Saudi Arabia Issues A Warning To American Companies And Ignites The Anger Of UAE
Updates on Saudi affairs presented in this episode of Samri Channel.
The British newspaper, the Financial Times, said that “dozens” of multinational companies “responded to the Saudi ultimatum” by opening regional headquarters in the Kingdom, otherwise they would have faced “the loss of lucrative government contracts,” but it indicated that leading banks and service companies did not take this step.
In 2021, Saudi Arabia announced the regional headquarters program and gave companies until January 1, 2024 to open regional headquarters on its territory, and the Saudi decree had already entered into force by this date. The Saudi “regional headquarters programme” is widely seen as an attempt to compete with Dubai in the neighboring UAE. Riyadh defines the regional headquarters of a company as “an office that provides support, management, and strategic direction to its branches and subsidiaries in the Middle East and North Africa region,” according to the Ministry of Investment.
The Financial Times, citing the Saudi Ministry of Investment, reported that 350 international companies complied with the Saudi decree, including PepsiCo, PricewaterhouseCoopers, Unilever, and Eli Lilly. Consulting and auditing companies dealing with the Saudi government took a similar step. “We took it very seriously,” said an executive at a global consulting firm. “It is life or death for us.”
The Ministry said that licenses for regional headquarters are issued at a rate of 10 licenses per week. But major banks such as Citibank, Deutsche Bank, Goldman Sachs, and HSBC have not yet announced that they will do so, and major financial services companies often manage their business in the Middle East within a broader geographic area that includes Europe and Africa, according to the newspaper. Bankers told the newspaper that many lenders are uncomfortable with the regulatory implications of establishing a regional headquarters in the Kingdom. It quoted a senior financier at an international bank: “It is not only about whether you want to employ people in Saudi Arabia, but it is also about what the regulatory framework will be,” considering that Saudi Arabia “was not a financial center.”
Unlike the Dubai International Financial Centre, which is an offshore banking center with its own regulatory framework, the King Abdullah District in Riyadh does not have its own regulatory body, as the Saudi Central Bank and its Capital Markets Authority regulate the banking sector. The Saudi Ministry of Investment said that the Kingdom is working to coordinate and strengthen the framework of the banking sector, and that banks, including Northern Trust, have begun work to open regional headquarters. The ministry also said it was “in final discussions with several other financial entities” to do the same.
In addition to major banks, professional services firms such as law firms and public relations firms are slowly moving toward setting up headquarters there. For many, regional headquarters rules “are formulated more with the mindset of companies that sell products rather than those that sell services,” said Michael Pacey, a director at Albright Stonebridge Consulting Group in the Middle East and North Africa, who advises clients on regional headquarters issues. “Service companies, anyone you put under regional headquarters is not going to generate revenue.”
For its part, the Ministry of Investment said: “It is not about compliance as much as it is about motivating companies to grow, develop and extract value” from investment opportunities in the Kingdom. The Saudi “regional headquarters” plan is part of an ambitious plan to make Saudi Arabia less dependent on oil revenues, by transforming the Kingdom into a center for trade and finance. State-owned companies, which dominate the economy, are set to spend hundreds of billions of dollars on new projects over the next decade, attracting multinational companies to the kingdom.
