Saudi Arabia’s regulation for foreign companies to set up regional headquarters in the kingdom will support the country’s non-oil economy and improve job creation in the Arab world’s largest economy, according to analysts.
The regulation, which requires firms to set up a local base in the kingdom or risk losing out on government contracts, came into effect on Monday.
However, companies with foreign operations not exceeding 1 million Saudi riyals ($266,000) can operate in the kingdom without local headquarters.
“We project robust non-oil growth of 5 per cent in 2024, the highest in the GCC, on a continued broad-based expansion of the non-oil economy,” Carla Slim, an economist at Standard Chartered Bank, told media.
“The headquarters regulation coming into effect adds impetus to the recovery – which has extended beyond a cyclical post-pandemic recovery on the many structural reforms implemented under Vision 2030.”
Saudi Arabia is aiming to increase foreign direct investment as part of its Vision 2030 agenda to diversify its economy away from oil. The kingdom hopes to have 480 global companies establish headquarters in the kingdom by 2030 amid efforts to improve economic output.
In October 2021, 44 companies received government licences to set up headquarters in the country. The companies that had already relocated their regional headquarters by then included PepsiCo, DiDi, Unilever, Siemens, KPMG, Novartis, Baker Hughes, Halliburton, Philips, Flour, Schlumberger, SAP, PwC, Oyo, Boston Scientific and Tim Hortons.
The regional headquarters programme, an initiative by the Ministry of Investment and the Royal Commission for Riyadh City, aims to attract multinational companies by offering a range of benefits and premium support services including a 30-year tax break.
“The law has the potential to benefit every sector including real estate, financial services, tourism and communications, and establish Saudi Arabia as a regional powerhouse with established industries that provide employment opportunities to the locals and result in an all-round development of the economy,” Junaid Ansari, director of the investment strategy and research at Kamco Invest, said.
Several companies have already announced their plans to relocate to the kingdom, including IHG Hotels and Resorts, GE Healthcare, Bechtel, Huawei, ABB and Schneider Electric, as part of their regional expansion plans.
The programme has licensed more than 200 companies since 2021, according to the kingdom’s Ministry of Investment.
“The relocation is expected to contribute to economic diversification, aligning with the objectives of Saudi Vision 2030, and potentially fostering more stable and sustained economic growth,” Arun Leslie John, chief market analyst at Century Financial, said.
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