Skyline of Riyadh in Saudi Arabia.
Simon Dawson | Bloomberg | Getty Images
DUBAI, United Arab Emirates — 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, regional analysts and finance professionals say, appears to be targeted at the region’s current headquarters hub: Dubai.
“The Kingdom of Saudi of Arabia intends to cease contracting with companies and commercial institutions with regional headquarters not located in the Kingdom. The cessation will include agencies, institutions and funds owned by the government and will take effect January 1st, 2024,” Saudi state agency SPA reported on Monday.
So far, the policy appears only to apply to firms doing business with the government; those that don’t move their head offices to Saudi Arabia can still work in the private sector.
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.”
Saudi officials feel differently. While the kingdom’s finance and investment authorities did not respond to CNBC requests for comment, Minister of Investment Khalid Al-Falih tweeted that the decision “will be reflected positively in the form of creating thousands of jobs for citizens, transferring expertise, and localizing knowledge, and it will also contribute to developing local content and attracting more investments to the Kingdom.”
The government aims to significantly increase Saudi Arabia’s current share of less than 5% of the region’s HQ offices.
UAE officials have so far been quiet, but Dubai’s former finance chief Nasser Al-Shaikh had some critical words for the kingdom.
The decision “contradicts the principle of the unified Gulf market,” Al-Shaikh wrote on Twitter Monday night.
“Forced attraction is not sustainable and most effective is to improve the environment,” he said, arguing that as the largest market in the region already undergoing major development, Saudi Arabia’s move is unnecessary.
Indeed, the oil-rich kingdom — the region’s largest market, with a 34 million population, 70% of which are younger than 30 — has attracted a wave of new investment in recent years, coinciding with its liberalizing economic and social reforms.
Invest Saudi, the kingdom’s investment promotion arm, previously launched “Programme HQ,” offering special tax breaks and other incentives to blue chip multinational companies. Consultants from top American consulting firms were flown in weekly from Dubai to develop strategy on how the conservative metropolis of Riyadh could compete with and supplant Dubai as the region’s preeminent business hub.
Google Cloud, Alibaba and Western Union are some of the latest big names to establish stakes in the kingdom. And during Saudi Arabia’s annual Future Investment Initiative in January, 24 international companies announced their plans to move their regional head offices to Riyadh, including PepsiCo, French oil services company Schlumberger and Canadian chain Tim Horton’s.
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.
Woman sunbathers sit along a beach in the Gulf emirate of Dubai on July 24, 2020, while behind is seen the Burj al-Arab hotel. After a painful four-month tourism shutdown that ended earlier in July, Dubai is billing itself as a safe destination with the resources to ward off coronavirus.
KARIM SAHIB | AFP via Getty Images
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 because of her firm’s financial interests in the kingdom. “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 UN’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.
There’s also the reputational issue. Ask many foreigners what they think of Saudi Arabia, and they immediately associate it with a poor human rights record and oppression of women.
“A country that actively silences women? No thanks,” one American expat working in Abu Dhabi said. Riyadh has come under fire from rights groups and foreign governments for the killing of Saudi journalist Jamal Khashoggi in 2018 and for the jailing of several female driving activists, among others.
Saudi Araba’s government is “going to have their work cut out for them to convince companies to move,” said Mike Stephens, a Gulf expert and research fellow at the Foreign Policy Research Institute. He called the headquarters grab “a dramatic and bold move from the Saudis that is quite risky.”
A Saudi woman plays in a playground pior to the 2018 Saudia Ad Diriyah E-Prix Formula E Championship in Riyadh, on December 15, 2018 in Riyadh. (Photo by FAYEZ NURELDINE / AFP) (Photo credit should read FAYEZ NURELDINE/AFP/Getty Images)
FAYEZ NURELDINE | AFP | Getty Images
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.”
Shane Shin, a founding partner at Abu Dhabi-based venture capital firm Shurooq Partners, is opening a second headquarters office in Riyadh where he will double his staff count. “The pace and the momentum at which Saudi has been moving is just mind-blowing,” he told CNBC.
The Saudi government “has also made it significantly easier to set up an office and visas,” than in the past, Shin said, adding that most of Shurooq’s portfolio companies are operating in the kingdom.
“The competitive nature of Saudi and the bigger market, the openness, makes it actually much better to open an office than in Dubai,” he said. “So the competitive edge of Dubai is unfortunately reducing fast.”
The announcement has left investors and analysts with more questions than answers. What will constitute a regional headquarters? Can a company have two regional head offices, or simply build a smaller office in Riyadh labeled “HQ” while keeping the bulk of their staff in Dubai? Will there be exemptions or loopholes? And what does “region” encompass: just the Gulf states, or farther out to Egypt, North Africa and Turkey?
Importantly, did this happen after consultation with Saudi Arabia’s neighbors — and what could the implications be of attempting to displace its Gulf allies’ businesses hubs?
The “Saudi-first” contracting approach, while potentially ramping up competition with the UAE, “will probably end up with a fair number of exceptions,” to make it feasible for companies, Stratfor’s Bohl said. That’s “particularly in strategic industries like finance, construction, or entertainment.”
