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What kind of impact will the opening up of Saudi Arabia have on the UAE/Dubai

2019-06-10
Saudi Arabia is considered as the largest consumer market among the Arab countries, because of its population of around 40 million and its immeasurable amount of petrodollars. As a highly lucrative market, Saudi Arabia has been a market that many foreign investors have always wanted to enter (by contrast, the UAE/Dubai though enjoys a world reputation and has an amazing purchasing power, but its population is only 1/3 of that of Saudi Arabia, so the overall market is much smaller). In particular, on November 21-22, 2020, the 15th G20 summit (representing the 20 largest economies in the world) was held in Riyadh, the capital of Saudi Arabia; Saudi Arabia has once again attracted the world's attention.

But for a long time, it has been very difficult to set up a company in Saudi Arabia (in fact, it is still not easy now), because Saudi Arabia has set a very high threshold for foreign investment, and the registration process largely can only be carried out by local people who can speak Arabic. Of course, more importantly, the whole social culture is relatively conservative and religious: in addition to strictly prohibiting alcohol, it was very difficult for foreign women to obtain visas, and even if they did, they were required to follow strict religious attire rules: including face covering and wearing black. So traditionally, even companies with Saudi Arabia as their main market will choose Dubai or other relatively open cities around to set up companies and operate their business for Saudi Arabia. From this perspective, Saudi Arabia's neighboring countries, including the United Arab Emirates, Bahrain and Qatar, have always benefited from the fact that Saudi Arabia is a relatively closed market, and foreign capital cannot enter.

With a series of reforms by the Crown Prince of Saudi Arabia in recent years, a lot of changes happened in the business and societal landscape. The industry leaders generally believe that Saudi Arabia has "opened up" and will attract more foreign investors to directly set up business  in Saudi Arabia to more effectively explore the local market, thus posing a challenge to neighboring countries or cities such as UAE and Dubai. We believe that this view is not unreasonable. In the past less than two years, the Saudi government has completed many reforms that no one had expected before: including greatly reducing the restrictions on foreign investment entering Saudi Arabia to set up companies, the grant of visa exemptions for citizens from more than 40 countries, the removal of strict restrictions on foreign women’s dress in Saudi Arabia, the announcement of a series of special economic zones and free zones (of which Neom is best known), and more. There are even rumors that Saudi Arabia is about to repeal alcoholic prohibition (with conditions, of course) to attract foreign investors. These are undoubtedly good news for companies with Saudi Arabia as their main market. In fact, in the past two years, many companies have chosen to register their companies in Saudi Arabia, trying to be the first-mover of the latest wave of Saudi developments.

However, we also believe that in the long future (15-20 years), it will be difficult for Saudi Arabia to surpass the UAE/Dubai in attracting foreign investment, and the relationship between Saudi Arabia and the UAE/Dubai is not simple. It is a kind of competition, but also a kind of complementarity.

The fact that a region/city has becomes the center of foreign investment is the result of multiple factors: taking Dubai as an example, it has long had a business-friendly social atmosphere, relatively loose religious restrictions, a unique geographical location, a near-zero tax fiscal policy, world-class Infrastructure, complete international professional services, being the world's top 5 financial centers and regions (Middle East and Africa) leading logistics, information and trade centers, as well as Dubai leaders’ innovative vision and leadership (especially in times of crisis). All these make Dubai one of the best places in the world to set up a company, making Dubai a benchmark that is difficult to replicate or surpass.

From the perspective of companies operating in the region, whether their main business is in Saudi Arabia, Iraq or Africa, foreign investors often choose to set up business in Dubai and use their Dubai company as the operation center of the entire region. Whether Saudi Arabia is suitable for such a regional operation center, many conditions still need to be improved.

In conclusion, the competition and complementarity between Saudi Arabia and the UAE/Dubai will be a topic worthy of attention for a long time in the future.