Local Content Initiative in Saudi Arabia
Corporate Commercial / Saudi Arabia
Dania Ghazzawi Senior Associate,Dispute Resolution
Khalid AlMubarakAssociate,Corporate Commercial
Reem AbabtainTrainee Lawyer,Corporate Commercial
Saudi Arabia, the largest economy in the Middle East, is actively striving to boost and diversify its economic landscape. The primary objective is to enhance job prospects, introduce innovative technologies, and achieve economic growth in a sustainable manner. To assist with the achievement of these goals, the country has instituted specialized regulations and initiatives aimed at supporting domestic enterprises and the workforce. These regulations, known as "Local Content" policies, are overseen by the Local Content and Government Procurement Authority (LCGPA).
This article discusses the concept of local content and its operational mechanisms, and explains its significance in shaping the future path of Saudi Arabia.
Put simply, the objective of local content requirements adopted is to increase utilization of Saudi labor, products, and services within the nation's economy.
This strategic approach not only fosters job creation and skill enhancement but also promotes the retention of financial resources within the country.
Local content is therefore a pivotal national initiative that accelerates the advancement of the domestic economy by engaging all economic sectors, including the government, private enterprises, and individuals. The authority has outlined a comprehensive national definition of local content, enshrined within its regulatory framework established by the Council of Ministers. The Council of Ministers, comprising the King, the Crown Prince, and advisors appointed as members by Royal Order, serves as the apex executive authority in the Kingdom of Saudi Arabia.
The Local Content and Government Procurement Authority (LCGPA) is the regulatory body responsible for overseeing and enforcing local content policies and government procurement processes in Saudi Arabia.
Established by royal decree issued by the Saudi Arabian government, the LCGPA's core mission is to ensure the effective implementation of local content policies and to streamline government procurement processes in alignment with these policies.
This autonomous entity is to be distinguished from the Local Content and Procurement Authority (LCPA). The LCGPA operates independently to manage and enforce local content initiatives and procurement regulations, setting regulations, monitoring compliance, and offering guidance to governmental bodies, private sector entities, and companies on local content requirements.
Saudi Arabia has implemented various strategies to promote the utilization of local content in government projects. Here are some key methods:
Price Preference: In government procurement, a 10% price advantage is granted to products manufactured in Saudi Arabia. This policy enables local products to secure contracts, even if priced slightly higher than foreign alternatives, as long as the difference falls within the 10% margin.
Mandatory List: A designated list specifies items that must be procured from local suppliers, guaranteeing that specific goods and services are sourced domestically, boosting the local economy.
Local Content Score in Commercial Evaluation: In the assessment of bids for government contracts, 40% of the evaluation score is allocated based on the extent of local content utilization, with the remaining 60% contingent on pricing. This system incentivizes companies to incorporate more local resources into their proposals.
Minimum Local Content Threshold: Contractors are obliged to meet a predetermined threshold of local content by the conclusion of their contracts. This requirement ensures a consistent integration of local content throughout the project lifecycle, fostering sustained support for local industries.
Local content is a pivotal national initiative that accelerates the advancement of the domestic economy by engaging all economic sectors, including the government, private enterprises, and individuals.
Saudi Arabia has put in place several initiatives to boost local content:
In-Kingdom Total Value Add (IKTVA): Spearheaded by Saudi Aramco, this program targets enhancing local content within the oil and gas sector, fostering economic growth and development.
National Industrial Development and Logistics Program (NIDLP): Centered on propelling Saudi Arabia to the forefront of the global stage in energy, mining, logistics, and industry, his program aims to fortify the nation's industrial landscape.
National Technology Development Program (NTDP): Geared towards fostering technological advancements, this program aids technology firms in product development while fostering collaborations with educational institutions and research centers to drive innovation and growth.
As a member of the World Trade Organization (WTO), Saudi Arabia is bound by regulations promoting free trade and non-discrimination, ensuring equitable treatment for both domestic and foreign goods and services. To navigate this delicate balance, Saudi Arabia harmonizes its local content objectives with its international trade obligations, striving to prevent conflicts and uphold its commitments within the global trade framework. Achieving and maintaining this balance is crucial for fostering economic growth while honoring its WTO membership.
Local content is a key element of Saudi Arabia's blueprint for a flourishing and sustainable future, underpinning economic prosperity.
Our team is able to offer further insights into Saudi Arabia's Local Content initiative and assist clients with compliance issues and the navigation of the Local Content certification process.
For further information,please contact Dania Ghazzawi and Khalid Al Mubarak.
Published in January 2025
