the expats will begin to pour in.”