Editor’s Note: Staša Salacanin is a widely published analyst focusing on Middle Eastern affairs, with expertise in the Persian Gulf, Syria, Yemen, and Iran. His work has appeared in The New Arab, Al Jazeera Center for Studies, Middle East Monitor, Qantara, Amwaj.media, and The Washington Report on Middle East Affairs. This is his first piece for Stimson.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
For several decades, the United Arab Emirates has been the undisputed regional economic leader, attracting foreign investors. Recently, however, Saudi Arabia has doubled down on its efforts to compete with Dubai and present itself as the new regional economic leader. The competition could reshape Saudi-UAE relations and impact the entire region.
Driven by the Vision 2030 initiative of Saudi de facto leader Mohammed bin Salman (MBS), Riyadh has emulated Emirati strategy by embarking on a process of economic transformation and diversification away from hydrocarbon dependence. One of the key points of Vision 2030 is to make the Kingdom a global investment hub, but that is easier said than done.
As competition has intensified, rifts between the two Arab nations have deepened , occasionally leading to strained relations and divergent geoeconomic and geopolitical agendas. Although Saudi Arabia has launched numerous ambitious projects such as the smart city of Neom and the Red Sea project, the UAE remains the regional champion for business, tourism and investment. According to the World Investment Report 2024 conducted by the United Nations Conference on Trade and Development (UNCTAD), the value of foreign direct investment (FDI) in the UAE amounted to $30.688 billion in 2023, up from $22.737 billion in 2022, making the UAE the second largest FDI inflow destination in the world. Saudi Arabia also recorded an impressive increase in FDI inflows, exceeding official targets by 16 percent and amounting to $25.6 billion in 2023. The inflows were 50 percent higher than 2022, using a new methodology for collecting and reporting data to improve the transparency and accuracy of published statistics.
Saudi Arabia has adopted several new economic policies to challenge the UAE’s dominance.
In 2021, Saudi Arabia imposed certain restrictions on imports from other members of the Gulf Cooperation Council (GCC) and attempted to remove tariff-free market access for goods produced in economic free zones. These include products from companies whose workforce is more than 75 percent foreign, as well as industrial products with less than 40 percent added value, most of which are manufactured in these free zones.
Given that the UAE is home to more than 40 such free zones and Emirati nationals make up only 10 percent of the country’s total population, many observers believe that the restrictions were aimed directly at the UAE.
Moreover, since the end of 2022, Saudi Arabia has imposed restrictions on foreign companies not headquartered in the country and urged multinational companies bidding for government contracts to relocate their regional headquarters to the Kingdom by the end of last year. Saudi Arabia has reportedly set the goal of convincing at least 480 major global companies with annual revenues of a billion dollars or more, to set up in Saudi Arabia by 2030. The Kingdom has also taken additional measures to improve the business climate by offering tax incentives and streamlining regulations.
In an interview, Joseph A. Kéchichian, a senior fellow at the King Faisal Center for Research and Islamic Studies in Riyadh, explained that while Emiratis are not very happy about the recent developments, “they have chosen to downplay the long-term impact, perhaps in the hope that the brain drain will not be too severe.” Because the UAE has been “home” to so many international companies for so long, he noted that recent departures have not been devastating, although preliminary figures suggest that the UAE is monitoring relocations with extreme care.
Nevertheless, it is highly unlikely that the UAE, with its established business system, would simply relinquish its position as a regional hub without responding.
Robert Mason, a non-resident fellow at the Arab Gulf States Institute in Washington and visiting fellow at the Institute on Comparative Regional Integration Studies at the United Nations University, explained in an interview that he suspects some realignment of regional trade patterns is likely, but since the UAE is more focused on entering into Comprehensive Economic Partnership Agreements (CEPAs) at a global level, that could cushion the impact of a regional shift. Mason does not believe that the UAE’s position is under serious threat.
In 2022, for example, the UAE signed four comprehensive economic partnership agreements—with India, Indonesia, Israel, and Turkey – while the Saudis signed several trade agreements with Ankara in 2023.
The Saudis remain keen to increase their share of regional and international trade and investment and are in a strong position to attract talent and corporate headquarters. But while many foreign multinationals – including Apple, Google, Microsoft, Siemens, and Pepsico — have indeed set up new headquarters in Saudi Arabia, others have opted for two separate headquarters in Riyadh and in Abu Dhabi or Dubai. According to Kéchichian, in many cases, the decision has been left to employees, many of whom have family members and therefore additional responsibilities.
In Kéchichian’s view, Riyadh is well on its way to claiming the regional hub crown, but it needs to offer effective alternatives to Dubai, Manama and Doha. Kéchichian also believes that one of the most important measures Saudi Arabia needs to take is to improve the level of education for expatriate children, which is a priority for families headed by busy executives. Qualified educators and employees, whose professional needs must also be met, will only come to Saudi Arabia if they are well-paid and given various incentives.