Either way, the Saudi move is likely to have significant regional consequences and accelerate a modernization race between Saudi Arabia and the UAE, as both compete to attract foreign firms.
Regional investors, meanwhile, are waiting on clarification as to what constitutes “headquarters” under the kingdom’s definition and more details that could help them plan their next move.
Some think the kingdom is just testing the waters, having become accustomed to sudden and dramatic statements from the Royal Court in recent years.
“Their strategy is wrong – the strategy should be based on economics,” a Dubai-based banker, speaking anonymously due to employer restrictions, said. “But ultimately for now I think they are just trying to test the market.”
Stock futures jump after Senate passes $1.9 trillion Covid relief bill, Dow futures up 200 points
Traders work on the floor of the New York Stock Exchange.
U.S. stock futures jumped on Sunday evening as a new stimulus package from Washington headed toward final passage this week.
Futures contracts tied to the Dow Jones Industrial Average jumped 219 points, or 0.7%. Those for the S&P 500 and the Nasdaq 100 composite gained 0.5% and 0.6%, respectively.
The move in futures came after the Senate passed a $1.9 trillion economic relief and stimulus bill on Saturday, paving the way for extensions to unemployment benefits, another round of stimulus checks and aid to state and local governments. The Democrat-controlled House is expected to pass the bill later this week. President Joe Biden is expected to sign it into law before unemployment aid programs expire on March 14.
The fresh round of government spending could cause ripples in the U.S. Treasury market, where the benchmark 10-year yield has risen sharply in recent weeks. The yield rose as high as 1.62% on Friday after starting the calendar year below the 1% mark.
The rapid move in the bond marked has unnerved equity investors as well, contributing to weakness in stocks with high valuations.
Futures contracts tied to the 10-year fell 0.2% on Sunday night at the open of trading, implying higher yields.
“10-year yields finally caught up to other asset markets. This is putting pressure on valuations, especially for the most expensive stocks that had reached nosebleed valuations,” Mike Wilson, the chief U.S. equity strategist at Morgan Stanley, said in a note.
The stock market is coming off an afternoon rally on Friday that took some of the sting out of a rough week for high-flying momentum names. The tech-heavy Nasdaq finished with a week-to-date loss of 2.1%, while the S&P 500 gained 0.8%. The Dow, more reliant on cyclical stocks, rose 1.8%.
The Friday turnaround doesn’t signal that the recent weakness for the market is over, but the divergence between tech and cyclical plays shows that the bullish story remains intact, Morgan Stanley’s Wilson said.
“The bull market continues to be under the hood, with value and cyclicals leading the way. Growth stocks can rejoin the party once the valuation correction and repositioning is finished,” Wilson said.
On the economic front, investors will get a look at wholesale inventory data from January on Monday. Several economic measures in recent weeks have shown a recovery that is picking up steam, including a better-than-expected February jobs report released on Friday.
U.S. will defend troops after rocket attack in Iraq, Lloyd Austin says
U.S. Defense Secretary Lloyd Austin speaks to Defense Department personnel during a visit by U.S. President Joe Biden at the Pentagon in Arlington, Virginia, February 10, 2021.
Carlos Barria | Reuters
WASHINGTON – Secretary of Defense Lloyd Austin warned those responsible for carrying out last week’s rocket attack against an Iraqi base that hosts American troops will be held to account.
“The message to those that would carry out such an attack is that expect us to do what is necessary to defend ourselves,” Austin said in an interview with ABC that aired on Sunday.
“We’ll strike if that’s what we think we need to do at a time and place of our own choosing. We demand the right to protect our troops,” he said, adding that the U.S. is still assessing intelligence with its Iraqi partners.
Defense officials have previously said the attack had typical hallmarks of a strike by Iran-backed groups. Iran has denied involvement.
When asked if Iran would view a potential U.S. response as an escalation of tensions, the new Pentagon chief and retired Army four-star reiterated that Washington would do whatever is necessary to protect Americans and U.S. interests in the region.
“What they [Iranians] should draw from this, again, is that we’re going to defend our troops and our response will be thoughtful. It will be appropriate,” Austin said. “We would hope that they would choose to do the right things,” he added.
On Sunday, the U.S. military’s Central Command, which oversees the wars in the Middle East, flew its fourth bomber deployment to the region.
The show of force mission included two B-52H Stratofortress bombers alongside aircraft from Israel, Saudi Arabia, and Qatar at different points to “deter aggression and reassure partners and allies of the U.S. military’s commitment to security in the region.”
Last month, Iran rejected an invitation from global powers who signed the 2015 nuclear deal to discuss the regime’s potential return to the negotiating table, a significant setback in the Biden administration’s efforts to revive the Joint Comprehensive Plan of Action, or JCPOA.
The White House said that the Biden administration was disappointed with Iran’s decision to skip the informal meeting but would “reengage in meaningful diplomacy to achieve a mutual return to compliance with JCPOA commitments.”
