Turning Local Content into a Strategic Advantage in Saudi Arabia

Between 2020 and 2024, spending by the Public Investment Fund (PIF), its programs, and portfolio companies on local content reached SR591 billion ($157 billion), signaling the immense scale of this policy on Saudi’s economic output.

In the Kingdom, Local Content has become a cornerstone of this transformation, measuring the "Saudi-ness" of a company’s spending to track how much capital remains domestically to fuel growth.

By treating local content as a strategic benchmark, businesses operating or planning to set up a business in Saudi Arabia can mitigate the risk of missed opportunities while building a more resilient and cost-effective operation.

Defining Local Content: The Scoring Framework

Improving a Local Content score has become a powerful lever for winning government contracts in Saudi Arabia. While some tenders enforce these requirements at later stages, many now mandate specific local content baselines from the outset.

According to the Local Content and Government Procurement Authority (LCGPA), the value of tenders incorporating local content mechanisms on the Etimad platform reached SR316.4 billion, representing an implementation rate of 94.1% of total tender value.

The Local Content score typically tracks a company's domestic reinvestment against its total expenditure. This metric is calculated by evaluating several key pillars: the percentage of Saudi nationals in the workforce, the volume of domestically sourced products, and corporate investment in R&D and capacity building.

Governed by the Government Tenders and Procurement Law (GTPL), this data allows the LCGPA to establish national and industry-specific targets, using sector averages to benchmark performance across the wider economy.

Since different spending categories—such as local labor, domestic procurement, and capital investments—carry different weights, precision is critical.

Maintaining clean, properly categorized financial data is a foundational requirement for any company aiming to demonstrate its commitment to the Kingdom's localization goals and remain competitive in the market.

How Local Content Shapes Government Procurement

Boosting local content in Saudi Arabia's government procurement sector is designed to balance fiscal efficiency with national economic growth, guided by two primary objectives.

The first focuses on cost savings and overall efficiency—ensuring that government entities maximize their budgets by achieving greater outputs for the same expenditure. This is overseen by the Saudi Expenditure and Projects Efficiency Authority (EXPRO), which is tasked with streamlining how the state spends its capital and delivers major projects.

The second objective is to increase the share of local products and services, effectively reducing economic reliance on imports. This aligns with the concept of localization—a broader national strategy to encourage companies to establish a presence in Saudi Arabia, manufacture locally, and contribute to the “Made in Saudi” ecosystem.

In short, localization is the process of bringing different parts of your value chain into the Kingdom. Local content, then, is your in-country value once you are operational, a measure of how much you contribute to the local economy by hiring locally and buying locally.

Local Content in Government Tenders: Key Mechanisms

Before participating in government tenders, companies must complete three foundational steps. First, obtaining a Local Content Certificate, which establishes a company's baseline local content score. This document should be submitted through LCGPA's local content portal, linked to the Etimad platform, and is valid for 19 months.

Second, companies must familiarize themselves with the Mandatory List of national products that LCGPA requires companies to source locally for certain tenders. Third, understanding the Price Preference mechanism is paramount; in fact, companies that demonstrate local sourcing for specific line items can receive a 10% scoring advantage during supplier evaluation.

Once a company is participating in a tender, local content affects the results in three different ways:

1. Minimum Local Content Requirement: Some tenders require a company's certified score to exceed a defined threshold to be eligible to bid—for example, a minimum score of 40%.

2. Target Local Content Score: Certain tenders require companies to commit to a target score over a defined period. If the contract is awarded, meeting that target by the specified date becomes a binding obligation.

3. Local Content Weighting in Financial Evaluation: This is arguably the most consequential mechanism. Bids are typically assessed on two dimensions: technical score and commercial score—for example, 40% and 60%, respectively. Within the commercial score, 60% is allocated to price competitiveness and 40% to local content, meaning a strong local content position can positively affect a company's ranking among competing suppliers.

Local Content Obligations After Winning a Tender

Once a company has won a contract, contractors are generally required to submit a gradual local content improvement plan within 60 days of award. Periodic progress reports are often required for high-value tenders.

Failure to meet committed targets can result in penalties of up to 10% of contract value, reputational damage, blacklisting from future contracts, or re-tendering of the same scope.

Common Questions on Local Content Compliance

What are the most common pitfalls companies face with local content?

Businesses typically struggle with three key areas: awareness, data management, and post-award compliance. Many international firms only discover local content obligations during the bidding phase, leading to rushed, incomplete certifications.

Furthermore, companies often find it difficult to clean and categorize the granular financial data required for a successful audit. Finally, some firms set overly ambitious targets to win a contract but fail to document their progress, leading to penalties and a negative business impact down the line.

What is the first practical step a company should take to ensure compliance?

The most effective starting point is governance. We recommend appointing a dedicated auditor within the organization. This individual must have oversight across procurement, finance, HR, and operations, as local content obligations touch every part of the business.

How should a company systematically manage its local content score?

To stay compliant, businesses should regularly review four key areas. First, local spend—tracking how much of their procurement is sourced domestically. Second, local labor—monitoring the share of local employees in the workforce.

Third, capital expenditure (CapEx)—making sure investments are made within the Kingdom. And fourth, capability building—documenting investments in research and development, innovation, and training.

What operational habits are essential for long-term success?

To ensure smooth operations and maintain a competitive edge, companies must keep their Local Content Certificate up to date, as it has a fixed expiration date. It is also vital to set realistic improvement targets by benchmarking against competitors in the same sector.

Are there ways to work within the public sector without meeting local content requirements?

Local content requirements typically apply to specific types of projects. It depends on both the industry and the nature of the project.

That said, not all opportunities require local content. Smaller projects—typically under SAR 10 million—may not have such requirements. The private sector also generally operates without mandatory local content thresholds. For public sector opportunities, it ultimately depends on the size of the RFP and the entity involved.