Technology giants such as Amazon.com Inc., Alphabet Inc.’s Google, and Microsoft Corp. are expanding their operations in Saudi Arabia, responding to the government’s policy to end contracts with companies that do not have regional headquarters in the country.

These three U.S. corporations have all obtained licenses to establish regional offices in Riyadh, as per a government database. These permissions were granted just before the Saudi government’s January 1 deadline.

The year-end witnessed a wave of activity as large corporations aimed to set up local headquarters. Airbus SE, Oracle Corp., and Pfizer Inc. are among the firms that have recently secured such licenses.

In February 2021, Saudi Arabia introduced new rules for state contracts, intending to reduce ‘economic leakage,’ a phrase the government uses to refer to state expenditures that can benefit companies without a substantial presence in the country.

A crucial element of Crown Prince Mohammed bin Salman’s economic plan is to decrease the billions in government and citizen spending that leave the country each year. Government officials intend to stop contracts with international firms that only transport executives in and out of the kingdom.

In his endeavour to stimulate the economy and attract international investment, MBS, as the Crown Prince is widely known, has relaxed restrictions on gender mixing, women driving, and public entertainment. Saudi Arabia’s status as the region’s largest economy, with plans to invest trillions of dollars to transform into a tourism and commercial hub, has led many multinational companies to reevaluate their operations in the Middle East.

The Saudi initiative is broadly perceived by business and political analysts as an effort to compete with Dubai, the Middle East’s premier business hub. Dubai has long been preferred by multinational companies for its lifestyle, low taxes, and connectivity.

Traditionally, most global firms have managed their Middle East operations from offices in Dubai, the region’s commercial and financial hub, while maintaining smaller offices in Saudi cities like Riyadh or Dammam, near the headquarters of oil company Saudi Aramco. The impact of the Riyadh headquarters on operations in other parts of the region is still uncertain.

Microsoft mentioned in an email statement to the media that Saudi Arabia is part of its CEMA — Central & Eastern Europe, Middle East & Africa — region. “In this extremely diverse region, we have multiple headquarters, including one in Saudi Arabia,” the statement read. Google is working with the relevant authorities on the requirements, while Airbus stated that its setup in the kingdom adheres to the country’s regulations.

Under Saudi rules, companies can receive a special HQ license if they establish a centre in Riyadh that meets various criteria, including a minimum of 15 staff and reporting to two other countries. In return, Riyadh is offering incentives such as tax breaks and exemptions from Saudi hiring rules. In December, the government announced it would grant a 30-year tax holiday for companies with a specific regional headquarters license.