In a significant shift within the business media landscape, numerous multinational companies have adhered to Saudi Arabia’s directive to establish regional headquarters within the kingdom, a condition for securing government contracts. However, notable banking institutions are yet to take the plunge.
Major corporations including PepsiCo, Boeing, PwC, and Unilever have responded positively to the mandate, securing regional headquarters licenses. In contrast, banking giants such as Citibank, Deutsche Bank, Goldman Sachs, and HSBC have not made similar announcements.
Many financial firms manage their Middle East operations as part of a larger segment encompassing Europe and Africa. Bankers express reservations about the regulatory consequences of setting up a base in Saudi Arabia, indicating that the country does not have the infrastructure of a financial hub.
It’s not only about whether you want to put people in Saudi Arabia, it’s what the regulatory framework is going to be,
a senior banker commented on the situation.
The Saudi initiative, known as Programme HQ, is part of the nation’s vigorous developmental efforts led by Crown Prince Mohammed bin Salman. The program mandates that companies maintain a Saudi regional headquarters with a minimum of fifteen staff, including executives overseeing operations in other nations, to be eligible for new government contracts.
Nevertheless, challenges persist. Riyadh’s King Abdullah Financial District lacks a dedicated regulator, unlike Dubai’s International Finance Centre. Instead, the Saudi central bank and the capital markets authority oversee the banking sector’s various aspects.
The Saudi investment ministry has acknowledged these issues and is striving to consolidate and fortify its regulatory framework. They reported that Northern Trust and several other financial entities are in the process of establishing regional headquarters.
While manufacturing giants like PepsiCo and Eli Lilly have conformed to Programme HQ, other sectors, such as law and public relations firms, are moving more cautiously. They cite concerns over tax implications and the rules stating that regional headquarters should not be revenue-generating entities.
Michael Bessey of Albright Stonebridge Group noted, For many services firms, whoever you put under the regional headquarters [is] going to generate passive revenue… that would seem to be a violation of the RHQ rules, which say it must be a non-revenue-generating entity,
The investment ministry is actively engaging with service firms to devise suitable solutions, emphasizing the intent to incentivize growth and capitalize on Saudi investment opportunities rather than mere rule compliance.
Despite the reluctance of some firms, the ministry is issuing regional headquarter licenses at a steady pace. There has been discussion of publicizing the names of non-compliant companies, although this approach has been softened to internal circulation among government ministries.
With the Public Investment Fund and Saudi Aramco operating independently of these requirements, companies are weighing the necessity of establishing regional headquarters. However, as Saudi Arabia continues its investment drive, global businesses are increasingly recognizing the inevitability of complying with Programme HQ.