Saudi Arabia has stepped up pressure on foreign companies to move their Middle East headquarters to the kingdom, saying it will stop signing contracts with firms and offices in other countries from 2024.

Ultimatum could intensify competition for business and foreign capital between the kingdom and the other Gulf states - especially its main ally, the United Arab Emirates which is in the economic downturn.

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

The solution aims to create more jobs, limit economic leakage, increase cost efficiency, and ensure that basic goods and services purchased by various government agencies are produced in the kingdom.

Saudi Arabia, the largest Arab economy, is struggling to attract foreign investment, a key element of Crown Prince Mohammed bin Salman's 2030 Outlook economic diversification plan to boost non-oil revenues.

Many multinationals doing business in the conservative kingdom choose to have regional headquarters in the UAE and other Gulf capitals that offer a relatively more liberal lifestyle and allow alcohol consumption.

Twenty-four international companies announced their intention to relocate their headquarters to Riyadh at the Future Investment Initiative last month.

The decision will not affect the ability of any investor to enter the Saudi Arabian market or continue their business with the private sector, SPA said.

But it will put pressure on private sector companies that rely heavily on lucrative government contracts from Saudi Arabia.

This is ultimately a reassessment of the sustainability of Saudi Arabia's economic development model, not a deliberate commercial challenge to the UAE. However, if done successfully, it is likely to have a commercial impact on the UAE.