President of Iran, Hassan Rouhani speaks during the National Combat Board Meeting with Coronavirus (Covid-19) in Tehran, Iran on Nov. 21, 2020.
Iranian Presidency Handout | Anadolu Agency | Getty Images
The Biden administration has previously said that it wants to revive the nuclear deal but won’t suspend sanctions until Tehran comes back into compliance. Tehran has refused to negotiate while U.S. sanctions remain in place.
The 2015 JCPOA, brokered by the Obama administration, lifted sanctions on Iran that had crippled its economy and cut its oil exports roughly in half. In exchange for billions of dollars in sanctions relief, Iran agreed to dismantle some of its nuclear program and open its facilities to more extensive international inspections.
The U.S. and its European allies believe Iran has ambitions to develop a nuclear bomb. Tehran has denied that allegation.
In 2018, then-President Donald Trump kept a campaign promise and withdrew the United States from the JCPOA calling it the “worst deal ever.” Following Washington’s exit from the landmark nuclear deal, other signatories of the pact have tried to keep the agreement alive.
Washington’s tense relationship with Tehran took several turns for the worse under the Trump administration.
President Donald Trump speaks during a briefing on Hurricane Michael in the Oval Office of the White House in Washington, DC, October 10, 2018.
Saul Loeb | AFP | Getty Images
People gather to protest the US air strike in Iraq that killed Iranian commander Qasem Soleimani, who headed Iran’s Revolutionary Guards’ elite Quds force in Sanaa, Yemen on January 6, 2020.
Mohammed Hamoud | Andalou Agency | Getty Images
Soleimani’s death led the regime to further scale back compliance with the international nuclear pact. In January 2020, Iran said it would no longer limit its uranium enrichment capacity or nuclear research.
In October, the United States unilaterally re-imposed U.N. sanctions on Tehran through a snapback process, which other U.N. Security Council members have previously said Washington does not have the authority to execute because it withdrew from the nuclear deal in 2018.
A month later, a top Iranian nuclear scientist was assassinated near Tehran, which led Iran’s government to allege that Israel was behind the attack with U.S. backing.
A view shows the scene of the attack that killed Prominent Iranian scientist Mohsen Fakhrizadeh, outside Tehran, Iran, November 27, 2020.
WANA via Reuters
During the summer of 2019, a string of attacks in the Persian Gulf set the U.S. and Iran on a path toward greater confrontation.
In June 2019, U.S. officials said an Iranian surface-to-air missile shot down an American military surveillance drone over the Strait of Hormuz. Iran said the aircraft was over its territory. That strike came a week after the U.S. blamed Iran for attacks on two oil tankers in the Persian Gulf region and after four tankers were attacked in May.
The U.S. that June slapped new sanctions on Iranian military leaders blamed for shooting down the drone. The measures also aimed to block financial resources for Iran’s Supreme Leader Ayatollah Khamenei.
Tensions soared again in September of 2019 when the U.S. blamed Iran for strikes in Saudi Arabia on the world’s largest crude processing plant and oil field. The strikes forced the kingdom to shut down half of its production operations.
The event triggered the largest spike in crude prices in decades and renewed concerns of a budding conflict in the Middle East.
The Pentagon described the strikes on the Saudi Arabian oil facilities as “sophisticated” and represented a “dramatic escalation” in tensions within the region.
All the while, Iran maintains that it was not behind the attacks.
Chinese foreign minister calls for ‘non-interference’ between China, U.S.
The flags of China, U.S. and the Chinese Communist Party are displayed in a flag stall at the Yiwu Wholesale Market in Yiwu, Zhejiang province, China, May 10, 2019.
Aly Song | Reuters
BEIJING — Chinese Foreign Minister Wang Yi said Sunday that the U.S. needs to remove “unreasonable restrictions” for the two countries’ relationship to move forward under President Joe Biden‘s administration.
Wang’s remarks come as tensions between the U.S. and China have escalated in the last few years under former President Donald Trump, whose term ended in January. So far, the Biden administration has maintained a tough position on China — calling the country a more assertive “competitor” — and raised concerns about Beijing’s stance around Taiwan, Hong Kong, Xinjiang and Tibet.
China’s central government considers those issues part of its domestic matters.
“Speaking of China-U.S. relations, I believe first of all both sides need to abide by the principle of non-interference in each others’ internal affairs,” Wang said. That’s according to an official English translation of his Mandarin-language remarks at a press conference held alongside the “Two Sessions” annual parliamentary meeting in Beijing, the country’s biggest political event of the year.
Biden had raised “fundamental concerns” about Beijing’s actions on issues such as Hong Kong in a two-hour phone call with Chinese President Xi Jinping in February ahead of the Lunar New Year holiday, according to the White House. At the time, the two leaders also discussed how to counter the coronavirus pandemic, working together on climate change and preventing weapons proliferation.
Wang said Sunday the two countries could also cooperate on the economic recovery from the pandemic, and pointed to the phone call as a positive basis for rebuilding the bilateral relationship.
“We’re ready to work with the United States to follow through on the outcome of this important phone call and set China-U.S. relations on a new path of healthy and steady growth,” he said.
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