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What is local content? This is one of the questions that has become widespread recently, especially as many people seek to understand its concept along with a number of other related information.
Local content has become an important concept in the Saudi business environment, particularly with the Kingdom’s drive to enhance the participation of local establishments, develop supply chains, improve spending efficiency, and support the goals of Saudi Vision 2030.
Local content is not limited to purchasing products manufactured within the Kingdom; it encompasses a broader range of elements related to spending, production, labor, services, technology, and assets.
What is Local Content?
In searching for an answer to the question “What is local content?”, it can be understood as a measure of the extent to which spending within the Kingdom contributes to the national economy by relying on Saudi elements at various stages of economic activity.
This includes the workforce, goods, services, productive assets, technology, and other elements with local economic impact.
Therefore, increasing local content means directing a larger proportion of spending toward companies, suppliers, resources, and capabilities existing within the Kingdom, which helps boost economic activity and create new opportunities for Saudi establishments.
Why is Local Content Important in Saudi Arabia?
Local content represents one of the important tools for enhancing the economic benefit from public and private spending, as it helps direct demand toward local capabilities, products, and services.
Its importance is highlighted in several aspects, including:
- Supporting the national economy: Contributing to keeping spending within the Kingdom and strengthening the local economic cycle.
- Developing local establishments: Increasing opportunities for Saudi companies to participate in projects and supply chains.
- Creating job opportunities: Supporting demand for Saudi competencies and workforce.
- Developing suppliers: Encouraging establishments to develop their capabilities and raise their competitiveness.
- Transferring knowledge and technology: Enhancing the utilization of technologies and expertise and localizing productive capacities.
- Diversifying the economy: Contributing to the development of multiple economic sectors and reducing dependence on imports in some areas.
The Local Content and Government Procurement Authority is responsible for developing local content across its various components in the Kingdom, along with developing related policies and tools.
What are the Elements of Local Content?
Local content consists of a set of elements that reflect the extent of spending contribution to the Saudi economy. The most prominent include:
1. Workforce
This includes the participation of Saudi cadres and workforce in various activities and projects, along with associated salaries, costs, and skills development.
2. Goods and Services
This includes purchases and services provided from within the Kingdom, whether directly or through local suppliers and their associated supply chains.
3. Assets
This includes productive assets used in carrying out economic activities, which can play a role in enhancing added value within the Kingdom.
4. Technology
Technology represents one of the important components, especially as the Kingdom expands in digital transformation and develops local technological capabilities.
Government sources indicate that the elements of local content include assets, workforce, goods and services, technology, and similar components.
How Does Local Content Contribute to Supporting Saudi Establishments?
Local content helps create a more favorable environment for the growth of Saudi establishments by increasing opportunities for participation in projects and supply chains, while also encouraging them to develop their products and services and improve operational efficiency.
It can also drive companies to invest in training Saudi employees, developing suppliers, and research and development—elements that are taken into account when measuring the local content baseline.
Hence, local content should not be viewed merely as a regulatory requirement, but can be treated as part of an establishment’s operational and business strategy.
What is the Local Content Certificate?
The Local Content Certificate is a certificate that shows the approved local content percentage of an establishment, helping it understand its current level of contribution to local content and work on developing it.
According to published government information, the validity period of the Local Content Certificate is 19 months.
The certificate gains special importance for establishments dealing with requirements related to local content, as it provides a documented basis for the local content percentage according to established measurement and accreditation procedures.
What is Meant by Local Content Baseline?
The local content baseline refers to the process of measuring and determining the level of local content at an establishment during a target fiscal year, helping to identify the current situation and develop plans to raise the local content percentage in the future.
The baseline calculation process includes a number of items, such as spending on salaries, goods and services, training of Saudis, supplier development, research and development, and asset depreciation according to relevant requirements.
Therefore, preparing financial and operational data accurately and systematically is a fundamental step for establishments wishing to measure their local content correctly.
What is the Role of Local Content in Government Procurement?
Local content is closely linked to government procurement, as there are mechanisms and tools aimed at enhancing the utilization of local products, services, and capabilities in government projects.
Examples of mechanisms mentioned by government sources include the mandatory list and the price preference mechanism for national products, in accordance with applicable systems, regulations, and controls.
This leads to enhancing the participation of local establishments in government spending and opening additional opportunities for suppliers, manufacturers, and service providers within the Kingdom.
How Can Establishments Increase Their Local Content Percentage?
Establishments can work on raising their local content percentage through an integrated strategy that suits the nature and size of their activity. The most prominent steps include:
- Developing suppliers: Increasing dealings with qualified local suppliers and working to raise their capabilities.
- Localizing jobs: Increasing the participation of Saudi competencies and developing their skills.
- Training and development: Investing in training Saudi employees and developing local capabilities.
- Research and development: Allocating resources to develop products, services, and processes.
- Increasing local purchases: Studying opportunities to obtain goods and services from the Saudi market.
- Developing assets: Enhancing the use of productive assets that generate added value within the Kingdom.
- Setting clear plans: Defining measurable goals and monitoring progress levels periodically.
CLA’s Services in the Field of Local Content
CLA Saudi Arabia offers specialized services in the field of local content to help establishments deal with measurement, planning, and compliance requirements.
Their services include the Local Content Baseline Certificate, preparing local content plans, reviewing local content percentages in contracts, and local content consulting.
CLA states that its services in this field aim to assess spending and operational components in line with regulatory requirements, along with preparing plans that help establishments achieve the required local content percentages, as well as providing specialized consulting in planning and implementation across various sectors and industries.
Local Content and Saudi Vision 2030
The attention to local content aligns with the Kingdom’s economic directions toward diversifying the economy, increasing the contribution of local sectors, and enhancing spending efficiency.
Developing suppliers, cadres, and productive and technological capabilities also helps in building a more competitive and sustainable economy.
Thus, local content represents an integrated system that goes beyond the idea of merely purchasing national products, encompassing labor, goods, services, assets, technology, and other elements that contribute to creating economic value within the Kingdom.
Frequently Asked Questions About What is Local Content
What is local content?
Local content is the total spending within the Kingdom through the participation of Saudi elements in the workforce, goods, services, assets, technology, and others, achieving added value for the national economy.
What are the most important elements of local content?
The most prominent elements include the workforce, goods and services, assets, technology, and other elements that contribute to the local economy.
What is the Local Content Certificate?
It is a certificate showing the approved local content percentage of an establishment during the target fiscal year, helping it understand its current level and work on developing it.
How can the local content percentage be increased?
It can be increased through developing local suppliers, training Saudis, increasing local purchases, investing in research and development, and enhancing the use of local assets and technological capabilities, according to what suits the establishment’s activity and regulatory requirements.
Does CLA offer services for local content?
Yes, CLA Saudi Arabia states that it offers services including the Local Content Baseline Certificate, preparing local content plans, reviewing local content percentages for contracts, in addition to local content consulting.
In conclusion, we find that knowing what local content is helps business owners and managers understand one of the important concepts in the Saudi business environment.
It is related to total spending within the Kingdom through the participation of Saudi elements in the workforce, goods, services, assets, technology, and others.
The benefit of local content is not limited to meeting regulatory requirements; it can become a strategic tool for developing suppliers, developing competencies, improving supply chains, and increasing the competitiveness of establishments.
With specialized requirements for measurement, certification, and planning, establishments can benefit from specialized consulting services, including CLA Saudi Arabia’s services in the field of local content.
