Dubai, United Arab Emirates—Modern infrastructure and a business-friendly attitude have made Dubai the regional base of choice for international companies, but Riyadh’s remarkable rise has woken a long-sleeping heavyweight competitor.
The wealthy Gulf emirate has made opening businesses as easy as ordering a meal, in a region choking with bureaucracy, helping it attract around 140 headquarters in three decades, far more than any other Middle East city.
While Dubai’s business environment flourished, Riyadh, the capital of the biggest Arab economy, floundered thanks to ultra-conservative policies, security threats and corruption.
The young Crown Prince Mohamed bin Salman sought to end all that when he came to power in 2017, and now the city surrounded by sand dunes is enjoying a relative boom, drawing new businesses from restaurants to tech startups.
“Our target is to have Riyadh become one of the top-ten largest city economies in the world,” the 35-year-old de facto leader said in January.
But despite the big salary packages and contracts that are drawing expats and foreign firms to Riyadh, the city’s lack of attractions, a no-alcohol policy and other disincentives has slowed the shift.
Saudi officials have said the kingdom accounts for less than five percent of the region’s Hqs—even though it’s the biggest Arab economy and offers the “lion’s share” of business and contracts.
To change the status quo, Saudi this week heaped pressure on foreign companies to move their Middle East headquarters to the kingdom, saying it will stop signing contracts with firms with hubs in other countries from 2024.
The surprise move is a direct challenge to Dubai and threatens a heated open race between Saudi Arabia and the United Arab Emirates—neighbors, allies and competitors.
“I do not think this is the intention, but it is how it works out in practice, as Dubai tends to be the default location for international companies’ regional HQs,” said Steffen Hertog, associate professor at the London School of Economics and Political Science.
Under Prince Mohammed, Saudi adopted a series of once unimaginable social changes and abolished some of its draconian laws.
Riyadh, a city of 7.5 million once seen as a bastion for ultra-conservative policies, opened its doors for entertainment and investment, the notorious religious police were sidelined and anti-corruption campaigns embarked on.
The reputational revamp was derailed by the 2018 murder of Saudi journalist Jamal Khashoggi’s murder inside the kingdom’s consulate in Istanbul, and a crackdown on dissent that has left peaceful critics behind bars.
But the new-look capital has nevertheless drawn many hoping to cash in on multi-billion-dollar projects like the futuristic NEOM megacity planned for the kingdom’s Red Sea coast.
Saudi entrepreneur Haya Akhdar and her husband Ugo Baudez, a French national, launched their Dubai-based consultancy specializing in luxury brands in 2017.
For the young couple, now is the right time to open a new office in Riyadh, but like many they will keep one foot in each city.
“We have witnessed the growth of the market and the shift of many brands’ attention to KSA, specifically in Riyadh... We need to be close to our clients in both important markets,” Baudez said.
‘A million welcomes’
The UAE has responded quickly to the new competitive mood.
The country of one million citizens and nine million expats lifted a ban on unmarried couples living together, loosened restrictions on alcohol, offered long-term residency, and struck a normalization deal with Israel to harness the power of the two major economies.
To stay competitive with Saudi Arabia, a powerhouse with a youthful market of 34 million, the UAE has to “accelerate some reforms that are still unthinkable for Saudi Arabia,” said Ryan Bohl, a Middle East analyst at risk consulting firm Stratfor.
Saudi cities still lack proper infrastructure in key areas like transport and banking, and some ministries remain hopelessly mired in bureaucracy.
“Riyadh and Jeddah remain light years behind Dubai and even Abu Dhabi in terms of social liberalism, housing, schooling and entertainment venues,” said Bohl.
The other “hard reality is that Saudi Arabia still has 19 million largely conservative citizens who are going to be less amenable to copying the relatively Westernized social mores of the UAE for many years to come,” he added.
Those aren’t the only challenges.
While Dubai is seen as one of the safest cities in the region, Riyadh faces a threat from rebels and extremists in Yemen where its forces have been fighting since 2015.
And its efforts to buff up its image will come under strain from the new administration in the United States, after President Joe Biden threatened to make the kingdom a “pariah.”
“Companies and banks operating from Dubai for 30 years chose it because of the quality of life, competitive advantages, a legislative and social environment and a unique infrastructure,” tweeted Emirati professor of political science Abdulkhaleq Abdulla.
“They will not leave it. Yet, a million welcomes to the competition.”