Saudi Arabia is increasing pressure on international firms to shift their Middle East hubs to the kingdom, posing a direct challenge to neighboring Dubai as a regional rivalry heats up, according to Bloomberg.
From the start of 2024, the Saudi government and state-backed institutions will stop signing contracts with foreign companies that base their Middle East headquarters in any other country in the region, according to the Saudi Press Agency.
The move is intended to limit economic leakage and boost job creation, it said.
Saudi Crown Prince Mohammed bin Salman has pushed an $800 billion strategy to double the size of Riyadh and turn it into a global hub and touts $6 trillion in investment opportunities over the next decade.
“It’s not natural for companies without their decision-making apparatus in the country to be getting the prime contracts that the government and government entities would be awarding,” Khalid Al-Falih, Saudi Arabia’s Minister of Investment, said in a phone interview. “It’s a reward for those who choose to be here.”
“We believe that the combination of the infrastructure in place in Riyadh, the incentives that will be given, as well as the size of the pie in terms of business opportunities, will attract hundreds of companies to relocate and not wait until 2024,” he said.
However, some of those firms already had Saudi offices, and plan to rename them as regional headquarters while maintaining a presence in Dubai, according to Bloomberg.
Competition in the making?
Dubai long ago established itself as a regional business hub for everything from banking to transport and is a close ally of Saudi.
Al-Falih denied that the new procurement rules were an attempt to challenge Dubai’s status. “There is no specific city or country that we are targeting, we’re really just targeting the companies themselves,” he said.
In an interview in 2017, Saudi’s crown prince MBS dismissed talk of rivalry between the UAE and Saudi. “I don’t think Hong Kong harmed Singapore or Singapore harmed Hong Kong,” he said. “They are creating good demand around each other.”
Fadi Ghandour, chief executive of Middle East venture capital firm Wamda Capital, based in Dubai said: “This is not a story of either/or, it’s a story of a combination. The UAE and Saudi Arabia are complementary.”
But the growing number of startups in Riyadh reflects an undeclared competition between two Gulf allies and that’s set to intensify this year.
In just a few years, the kingdom has opened up to tourists for the first time, dramatically eased restrictions on women, allowed cinemas, and wooed visitors with a parade of world-class chefs, concerts, and sporting spectacles.
Last year, a Norwegian company planning to set up a $90 million salmon farm in the UAE decided to base it in Saudi Arabia instead, Bloomberg said.
Michael Page, an international employment agency, has noticed a surge in executives, particularly in the property industry, looking to relocate as Saudi Arabia unveils projects for band new cities.
“Over the last 18 months, we have seen many high profile leaders in the real estate sector moving from across the world looking to be involved in the giga-projects,” said Tom Watson, a partner at Michael Page Middle East.
At 34 million, the population is more than three times the UAE’s, making it the biggest market in the Gulf by far.
Saudi Arabia was among the top 10 most improved countries in the World Bank’s Doing Business report for 2020, having made it easier to start a company, get permits, power, and credit, and enforce contracts. In 16th place, the UAE still leads the region, but the gap is narrowing.
Steffen Hertog, a Gulf specialist and associate professor at the London School of Economics, said: “I don’t think Dubai will lose its status as the region’s primary hub anytime soon as it is so far ahead.’’
UAE’s economic outlook
The Institute of International Finance expects a modest economic recovery in 2021 for the UAE with real GDP growing by 2.3%, following a contraction of 5.7% in 2020. It predicted 3% growth for the next year, 3.4% for 2023, and 3.5% a year later.
The World Economic Forum has ranked the UAE second in ICT adoption, fourth in digital legal frameworks, and sixth in the national Information and Communication Technology Index.
Dubai’s World Expo 2020, a six-month showcase of global innovation, is expected to attract some 25 million visitors.
Helping the recovery is the fact that the UAE’s coronavirus vaccination is ranked the world’s second-fastest with a target to inoculate over half of residents by March and 90% by June 2021.