- Saudi Arabia is actively luring companies to establish their regional headquarters.
- Companies setting up bases in the Kingdom will face challenges as some sectors and financial rules are less advanced than in Dubai.
As the global business landscape continues to evolve, the recent trend of companies relocating their regional headquarters from Dubai to Riyadh in Saudi Arabia has sparked significant interest and speculation.
The development, driven by Saudi Arabia’s strategic initiatives and incentives, has the potential to reshape the economic landscape of the Middle East, particularly in the emirate of Dubai.
Dubai has long been hailed as a thriving regional hub, attracting many multinational corporations and serving as the Middle East headquarters for numerous global giants.
The emirate’s strategic location, favourable business environment, and world-class infrastructure have been instrumental in its rise as a premier destination for businesses seeking to establish a foothold in the region.
However, the Kingdom of Saudi Arabia has now emerged as a formidable contender, actively luring companies to establish their regional headquarters within its borders.
Saudi Arabia’s ambitious plan
Saudi Arabia’s ambitious plan to attract 480 companies to open regional headquarters by 2030, coupled with the implementation of enticing incentives, such as a 30-year corporate tax break and a 10-year exemption from “Saudisation” workforce rules, has proven to be a significant draw for businesses.
The kingdom’s strategic location at the crossroads of Europe, Asia, and Africa, as well as its large population of over 30 million and high per capita income, have further bolstered its appeal as an investment destination.
The impact of this shift is already being felt; with close to 350 firms that had obtained regional headquarters licenses already relocating to Saudi Arabia after the kingdom’s January 1, 2024, deadline.
Ripple effects
On Monday (15/07/2024), Alstom, the global leader in green and smart mobility solutions, and Arthur D. Little (ADL) inaugurated its regional headquarters in Saudi Arabia.
Alstom’s Riyadh office also established the Services Digital Centre, a core part of Alstom’s strategy to advance condition-based and predictive maintenance for railway assets.
Companies that had already relocated their regional headquarters included PepsiCo, DiDi, Unilever, Siemens, KPMG, Novartis, Baker Hughes, Halliburton, Philips, Schlumberger, SAP, PwC, Oyo, Boston Scientific and Tim Hortons, Nortal, Deloitte, IHG Hotels & Resorts, New York-based international law firm White & Case, Bechtel, GE Healthcare, Northern Trust Corp, Knight Frank, major Chinese corporations such as BGI, Nuctech, Dahua Technology, iMile Delivery, Huawei, and China Comservice, to name a few.
“The relocation of these major players likely to leave a significant void in Dubai’s business landscape,” a Dubai-based lawyer, on condition of anonymity, told TechChannel News.
As companies depart from Dubai, he said the ripple effects are likely to be felt across various sectors, including real estate, employment, and the overall economic dynamics of the emirate.
CBRE’s data indicates a 7.7 per cent increase in employment figures in the first quarter of 2024, highlighting the growing appeal of Saudi Arabia as a regional hub.
Furthermore, the lawyer said that the giga projects planned in Saudi Arabia, such as NEOM and Qiddiya, are expected to contribute significantly to the kingdom’s economic diversification and reduce its dependence on oil.
Property prices increase
CBRE said that Riyadh’s grade A offices average rents increased by 11.8 per cent year on year to reach 1,975 Saudi riyals per square metre while average rents for grade A offices in Jeddah increased by 13.6 per cent year on year to 1,406 riyals per square metre and grade A office in Dammam registered an increase of eight per cent at 1,017 riyals per square metre.
Moreover, the kingdom plans to invest about $175 billion in industrial and other large projects over the next five years.
These large-scale initiatives, he said, coupled with the implementation of various economic reforms, including the privatisation of state-owned entities and the introduction of a new bankruptcy law, have further strengthened Saudi Arabia’s position as an attractive destination for businesses.
“Conducting business in Saudi Arabia poses unique challenges for foreign entities, as the country’s legal system is firmly rooted in Islamic law, or Sharia, which can significantly differ from the legal frameworks found in many other parts of the world.”
Fragmented regulatory environment
Unlike the relatively straightforward offshore banking hub of Dubai’s International Finance Centre, which operates under its own distinct regulatory framework, he said the landscape in Saudi Arabia’s King Abdullah Financial District is far more complex.
“The banking sector in the Kingdom is subject to the oversight and regulation of multiple authorities, including the Saudi central bank and the capital markets authority. This fragmented regulatory environment can create a considerable degree of ambiguity and uncertainty for businesses navigating the financial landscape.”
However, it is important to note that the Saudi government is actively working to harmonise and strengthen its regulatory framework, he said intending to provide a more coherent and streamlined system for both domestic and international players.
“The country’s efforts to modernise and diversify its economy, as outlined in its Vision 2030 plan, present numerous opportunities for businesses willing to navigate the complexities of its legal and regulatory environment.”
However, the lawyer said that Dubai’s logistics sector and aviation sector are much more advanced than Saudi Arabia’s, especially with DP World and Emirates Airlines.
“It will take years for Saudi Arabia to attain Dubai’s importance in logistics and aviation sectors.”
Many in dilemma
A top executive at a global consultancy, based in Dubai, said that it is a “do or die situation” for many companies as they don’t want to move out of Dubai and have invested a lot in setting up regional headquarters in Dubai.
“Dubai is more open than Saudi Arabia and many are moving to Saudi to meet the criteria.”
While Dubai’s resilience and ability to adapt to changing market conditions have been well-documented in the past, the lawyer said that the current exodus of regional headquarters presents a significant challenge.
Moreover, he said that the emirate will need to carefully evaluate its strategies and offerings to remain competitive and retain its status as a premier business hub in the region.