New regulations for measuring local content in Saudi Arabia to support Vision 2030
A strategic step to enhance transparency and support Vision 2030
In a move aimed at enhancing transparency and improving the efficiency of government spending, the Local Content and Government Procurement Authority in Saudi Arabia announced an update to the document outlining the agreed-upon procedures for verifying the local content ratio in contracts. These updates, made available through the “Istilaa” platform, address the challenges faced by establishments in implementing the approved methodology and ensure the accuracy and reliability of the data used to calculate the local content ratio, thus serving the strategic objectives of the Kingdom’s Vision 2030.
General context: Local content as a key pillar of economic diversification
The concept of “local content” is a cornerstone of the Kingdom’s economic diversification strategy. Since the launch of Vision 2030, the government has been working to develop mechanisms to increase the private sector’s contribution to GDP, localize industries and services, and create sustainable job opportunities for citizens. The Local Content and Government Procurement Authority was established in 2018 to regulate and facilitate this approach, directing government purchasing power towards local products and services and encouraging local and international companies to increase their investments within the Kingdom.
Key features of the new regulations
The new updates aim to close gaps and increase the accuracy of the measurement process, and are based on several key pillars:
1. Transparency in expenditures on goods and services
The new regulations require establishments to disclose detailed information about their suppliers. They stipulate that the number of disclosed suppliers must be at least 10, or that the disclosed expenses must cover at least 70% of the total cost of goods and services. This measure aims to prevent the concealment of imported costs among a large number of small suppliers, thus providing a clearer picture of the supply chain. If the product is manufactured locally but the supplier is not the manufacturer, the factory's name and national identification number must be disclosed to ensure the tracking of the true added value within the economy.
2. Audit of workforce compensation
The authority emphasized the necessity of providing a detailed analysis of total employee compensation and working hours related to contract execution. This analysis must categorize the workforce by gender (male and female) and nationality (Saudi and expatriate), with the total figures matching the approved model. This requirement enhances the accuracy of calculating the contribution of national talent to local content and supports localization efforts.
3. Accurate disclosure of asset depreciation
The updates included a requirement to obtain an asset register that provides a detailed analysis of the assets used in executing the contract within the Kingdom. The register must specify whether these assets were produced or developed locally or imported, along with the associated depreciation and amortization amounts. This ensures the accurate calculation of the local asset contribution and prevents overestimation of the local content ratio.
Expected impact on the economy and businesses
These stricter regulations are expected to have a multifaceted positive impact. Domestically, they will create a more level playing field for companies that invest heavily in local manufacturing and services, and will enhance the credibility of local content certifications. For international companies, these measures will increase the importance of building genuine partnerships with local suppliers and investing in supply chains within the Kingdom to win government contracts. Overall, this step contributes to achieving the goals of Vision 2030 by increasing added value in the national economy and strengthening its productive capacity.
