April 21, 2011

S Arabia Should be Given Ultimatum

RIYADH – Saudi Arabia has been actively encouraging foreign companies to invest in the kingdom and establish regional headquarters in Riyadh, according to state news agency SPA. In February, it was announced that 24 international firms had signed agreements to set up regional offices in the Saudi capital.

CSG, a US technology firm, decided to relocate its regional headquarters from Dubai to Riyadh, marking an early success for Saudi Arabia. The transition was surprisingly smooth, with the new office becoming operational within just two months. Several other foreign companies have also chosen to establish regional offices in Saudi Arabia instead of remotely managing operations from Dubai, which is a bustling commercial hub in the neighboring United Arab Emirates.

In mid-February, a Saudi ultimatum prompted some firms to reassess their strategies. Starting from 2024, companies seeking state contracts in the largest economy in the Middle East must have offices in Saudi Arabia.

However, alongside this firm approach, the Saudi government has implemented extensive economic and social reforms aimed at attracting investors. The goal is to make the kingdom more conducive to living and working, while also reducing bureaucratic obstacles that have historically discouraged investment.

James Kirby, who heads CSG’s operations in Europe, the Middle East, and Africa, praised the Saudi government’s initiatives and expressed his belief that other companies would likely follow suit.

While Dubai has long held the status of the region’s business center, Saudi Arabia is striving to catch up aggressively. In early February, the state news agency reported that 24 international firms, including PepsiCo, Schlumberger, Deloitte, PwC, Tim Hortons, Bechtel, Robert Bosch, and Boston Scientific, had signed agreements to establish their main regional offices in Riyadh.

Bechtel confirmed its establishment of a regional headquarters in Saudi Arabia, while PwC and Deloitte stated their presence through regional offices in Riyadh and their willingness to be strategic partners to help Saudi Arabia achieve its objectives. Bosch mentioned exploring business opportunities in the kingdom.

Under the economic reforms spearheaded by Crown Prince Mohammed bin Salman bin Abdulaziz, Saudi Arabia has significantly improved its position in the World Bank’s ease of doing business rankings, climbing 30 places since 2019 to reach 62. However, it still lags behind the United Arab Emirates, which holds the 16th spot.

The process of obtaining a foreign investor license in Saudi Arabia has been streamlined, reducing the required documents from 12 to 2 and cutting the processing time from three days to three hours.

The Royal Commission for Riyadh City has expressed its intention to attract 500 foreign companies by 2030. To achieve this, Saudi Arabia has launched various initiatives, including plans for a new airline to compete with Gulf carriers, the construction of new hotels, the development of a metro system in Riyadh, and the relaxation of certain social restrictions.

However, there are still areas that need improvement for Riyadh to rival Dubai. For instance, there is a need for more international schools to attract skilled expatriates and their families.

While Saudi Arabia is driven by the imperative to attract investors and diversify its economy as the world moves away from fossil fuels, the ultimatum for foreign firms to establish a presence in the kingdom has raised concerns. Some experts believe that this approach may be counterproductive and appear desperate or arbitrary to corporations and executives, potentially causing hesitation in moving forward with investment plans.

Dubai, which seized the regional crown from Bahrain in the 1990s, has already demonstrated its determination to retain its status as a major business center. The ruler of Dubai has announced a five-year plan to increase air and shipping routes by 50%, as well as double tourism and hotel capacity over the next two decades.

Nevertheless, the competition to attract businesses does not necessarily entail a choice between Riyadh and Dubai. CSG’s example