KSA Issues Shock Decision With Potential Business Impact on Egypt and the Region

Starting 1 January 2024, Saudi Arabia will halt government contracts with any company whose regional headquarters is not located in the kingdom. This decisions comes in addition to other initiatives offering companies tax breaks and incentives to move their headquarters onto Saudi soil.

The decision, as announced by Saudi Press Agency, is intended to attract more foreign capital, as well as “create more jobs, limit economic leakage, increase spending efficiency and guarantee that the main goods and services purchased by the different government agencies are made in the kingdom.”

By making this decision, Saudi Arabia – trying to further diversify its economy to rely less on oil – will escalate competition with other Gulf States, primarily the United Arab Emirates, which is currently home to many if not most regional headquarters of foreign businesses in the Middle East.

The Saudi Minister of Finance Mohamed Al-Jadaan addressed the issue, stating that the Dubai as a major regional business center has its competitive advantages, and that Saudi Arabia is working to increase complementarity and healthy competition.

Al-Jadaan further highlighted that private companies may still have contracts with companies whose regional headquarters are outside the kingdom, which currently is home to only 5 percent of regional headquarters despite being the region’s largest economy and government purchaser.

The decision will likely have an impact on existing regional headquarters in Egypt, as well as the chances of attracting foreign capital in Egypt in the near future, as setting up headquarters in Egypt will likely mean losing contracts with the government of Saudi Arabia.

The decision could possibly further impact Egyptians working in multinational companies in other Gulf States, especially in the UAE, as the closure of headquarters may result in job losses.

This regional development will undoubtedly spark discussion amongst the countries whose economies are most likely to be impacted by this decision, as well as raise legal questions about the conformity with international trade rules.

Al-Jadaan stated that some sectors will be exempted from this decision, and that Saudi Arabia will issue the detailed regulations before the end of the current year.