Saudi Arabia told international companies to move their regional headquarters to its capital or lose out on government contracts. It's working.
A man walks past the headquarters of Saudi Basic Industries Corp (SABIC) in Riyadh, Saudi Arabia, October 27, 2013. Faisal Al Nasser / REUTERS
On Wednesday, Saudi Arabia announced that 44 global companies are moving their regional headquarters to the capital, Riyadh.
The kingdom boldly told companies in February that it would not do business with them if they did not move their headquarters there.
Expats and bankers used to denounce the move as "corporate bullying", but it seems to have had the desired effect.
In February, Saudi Arabia gave multinationals a daring ultimatum: move your regional headquarters in the country by 2024 or the government will stop doing business with you.
The announcement was part of a sweeping push by Crown Prince Mohammed bin Salman to transform the capital, Riyadh, into a global center for finance, economics and logistics so that the kingdom is less dependent on oil, which makes up 70%. of its exports, per OPEC.
Investors and expats were reluctant to use the idea at the time, and many said it was a ploy to evade Dubai in the neighboring United Arab Emirates, where 90% of the workforce are foreigners. One seasoned financier described it as "anti-competitive" and "corporate bullying" according to CNBC.
But the tactic seems to be working. Saudi Arabia announced on Wednesday that 44 international corporations, including PepsiCo, Siemens and Unilever, are setting up their regional headquarters in Riyadh, local news reported.
Hosam Alqurashi, the kingdom's Regional Headquarters Program director, said on the announcement that his capital is now "witnessing the greatest art movement since the Renaissance," on Arab News.
The new total is higher than the initial 24 companies that announced in January that they would be moving their regional offices from Dubai to Saudi Arabia.
At the time, officials tried to lure companies with a 50-year corporate tax exemption and waiver of employment quotas.
The February ultimatum took a different turn. "Everyone's freaking out. We're used to governments offering carrots, but this time a big stick is out of the bag," a regional manager of a multinational company told the Financial Times at the time. "Honestly, it's offensive."
Despite the backlash, Fahd al-Rasheed, president of the Royal Commission on Riyadh, told Reuters that the Saudis' goal is not to "cut down" business in neighboring countries.
“We just say - you have to have your regional headquarters here, because this is not just a contract economy that you go in and out of. We would like to see you with us in the long term, ”he said on Wednesday.
Al-Rasheed added that Riyadh wants 480 companies to set up regional headquarters there by 2030 - also the deadline set by the Crown Prince to diversify Saudi Arabia's economy.
Still, the kingdom could have some difficulty replicating Dubai's success.
The 2018 assassination by Saudi agents of journalist Jamal Khashoggi, who criticized the royal family, damaged the global reputation of the kingdom and Prince Mohammed Bin Salman and exposed its sovereign wealth fund, Joel Rubin, a former deputy foreign minister, CNBC said early this year.
Saudi Arabia has tried in recent years to shake off its tough conservative reputation with reforms like women driving cars and opening cinemas for the first time in decades. But it still has to offer a lifestyle that matches the freedoms foreigners can enjoy in Dubai, like the freedom to drink, expats told CNBC.
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