A strategic step towards achieving the goals of Vision 2030
In a move reflecting the Kingdom of Saudi Arabia’s commitment to strengthening its national economy and diversifying its resources, the Local Content and Government Procurement Authority has approved a package of fundamental amendments to the procedures for measuring and auditing local content. These new regulations come within a broader framework aimed at achieving the objectives of Saudi Vision 2030, which prioritizes the localization of industry and increasing the local component across various sectors. Through these measures, the Authority seeks to build an accurate and reliable database, enhance transparency in government procurement, and ensure that public and private spending is directed towards supporting national products and services.
Enhancing transparency in workforce data
One of the most significant new amendments is the requirement for establishments to provide a more detailed workforce classification. The classification is no longer limited to "Saudi" and "expatriate"; it now includes a gender breakdown showing the number of male and female employees within each category. To ensure the accuracy of this data, it will be subject to rigorous auditing processes, including testing random samples representing 20% of the total workforce cost or 40 employees (whichever is less), to verify the accuracy of the figures, job classifications, and gender affiliations. This approach reflects a growing interest not only in Saudization but also in promoting women's participation in the labor market and providing accurate data for decision-makers.
Rigorous auditing of supply chains and identification of the true source
To combat the phenomenon of intermediary suppliers and ensure that support reaches genuine local manufacturers, the Authority has imposed stricter measures on supply chains. If a product is manufactured locally and the supplier is not the manufacturer, the establishment is now obligated to disclose the identity of the producing factory and its unified national identification number. The new procedures also require the disclosure of a list of at least 10 major suppliers, or those covering 70% of the total costs of goods and services, to ensure complete transparency in the cost structure. This step aims to prevent practices that weaken local content and ensure that added value remains within the Saudi economy.
New controls for capital spending and assets
The amendments also included stricter controls on capital spending. Any cost not of a specified origin will be classified as an “unauthorized cost” for calculating the local content ratio. If such costs exceed 30% of total capital expenditure, the establishment must obtain prior approval from the authority. Furthermore, establishments must submit a detailed asset register indicating whether assets were produced locally or imported, with a breakdown of the components of complex assets such as factories and power plants, to accurately determine their local content percentage.
Expected economic impact and importance of the measures
These regulations are expected to have a significant positive impact on the local economy. In the short term, they will increase the accuracy and transparency of data, enabling the authority to measure local content more effectively. In the long term, these measures will encourage companies to increase their investments in local manufacturing, develop robust national supply chains, and train and employ more Saudi nationals of both genders. They will also enhance the competitiveness of local products in government contracts and attract foreign direct investment seeking a clear and supportive regulatory environment for local industry, thus contributing directly to diversifying the Kingdom's economic base and reducing its dependence on oil.
