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will stop doing business with foreign companies with regional headquarters outside the starting in 2024, state media said Monday, in a move aimed at boosting investment as unemployment soars.

The bold announcement could intensify competition between the kingdom and other Gulf petro-states, including its principle ally the United Arab Emirates, for foreign capital as they reel from an economic downturn.

"Saudi Arabia intends to cease contracting with companies and commercial institutions with regional headquarters not located in the kingdom," the official Saudi Press Agency (SPA) reported, citing an unnamed official source.

"The cessation will include agencies, institutions and funds owned by the government and will take effect January 1, 2024."

The decision seeks to "create more jobs, limit economic leakage, increase spending efficiency and guarantee that the main goods and services purchased by the different government agencies are made in the kingdom", it added.

Saudi Arabia, the biggest economy, has been struggling to attract foreign capital, a key pillar of Crown Prince Mohammed bin Salman's "Vision 2030" economic diversification plan to boost non-oil revenue.

Under a previous government initiative known as "Programme HQ", Saudi Arabia had offered multi-national companies tax breaks and incentives to relocate their Middle East headquarters to the kingdom.

Many multinationals doing business in the conservative kingdom prefer to have their headquarters in the neighbouring United Arab Emirates and other Gulf capitals that offer a relatively more liberal lifestyle and permit alcohol.

SPA said "24 international companies announced their intent to move their regional headquarters to Riyadh" at last month's Davos-style Future Investment Initiative forum in the capital.

'Commercial challenge to UAE'

"Pressing multinationals to establish headquarters in Saudi Arabia centres upon the belief that foreign companies benefitting from the Saudi market should bolster their physical presence in the country," Robert Mogielnicki, a resident scholar at the Arab Gulf States Institute in Washington, told AFP.

"This is ultimately a reevaluation of the sustainability of Saudi Arabia's economic development model and not an intentional commercial challenge to the UAE. If done successfully though, it is likely to have a commercial impact on the UAE."

Monday's announcement comes as the petro-state battles high unemployment and a sharp coronavirus-triggered economic downturn.

Joblessness in Saudi Arabia touched 14.9 percent in the third quarter of 2020, dipping slightly from an all-time high of 15.4 percent in the previous quarter, official data showed last month.

"The impact of COVID-19 pandemic continues to affect the Saudi labour market and the economy," Saudi Arabia's General Authority for Statistics said in a statement last month.

The crown prince said in January that Saudi Arabia's sovereign wealth fund will invest $40 billion annually in the domestic economy over the next five years, as the kingdom seeks to boost job creation.

Last year, the twin shocks of the coronavirus pandemic and a drop in oil prices prompted the top crude exporter to triple its value-added tax and suspend a monthly allowance to civil servants to rein in a ballooning budget deficit.

The highly unpopular austerity measures were implemented even as the kingdom continues to boost spending on a slew of megaprojects, including the planned $500 billion NEOM megacity on the kingdom's Red Sea coast.