Economic Participation Policy (EPP): A Strategic Initiative for Local Growth

The “Offset” approach initially developed for defense contracts, to include obligations to ensure a benefit for the local economy and society.

The Economic Participation Policy (EPP) program, announced in November 2022, is a government initiative designed to enhance local economic contributions in tenders exceeding 100 million SAR. Under this policy, companies must demonstrate an economic contribution equivalent to 35% of the tender value within a five-year period, commencing from the contract’s effective date. The Local Content and Government Procurement Authority (LCGPA) oversees approvals, monitoring, and compliance.

A. KEY IMPLEMENTATION REQUIREMENTS

To fulfil EPP obligations, companies must:

• Develop a comprehensive economic contribution plan.
• Identify eligible activities that align with their strengths.
• Engage with LCGPA for approvals.
• Integrate EPP mandates into corporate strategies.
• Ensure transparent reporting and compliance tracking.
• Identify eligible Activities Under EPP.

COMPANIES CAN MEET EPP TARGETS THROUGH SEVEN APPROVED ACTIVITIES:

1. Technology Transfer – Introduction of cutting-edge technologies to local industries.
2. Knowledge Transfer – Training local professionals to boost expertise and skills.
3. Investment – Expanding business operations and infrastructure within Saudi Arabia.
4. Export Promotion – Supporting Saudi businesses to compete in global markets.
5. Research & Development – Driving innovation through industry-specific research.
6. Localization of Manufacturing or Services – Strengthening domestic production and service industries.
7. Subcontracting – Engaging local suppliers to expand business opportunities.

B. MONITORING AND COMPLIANCE

EPP activities must receive approval from LCGPA, and companies are subject to regular performance monitoring to ensure fulfilment of obligations.

Evaluation criteria include:

• Contribution to job creation.
• Growth and sustainability of local businesses.
• Compliance with economic calculation models.

C. CHALLENGES IN IMPLEMENTING EPP

While EPP offers significant opportunities, businesses may encounter challenges such as:

• Regulatory Compliance Complexity – Approvals and reporting require structured processes.
• