Global technology giants including Amazon.com Inc., Alphabet Inc.’s Google and Microsoft Corp. Are among firms working to ramp up their presence in Saudi Arabia amid pressure from the government, which has said it will stop giving contracts to companies without regional headquarters in the country.
The three US firms have all received licenses to establish regional HQs in Riyadh, a government database shows. Those approvals came just ahead of the Jan. 1 deadline set by the Saudi government.
There was a flurry of activity towards the end of the year as large corporations look to establish local HQs. Other firms that have recently received such licenses are Airbus SE, Oracle Corp. And Pfizer Inc.
Saudi Arabia announced the new rules for state contracts in February 2021, saying it wanted to limit ‘economic leakage’ — a term used by the government for state spending that can benefit firms that don’t have a substantial presence in the country.
A key part of Crown Prince Mohammed bin Salman’s economic agenda has been to limit some of the billions in spending by the government and Saudi citizens that leave the country each year. Government officials want to stop giving contracts to international firms who only fly executives in and out of the kingdom.
As part of his drive to boost the economy and attract international investment, MBS, as the Crown Prince is known, has loosened restrictions on gender mixing, women driving, and public entertainment. Still, the limited options available as well as policies like the continued ban on alcohol have made many foreign executives reluctant to live in the country.
Yet the kingdom’s status as the region’s biggest economy with plans to invest trillions of dollars to become a tourism and commercial hub have led many multinationals to rethink how they operate in the Middle East.
The Saudi move was widely seen by business and political analysts as an attempt to compete with Dubai, the Middle East’s preeminent business hub. Dubai has been long-favored by multinational firms for its lifestyle, low taxation and connectivity.
Most global firms have traditionally managed their Middle East operations from offices in Dubai, the region’s commercial and financial hub, and kept smaller offices in Saudi cities including Riyadh or Dammam, close to the headquarters of oil company Saudi Aramco. It’s unclear what the Riyadh headquarters would mean for operations elsewhere in the region.
Microsoft said in an emailed statement that Saudi Arabia is part of its CEMA — Central & Eastern Europe, Middle East & Africa — region. “In this very diverse region, we have a number of headquarters including one in Saudi Arabia,” the statement said.
Google said it is engaging with the relevant authorities on the requirements. Airbus said its setup in the kingdom is in line with the country’s rules.
Under the Saudi rules, firms can be granted a special HQ license if they set up a center in Riyadh that meets various criteria, including a minimum of 15 staff and two other countries reporting to it. In return, Riyadh is offering incentives including tax breaks and exemption from rules to hire Saudis.
The government announced in December it would grant a 30-year tax holiday for firms that have a specific regional headquarters license.
But the Saudi plan has also been beset by confusion, with some executives saying its unclear how the rules apply to certain types of businesses, and which Saudi government entities are covered by the procurement restrictions. Whether the rules affect companies with contracts from entities like the kingdom’s powerful sovereign wealth fund are another key area of uncertainty.
The Ministry of Investment didn’t respond to requests for comment. In a statement in December it said more than 200 firms had already received HQ licenses. Firms including Bechtel, PwC and PepsiCo. Have already announced that they are making Riyadh a regional HQ for their operations.