Saudi Arabia has presented an ultimatum to global companies to move their regional hubs to Riyadh by 2024 or lose their business. This certainly requires a kind of decision making that will make some investors wary of investing there.
Sudden policy changes, the millions of dollars in costs and arbitrary legal rulings mean companies will be cautious of the risks of moving there and will weigh their risks with the potential rewards that will be offered .Crown Prince Mohammed bin Salman’s economic overhaul promises will lead to unravelling of economic growth in Saudi Arabia .
Saudi Arabia stated this week that state contracts would go only to companies with regional hubs in the country to stop economic “leakage.” The authorities filled the investors with few details which fueled uncertainty amongst investors. Many regional executives are of the opinion that this controversial decision will complicate their dealings with the world’s top oil exporter.
However, some businessmen maintain that Saudi Arabia is a sleeping giant that’s waking up, ready to take on the economic growth challenge. With a consumer market three times the size of the United Arab Emirates, planned mega-projects worth hundreds of billions of dollars and a young, rapidly-changing society that’s almost unrecognizable from the ultra-conservative kingdom of five years ago, Saudi Arabia commands profitable investments. Thus Saudi Arabia proves to be a land of opportunity for investors, no matter what the new proposed law states.
But it is worthy to be noted that companies are aware of the fact that the political tide can turn fast in Saudi Arabia. The lack of legal recourse they have makes them vulnerable as most contracts come via the state so it’s difficult to chase unpaid money.
The business environment in Arabia already poses a great threat to the companies which have mostly looked past Saudi Arabia’s arrests of businessmen and royals in what it called a crackdown on corruption. To top it all the killing of a dissident columnist was reported in 2018.
Saudi officials have expressed their helplessness over the frustration by the consultants and executives working on Saudi projects who based themselves in Dubai, business-oriented city that draws in millions of foreign workers.
“It’s a combination of desperation and a little bit of overreach” said Ryan Buhl, a Middle East analyst at Stratfor Worldview. “It’s going to be hard to convince multinationals and regional giants to pick sides,” he added.