Saudi and UAE fire big shots in battle for regional dominance

Reuters

Saudi Arabia has created a new authority to provide both financial and non-financial incentives for investment projects as its rivalry with the UAE to become the top regional business hub intensifies.

The establishment of the National Incentives Committee (NIC) by the Council of Ministers has been described by analysts as a “major development” in the country’s investment policy.

“The creation of the NIC is in line with a number of other steps the kingdom has recently taken to attract foreign investment and to position itself as a regional business hub,” said Sarah Al-Shawwaf, senior vice president of Albright Stonebridge Group (ASG) which was chaired by Madeleine K Albright, the first female US secretary of state, who passed away earlier this year.

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Al-Shawwaf said other developments include a draft investment law aimed at strengthening investor rights and protections and the launch of the RHQ Program, designed to offer a variety of incentives to encourage multinational companies to establish their regional headquarters in the kingdom.

On January 1 2024 the Saudi government and state-backed institutions will stop signing contracts with foreign firms that base their Middle East HQs outside the kingdom.

But Al-Shawwaf told AGBI that the UAE is reacting strongly to the growing economic competition from Saudi Arabia and has recently enacted a number of reforms aimed at enhancing the country’s economic competitiveness. 

Such reforms include overhauling visa regulations to attract skilled foreign workers, investors and entrepreneurs; introducing a new UAE labour law bringing the country’s policies more in line with international standards; and launching the “Dubai Global” program to bolster the emirate’s position as a global business hub.

Most recently, the UAE launched a plan to compete against the world’s most popular cities for international businesses.

Dr Thani Al Zeyoudi, UAE minister of state for foreign trade, announced incentives aiming to attract 300 digital companies to set up offices over the next year.

As part of the NextGenFDI initiative, the UAE ministry of economy has signed partnerships with seven entities – Abu Dhabi Global Market (ADGM), Dubai International Financial Centre (DIFC), Dubai Multi Commodities Centre (DMCC), Dubai Internet City, Dubai South, Emirates NBD and digital banking platform Wio – to expedite the incorporation process for digital companies.

Under Saudi’s new NIC, the list of incentives released to date covers a wide range including but not limited to tax incentives, government subsidies in a variety of sectors, relaxed Saudisation requirements and discounts on government fees. 

“While the extent of these incentives is still unclear, past precedent suggests that they may be quite generous, depending on the project,” noted Al-Shawwaf, who cited the US-based electric car-maker Lucid Group as an example.

It received up to $3.4 billion in financing and incentives from the Saudi government to establish a new factory in the kingdom. 

She added that Saudi Arabia has also established a customs zone, the Integrated Logistics and Bonding Zone (ILBZ), which offers a wide variety of incentives including a 50-year tax holiday, zero-rated corporate income, lenient Saudisation requirements and 100 percent foreign ownership.

What is the NIC and what are its aims?

The NIC, created last month, is under the authority of the Supreme National Investment Committee, which is chaired by Crown Prince Mohammed bin Salman and is part of the powerful Council of Economic and Development Affairs. 

The Supreme Committee was established in 2021 to oversee the National Investment Strategy, with a focus on coordinating government efforts to negotiate major investment deals. 

A second new committee – the Committee for Listing and Developing Investment Opportunities – was also created to identify and refer attractive investment opportunities to the NIC. 

The Saudi minister of investment, Khalid Al Falih, will serve as chairman while other NIC members have not yet been announced. The General Secretariat of the NIC will be headquartered at the Ministry of Investment (MISA).

The NIC has broad power and authority to determine and structure incentives packages in coordination with other government entities and with the Finance Committee at the Royal Court. It will also approve and supervise the distribution of incentives to various investment projects, review and approve proposals for offering incentives and determine which incentives are eligible. 

While the announcement did not specify which sectors will be eligible for investment incentives, it references local and foreign investments (inside and outside the kingdom). 

Investment incentives include tax and customs incentives, discounts on government fees depending on the type of economic activity, relaxed Saudisation requirements; government subsidies related to energy, industry, environment, agriculture, healthcare, and telecommunications, support in obtaining low interest financing, privatisation concession incentives and mining concessions. 

“The NIC will play an important role in shaping the investment incentive landscape in the kingdom,” said Al-Shawwaf, who would not be drawn on whether Saudi Arabia or the UAE would come out on top.

She added that ASG, a global strategy and commercial diplomacy firm, is advising clients to take steps to “preserve their relationships with key stakeholders in both countries” and develop a “long-term strategy for what they want to achieve in the region”.