While the intensifying competition may pose a serious challenge to the traditionally close relations between two neighboring powers, Dr. Mohammad Salami, Associate Research Fellow at the International Institute for Global Strategic Analysis (IIGSA), explained in an interview that these competitions are quite natural and likely permanent.
The UAE is responding to Saudi aspirations by constantly seeking new economic opportunities. According to Dr. Mason, any tensions should be easily manageable, despite some overlap between these states’ support for strategic industries such as services.
Rivalry affects GCC unity
Meanwhile, there has been much discussion about whether the growing economic rivalry between the two powers could lead to serious turmoil and even a splintering of the GCC, the most effective regional cooperation organization in the Arab world, which has only just recovered from a failed effort to boycott Qatar.
Beneath the surface, the UAE and Saudi Arabia are engaged in a fierce competition for leadership in the GCC and the MENA region. Disparities in their strategic foreign policy approach were evident in the case of the Yemeni crisis and more recently regarding support of different factions in Sudan’s ongoing civil war.
Moreover, a personal dispute between Saudi leader MBS and Emirati President Mohammed bin Zayed (MBZ,) has exacerbated the occasional tensions. According to Dr. Salami, the Saudis see themselves as the elder brother in GCC. For decades, Riyadh has dictated policies to the other members. Dr. Salami recalls how the Saudi Crown Prince said in an interview with the Wall Street Journal in 2023 that the” UAE had stabbed the Saudis in the back” and had warned Abu Dhabi that “it will see what I can do.”
The struggle for regional dominance complicates the GCC’s ability to adopt unified policies over regional issues and crises, potentially diminishing the organization’s relevance.
Nonetheless, even if the GCC states are moving at different speeds, there are also clear efforts towards sub-regional integration, including road, rail and port infrastructure. Most of the serious upheavals in the GCC in the past have been due to political rather than economic issues. Therefore, Kéchichian believes that cooperation rather than confrontation will continue to be the preferred option and that competition will, in his view, improve quality at all levels. The key is to keep these relationships open without falling into the traps that international companies will set— by demanding additional incentives from one country or another. That would not only be a step back into the colonial past, but it could also undo the remarkable historical achievements of the Gulf states.
Saudi Arabia and the UAE Compete to be Hubs for Regional Business
By Staša Salacanin
Middle East & North Africa
Editor’s Note: Staša Salacanin is a widely published analyst focusing on Middle Eastern affairs, with expertise in the Persian Gulf, Syria, Yemen, and Iran. His work has appeared in The New Arab, Al Jazeera Center for Studies, Middle East Monitor, Qantara, Amwaj.media, and The Washington Report on Middle East Affairs. This is his first piece for Stimson.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
For several decades, the United Arab Emirates has been the undisputed regional economic leader, attracting foreign investors. Recently, however, Saudi Arabia has doubled down on its efforts to compete with Dubai and present itself as the new regional economic leader. The competition could reshape Saudi-UAE relations and impact the entire region.
Driven by the Vision 2030 initiative of Saudi de facto leader Mohammed bin Salman (MBS), Riyadh has emulated Emirati strategy by embarking on a process of economic transformation and diversification away from hydrocarbon dependence. One of the key points of Vision 2030 is to make the Kingdom a global investment hub, but that is easier said than done.
As competition has intensified, rifts between the two Arab nations have deepened , occasionally leading to strained relations and divergent geoeconomic and geopolitical agendas. Although Saudi Arabia has launched numerous ambitious projects such as the smart city of Neom and the Red Sea project, the UAE remains the regional champion for business, tourism and investment. According to the World Investment Report 2024 conducted by the United Nations Conference on Trade and Development (UNCTAD), the value of foreign direct investment (FDI) in the UAE amounted to $30.688 billion in 2023, up from $22.737 billion in 2022, making the UAE the second largest FDI inflow destination in the world. Saudi Arabia also recorded an impressive increase in FDI inflows, exceeding official targets by 16 percent and amounting to $25.6 billion in 2023. The inflows were 50 percent higher than 2022, using a new methodology for collecting and reporting data to improve the transparency and accuracy of published statistics.
Saudi Arabia has adopted several new economic policies to challenge the UAE’s dominance.
In 2021, Saudi Arabia imposed certain restrictions on imports from other members of the Gulf Cooperation Council (GCC) and attempted to remove tariff-free market access for goods produced in economic free zones. These include products from companies whose workforce is more than 75 percent foreign, as well as industrial products with less than 40 percent added value, most of which are manufactured in these free zones.
Given that the UAE is home to more than 40 such free zones and Emirati nationals make up only 10 percent of the country’s total population, many observers believe that the restrictions were aimed directly at the UAE.
