Local content modifications: employee classification and factory identification

In a move aimed at enhancing transparency and improving the efficiency of government spending in line with the goals of Vision 2030, the Local Content and Government Procurement Authority a package of fundamental amendments to measurement and auditing procedures. This step aims to ensure the accuracy of data submitted by establishments and to close any gaps that might affect the calculation of true local content ratios, thereby strengthening opportunities for the private sector and supporting national industry.

Context of promoting local content in the Kingdom

Since its inception, the Local Content Authority has played a pivotal role in developing the national economy by directing government purchasing power towards local products and services. These new amendments are part of an ongoing development process aimed at moving beyond simply favoring national products to building a robust industrial and service base. These measures are particularly important given the rapid growth of major projects in the Kingdom, where scrutinizing the source of goods and services becomes crucial to ensuring that economic returns remain within the local economic cycle.

New workforce standards: Beyond localization

Disclosure standards are no longer limited to distinguishing between Saudi and expatriate employees. The new amendments require establishments to provide a detailed analysis of total employee compensation, including gender breakdown (male and female). To ensure the reliability of this data, the authority has established a rigorous testing mechanism that includes:

• Tracking a representative random sample of 40 employees.
• Or auditing the equivalent of 20% of the total workforce cost (whichever is less).

This procedure aims to ensure the accuracy of the allocated amounts and the validity of the job classifications, reflecting the true picture of the establishment’s contribution to the labor market.

The issue of suppliers and intermediaries has been resolved

In its efforts to regulate supply chains, the authority put an end to the practice of relying on intermediary suppliers without disclosing the original source. The new regulations stipulate the following:

• It is mandatory to disclose the true “manufacturing factory” and its unified national number if the product is local but the supplier is not the factory.
• The number of disclosed suppliers must not be less than 10 suppliers, or the data must cover 70% of the total costs of goods and services.
• Alternatively, establishments can include the top 40 suppliers ranked in descending order by cost.

These measures would protect genuine domestic factories from unfair competition and ensure that contracts are directed to actual producers.

Financial oversight and capital assets

The amendments included a significant tightening of capital spending regulations, with any unspecified cost exceeding 30% of total capital expenditures being classified as “unauthorized” unless approved by the Authority. The Authority also mandated that establishments submit an asset register detailing what was produced locally and what was imported, particularly for complex core assets such as factories and power plants.

Expected economic impact

These regulations are expected to improve the accuracy of local content reports, helping policymakers to guide economic policies more effectively. They will also compel companies to enhance their accounting and administrative systems, thereby raising the level of governance in the Saudi private sector and strengthening trust between the public and private sectors.