 |
| Will the world go to Riyadh if coerced to do so by the Saudi government? |
With friends like Saudi Arabia, who needs enemies? Upon taking power, Crown Prince Mohammed bin Salman was seen as a reformist, market-friendly leader able to take Saudi Arabia forward into a post-fossil fuel future. This impression has taken a big hit in recent years with the 2017 embargo on Qatar as well as the still-unresolved 2018 murder of journalist Jamal Khashoggi at Saudi Arabia's Turkish consulate. Taking endless potshots at its fellow Gulf Cooperation Council (GCC) members doesn't seem to be the way to signal that Saudi Arabia is open for business.
More recently, Saudi Arabia has come up with its most outlandish power play yet: It has cautioned multinationals that, unless they place their regional (read: Middle East) headquarters in Saudi Arabia, they will not be able to ink government contracts. Obviously aimed at Dubai in the UAE which vastly outstrips Saudi Arabia in "ease of doing business" indicators that you would naturally think companies would gravitate to when siting regional headquarters, the outcry has been understandably strong:
Saudi Arabia, in a bold and unexpected move, announced late Monday that by 2024 its government would cease doing business with any international companies whose regional headquarters were not based within the kingdom.
The news has investors, bankers and expat workers buzzing — and scratching their heads.
Saudi Arabia in recent years has pitched itself as a location for HQ offices in its campaign to create private sector jobs and diversify its economy as part of Crown Prince Mohammed bin Salman’s Vision 2030.
But what began as a pitch to global head offices has now become an ultimatum for some: either relocate your headquarters to the kingdom, or lose out on lucrative government contracts. And the move, Middle East analysts and finance professionals say, appears to be targeted at the region’s current headquarters hub: Dubai.
Mind you, the UAE joined Saudi Arabia in the embargo on Qatar. Although regional economic rivalry is expected, punching below the belt in this way over restricting government procurement lest they headquarter in Saudi Arabia is widely perceived as unfair, especially since they are all supposedly part of a customs union in the GCC:
The Saudis are “trying to lure companies out of Dubai, I expect, and elsewhere,” Ryan Bohl, a Middle East analyst at risk consulting firm Stratfor, told CNBC. One UAE-based financier, who spoke anonymously due to having business operations in Saudi Arabia, described the move as “clearly targeting the UAE” and a “jab in the face” to Dubai.
“It’s a terrible decision,” the financier, a longtime veteran of the region, added. “It’s anti-common market, it’s anti-competition, and it’s essentially corporate bullying.”
The truth of the matter is that Saudi Arabia is a less attractive place to site your regional HQ with its more restrictive environment--economically and socially. The latter is of particular concern to Western expats:
The government aims to significantly increase Saudi Arabia’s current share of less than 5% of the region’s HQ offices...
But will that be enough to lure expats out of Dubai, where they can drink, wear bikinis on the beach and enjoy a far more liberal lifestyle, comparable on many levels to the West?
“The lifestyle in Saudi is not comparable,” said one Dubai-based venture capitalist, speaking anonymously due to professional restrictions. “You don’t have the same freedoms you have here — here I can go on a public beach and hang out ... Dubai is a global city, Riyadh is far from that. It lacks the diversity that Dubai has. That’s a big deal for me.”Indeed, one of Dubai’s allures for foreigners is its majority expat population — 90% across the UAE as a whole. The success of Dubai’s global openness model manifests itself in numbers as well: according to the U.N.’s trade database, the UAE in 2019 received 300% more foreign direct investment than Saudi Arabia, despite its economy being about half the size.
And the UAE ranked 16th on the World Bank’s 2020 Ease of Doing Business Index, while Saudi Arabia ranked 63rd.
Speaking of government contracts, the lure is unmistakable: a supposed $220 billion that Saudi Arabia states it will spend to make Riyadh a global city (comparable to *gulp* Dubai). What's more, there are those who say Saudi Arabia is actually coming on in leaps and bounds:
The Saudi government is investing $220 billion in projects aimed at putting Riyadh in the world’s top 10 city economies, and is offering competitive tax-free salaries to employees willing to relocate there...
Still, many expats who’ve worked in the kingdom feel differently. “There’s no doubt that Saudi will compete with Dubai,” said Alex Nasr, a consultant with several years of experience working around the country, adding that it’s already competing on the salary front.
“Now with Vision 2030 and the radical changes the nation is pushing through, it will begin catching up on the quality of life front … as soon as the veil is lifted on the lifestyle restrictions, the expats will begin to pour in.”