Moreover, since the end of 2022, Saudi Arabia has imposed restrictions on foreign companies not headquartered in the country and urged multinational companies bidding for government contracts to relocate their regional headquarters to the Kingdom by the end of last year. Saudi Arabia has reportedly set the goal of convincing at least 480 major global companies with annual revenues of a billion dollars or more, to set up in Saudi Arabia by 2030. The Kingdom has also taken additional measures to improve the business climate by offering tax incentives and streamlining regulations.
In an interview, Joseph A. Kéchichian, a senior fellow at the King Faisal Center for Research and Islamic Studies in Riyadh, explained that while Emiratis are not very happy about the recent developments, “they have chosen to downplay the long-term impact, perhaps in the hope that the brain drain will not be too severe.” Because the UAE has been “home” to so many international companies for so long, he noted that recent departures have not been devastating, although preliminary figures suggest that the UAE is monitoring relocations with extreme care.
Nevertheless, it is highly unlikely that the UAE, with its established business system, would simply relinquish its position as a regional hub without responding.
Robert Mason, a non-resident fellow at the Arab Gulf States Institute in Washington and visiting fellow at the Institute on Comparative Regional Integration Studies at the United Nations University, explained in an interview that he suspects some realignment of regional trade patterns is likely, but since the UAE is more focused on entering into Comprehensive Economic Partnership Agreements (CEPAs) at a global level, that could cushion the impact of a regional shift. Mason does not believe that the UAE’s position is under serious threat.
In 2022, for example, the UAE signed four comprehensive economic partnership agreements—with India, Indonesia, Israel, and Turkey – while the Saudis signed several trade agreements with Ankara in 2023.
The Saudis remain keen to increase their share of regional and international trade and investment and are in a strong position to attract talent and corporate headquarters. But while many foreign multinationals – including Apple, Google, Microsoft, Siemens, and Pepsico — have indeed set up new headquarters in Saudi Arabia, others have opted for two separate headquarters in Riyadh and in Abu Dhabi or Dubai. According to Kéchichian, in many cases, the decision has been left to employees, many of whom have family members and therefore additional responsibilities.
In Kéchichian’s view, Riyadh is well on its way to claiming the regional hub crown, but it needs to offer effective alternatives to Dubai, Manama and Doha. Kéchichian also believes that one of the most important measures Saudi Arabia needs to take is to improve the level of education for expatriate children, which is a priority for families headed by busy executives. Qualified educators and employees, whose professional needs must also be met, will only come to Saudi Arabia if they are well-paid and given various incentives.
While the intensifying competition may pose a serious challenge to the traditionally close relations between two neighboring powers, Dr. Mohammad Salami, Associate Research Fellow at the International Institute for Global Strategic Analysis (IIGSA), explained in an interview that these competitions are quite natural and likely permanent.
The UAE is responding to Saudi aspirations by constantly seeking new economic opportunities. According to Dr. Mason, any tensions should be easily manageable, despite some overlap between these states’ support for strategic industries such as services.
Rivalry affects GCC unity
Meanwhile, there has been much discussion about whether the growing economic rivalry between the two powers could lead to serious turmoil and even a splintering of the GCC, the most effective regional cooperation organization in the Arab world, which has only just recovered from a failed effort to boycott Qatar.
Beneath the surface, the UAE and Saudi Arabia are engaged in a fierce competition for leadership in the GCC and the MENA region. Disparities in their strategic foreign policy approach were evident in the case of the Yemeni crisis and more recently regarding support of different factions in Sudan’s ongoing civil war.
Moreover, a personal dispute between Saudi leader MBS and Emirati President Mohammed bin Zayed (MBZ,) has exacerbated the occasional tensions. According to Dr. Salami, the Saudis see themselves as the elder brother in GCC. For decades, Riyadh has dictated policies to the other members. Dr. Salami recalls how the Saudi Crown Prince said in an interview with the Wall Street Journal in 2023 that the” UAE had stabbed the Saudis in the back” and had warned Abu Dhabi that “it will see what I can do.”
The struggle for regional dominance complicates the GCC’s ability to adopt unified policies over regional issues and crises, potentially diminishing the organization’s relevance.
Nonetheless, even if the GCC states are moving at different speeds, there are also clear efforts towards sub-regional integration, including road, rail and port infrastructure. Most of the serious upheavals in the GCC in the past have been due to political rather than economic issues. Therefore, Kéchichian believes that cooperation rather than confrontation will continue to be the preferred option and that competition will, in his view, improve quality at all levels. The key is to keep these relationships open without falling into the traps that international companies will set— by demanding additional incentives from one country or another. That would not only be a step back into the colonial past, but it could also undo the remarkable historical achievements of the Gulf states.
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