Multinational companies stand to gain by moving regional headquarters to Saudi Arabia

The move will increase the contribution of foreign investment and boost the Kingdom’s small business climate as its economic diversification continues under the Vision 2030 reforms

Shutterstock

A view of Riyadh skyline. There has been a steady flow of companies applying to set up offices in the country since the rule introduced three years ago went into effect at the start of 2024.

Multinational companies stand to gain by moving regional headquarters to Saudi Arabia

Shujaa Albogmi

last update on 10 Jan 2024

From the start of 2024, Saudi Arabia introduced a new requirement for companies seeking to do business with the government: they must have a regional headquarters in the country.

The change was first introduced three years ago to give firms time to fully move their offices to Saudi as they seek the vast investment opportunities on offer throughout the Kingdom’s economy.

When the new rule was announced in 2021, critics argued that it would be difficult to implement. Some said global companies would not come, or that the rule would deter foreign investment and would likely be reversed before going into effect.

Now that 2024 has arrived, the situation on the ground shows that such fears were misplaced. There has been a steady flow of companies applying to set up offices in the country, in general, and Riyadh, in particular.

Their arrival will stimulate further development and highlight the seriousness of the Kingdom’s ambitions to open up and diversify its economy – as outlined in the Vision 2030 reforms – and will maximise the potential positive impact on its gross domestic product (GDP), which measures the value of all the goods and services produced by a country.

Before the launch of Vision 2030, Saudi GDP was estimated at about $666.7bn, or 2.5tn riyals in local currency. Today, it has grown to $1.1tn, or 4tn riyals.

This represents unprecedented growth. It is widely seen as a remarkable development in global terms. As well as some of the strongest growth rates in the world, the Kingdom now has a more vibrant economy, which has become one of the most dynamic in the region as well as the most influential.

shutterstock — King Abdullah Financial District (KAFD) , Riyadh, Saudi Arabia.

As well as some of the strongest growth rates in the world, the Kingdom now has a more vibrant economy, which has become one of the most dynamic in the region as well as the most influential.

Unlocking wider benefits

The decision to bring regional HQs of foreign companies to the Kingdom, as part of Vision 2030, was always designed to help unlock wider economic benefits, alongside increasing the share of GDP from the private sector.

Reform has helped attract inward investment, along with four main developments, which are:

National growth: The first has been to increase the contribution of foreign companies and their investments to the GDP. Global analysts now expect Saudi growth rates to be among the best in the developed world.

Attractive investment climate: The second has shown the global pulling power of the Kingdom. It has attracted companies that did not have headquarters anywhere else in the region. The opportunities on offer bringing firms to Saudi Arabia as investors underscore the magnitude of the long-term opportunities on offer.

Job creation: The third opens up more opportunities within the national economy for established Saudi businesses via job creation and sustained investment.

Domino effect: The fourth involves the combined power of stimulus for small businesses to create a domino effect, putting the targets of Vision 2030 within reach, not least the one for small and medium-sized enterprises to account for 35% of GDP by that year.

AFP — A snapshot from the annual Future Investment Initiative conference in Riyadh in October 2023.

Complete data on the numbers and sizes of international companies in the county are expected during the current year.

The licensing requirements and elements of the wider application process are still ongoing. Meanwhile, many businesses are already up and running in Riyadh.

An official committee will ensure that government business goes only to qualifying companies meeting the new requirements, which the Local Content and Government Procurement Authority will run. The committee will decide on matters requiring an exception to the rule.

The decision to bring regional HQs of foreign companies to the Kingdom, as part of Vision 2030, was always designed to help unlock wider economic benefits, alongside increasing the share of GDP from the private sector.

Strategic objectives

One of the strategic objectives of the authority is "increasing local content in government procurement, increasing local content in the private sector, and maximizing the developmental benefit of national purchasing power."

This is in addition to "developing statutory tools and methods for developing local content, improving government procurement, and increasing compliance and commitment to the application of local content requirements."

Saudi Arabia has already begun to implement this key decision, which will ultimately contribute to unlocking the further growth of an economy that is already the fastest growing in the G20.

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