Business leaders react to Saudi move to cease working with companies with no local HQ

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Economists and business leaders have reacted to Monday’s announcement that Saudi Arabia will require all government contracts to be awarded to companies with headquarters in the country.

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They say it signals the Kingdom’s desire for corporations to commit to playing a part in the future of its society in a way that has not been seen before.

The move is one facet of a wider strategy to attract international investors to one of the Middle East’s largest economies and diversify it from its oil-heavy roots, as outlined in the Crown Prince’s Vision 2030.

Muhammed Mekki, founder of UAE retailer Namshi and business accelerator Astrolabs, told Al Arabiya English that the latest development was indicative of “unprecedented” change in the way the Kingdom does business.

“I would take this piece of news in a larger frame, which includes the opening up of the market for international investors in ways that were unprecedented from years ago,” including the removal of a minimum capital requirement and the need for businesses to have a local partner.

Monday’s announcement is a sign that the Kingdom is thinking about its long-term prospects, he said.

“It's the next step after requiring companies to have a local office, to say ‘we'd like your senior leadership team for the region to be based here, not a symbolic office, but actually an office that has the leadership team,” he said.

“It's an important signal from some of these companies that the market is important and they're taking it seriously.”

To attract senior management teams, Mekki expects to see even more developments in improving quality of life in the Kingdom, including further social reforms as well as economic changes.

AstroLabs has been helping businesses from abroad set up in Saudi Arabia for several years, becoming the first licensed international business incubator in the Kingdom in 2018.

Despite the disruptive effect the COVID-19 pandemic has had on global business, Mekki says that the company has seen a surge of interest from businesses looking to set up shop in the Kingdom.

“We're sometimes even shocked by the surge of interest in companies wishing to set up in a time when logistically it's even difficult to enter the country,” he said.

Richard Upshall, a British entrepreneur based in Dubai who founded oilfield inspection company OES in 1996, says the move is a “strong, positive” way of doing business.

“It's telling everybody, if you want to do business in Saudi, you've got to significantly contribute to the local economy and not just come in and take money out of the kingdom,” he told Al Arabiya English.

“I think that's a strong, positive way to do it on all fronts.”

Saudi women walk in Abha High City, as the summer season kicks off with health precautions amid the coronavirus disease (COVID-19) outbreak, in an effort to boost internal tourism after the pandemic in Abha, Saudi Arabia. (File photo: Reuters)
Saudi women walk in Abha High City, as the summer season kicks off with health precautions amid the coronavirus disease (COVID-19) outbreak, in an effort to boost internal tourism after the pandemic in Abha, Saudi Arabia. (File photo: Reuters)

Opening up to investment and encouraging international companies to operate in the Kingdom will have an effect on the wider region, bringing more spending into markets such as the UAE, according to Upshall.

It will also increase the profile of the region, increasing stability and the overall level of investment in infrastructure, technology, and the medical field, he says.

“I think I think people who want to do business and are serious about doing business will do it the way the Saudis have suggested it needs to be done. And this is not unusual. This happens all over the world. If you want to do business in China, the Chinese are now saying you have to be investing in our local economy. Singapore has been the same for years. Australia is the same.”

“And I think, if anything, the COVID crisis is actually just concentrated that attention.”

Economist Ahmed Al-Shehri told Al Arabiya that having headquarters on Saudi soil will also cut costs in the supply chain and benefit local banks that will handle huge payments for government contracts.

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