An economic showdown brews in the gulf
Saudi Arabia is laying the foundations for another Gulf crisis – this time provoking its ally, the United Arab Emirates. Just weeks after patching up a years-long dispute with Qatar, the kingdom has announced a new plan to require all foreign businesses to have a regional headquarters in Saudi Arabia, or risk getting locked out of contracts with the government. The decision constitutes a direct shot at the UAE and risks positioning Riyadh and Dubai for an eventual clash.
Starting in 2024, the Saudi government and state institutions will cease signing contracts with foreign companies that choose to locate their Middle East hubs outside Saudi Arabia. However, Riyadh will not completely lock out offending firms. According to Saudi Minister of Investment Khalid al Falih, firms in the Saudi private sector will be able sign contracts with them, and so will state-owned firms that are publicly traded. Saudi Arabia is offering carrots for companies to move, including zero corporate tax for 50 years; a waiver from Saudization quotas that require companies to hire Saudi nationals; loosened rules for spouses to get work permits; and potential favoring in tenders and contracts.
The move comes as Saudi Arabia attempts to diversify its economy away from oil and seeks to attract foreign investment and businesses to Saudi Arabia. A softer form of this relocation measure, dubbed “Programme HQ,” launched last month and focused primarily on providing incentives to move.
But as Saudi Arabia’s economic headwinds have grown due to coronavirus-induced lockdowns and low oil prices, Riyadh has started to complement those carrots with sticks. The kingdom’s economy contracted 4.1% in the last year, the worst such decline in over three decades. Unemployment hit an all-time record of 15.4% in the second quarter of 2020 before declining slightly to 14.9% in the third quarter.
The Saudi rationale is that if companies want to benefit from the Saudi market, then they must first benefit Saudis, with the Saudi Press Agency stating that the decision aims to “create more jobs” and “limit economic leakage.” Mohammed al Jadaan, the Saudi finance minister, said Riyadh and Dubai could complement each other and portrayed the decision as Riyadh’s right to “have its fair share of regional headquarters.”
While this relocation plan might not be an intentional shot at the UAE, it could play out this way in practice, given the UAE’s role as the region’s business hub. There are already signs of discontent: Nasser al Shaikh, Dubai’s former finance chief who steered the emirate during the 2008 financial crash, called the move a violation of the Gulf common market and argued that “forced attraction” cannot work.