The Scoop
Saudi Arabia says it has exceeded its target for attracting foreign companies to set up regional headquarters in the kingdom. Many companies say, however, that the process is mired in confusion.
The kingdom has mandated that, as of Jan. 1, any company wishing to do business with the government must make Saudi Arabia its hub. Over 500 licenses to establish regional headquarters have been granted since the program began in 2021, the Saudi Ministry of Finance said this week, including Amazon, Microsoft, and Boeing.
Getting the license — often announced with much fanfare — and actually opening a regional headquarters are distinct, though. Firms have six months from the time a license is issued to establish a regional HQ and many now find themselves against the clock, sorting through a lot of red tape: Having a managing director based in Saudi Arabia and hosting board meetings from Riyadh are some of the requirements. At stake is the shot at lucrative contracts in the world’s biggest construction market and with the $925 billion Public Investment Fund.
Four executives involved in this process, who asked not be identified because they don’t want to hurt their prospects in Saudi, said the requirements and perks of the regional headquarters program are vague. They complained about the lack of clarity and coordination between the central bank, Capital Markets Authority, Investment Ministry, and other regulators. One questioned whether the proposed tax breaks and potential for deals with the PIF that drew them in the first place were worth it.
At least one of Wall Street’s biggest banks is looking for loopholes, according to two executives with direct knowledge of the matter, who asked that Semafor not name the bank to avoid retribution. Some firms prefer maintaining head offices in Dubai, while hollowing out a niche in Riyadh: Many are settling on grouping Bahrain, Oman, and Saudi Arabia as a “region.”
“When it comes to the biggest brands in the world, when it comes to getting them a license to operate, there is always a workaround,” a headhunter who works with banks in the Gulf said.
American software firm Adobe said it will establish a headquarters in Riyadh by 2025. A person familiar with the plan told Semafor they were enticed by the offer of free rent for several years. Goldman Sachs made a splash in May when Bloomberg reported it had become the first major bank to acquire a headquarters license. But the firm has been quiet about its plans since: a bank spokesman did not respond to a request for comment.
The Public Investment Fund, Saudi Ministry of Investment, and Adobe did not respond to requests for comment.
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Kelsey’s view
On paper, opening a headquarters in Saudi Arabia should be a straightforward decision: It’s the Gulf’s biggest economy with enormous growth potential, and an average age of 29. The PIF’s well-documented investments in sports, live entertainment, and real estate development are being spent in part at home, where cinemas, chic coffee shops, and luxury hotels are popping up.
But liveability and profitability are key in the HQ conversation.
If you want to spark debate at a dinner party in the Gulf, ask if Saudi Arabia is still a hardship posting for expats. The Dubai and Abu Dhabi lifestyle — particularly post-pandemic — has been a competitive advantage.
Questions over the HQ program are also being amplified by the kingdom’s cooling economy and its cutting back on its most ambitious mega-projects. So beyond personal reasons, staff are reluctant to move to Riyadh as for many, the biggest business is still booked elsewhere, executives told Semafor.
“Someone may nip over to Riyadh to break bread, but there is still cachet to working with the main desks in London and New York,” said a headhunter who recruits for financial services and tech firms in the Gulf.
Executives will go wherever the right live-work-play trifecta is. Companies will go where the profit is. So far in the Gulf, the UAE has fit those needs.
Riyadh’s program also points to the implicit rivalry between Saudi Arabia and the UAE as the former looks to take what it sees as its rightful place as the dominant country in the Gulf, economically as well as politically. The Emiratis appear unperturbed, though: Dr. Anwar Gargash, an adviser to the UAE’s president, told reporters in September that Dubai International Financial Center had registered 117 American companies so far this year, and seen a 60% increase in the total number of financial institutions. “These are not companies where somebody is directing them and saying, you know, open up in DIFC,” he said. “This is an independent choice.”
Still, corporate types have long been lured to the region on the promise of riches and cushy titles. So it’s possible executives will move to Riyadh — even if it means little in practice, when the ultimate decision maker sits in London or New York — for a front row seat to one of the fastest changing cities in the world.
Room for Disagreement
Saudi Arabia is not unique in introducing such policies to encourage business and spur foreign direct investment. Countries and states vie for corporate headquarters everywhere. Brexit saw many firms shift operations to Frankfurt, Paris, and Amsterdam. Amazon infamously shopped around for a second HQ, getting over 200 cities across North America to offer up tax breaks and other incentives to entice Jeff Bezos, who ultimately went with New York and Washington, DC.
Notable
- The PIF began screening firms for headquarter licenses, causing anxiety among bankers seeking to work with the fund, Bloomberg reports.
- Industrial companies are eager to comply, while banks prefer Dubai’s offshore setup, according to The Financial Times.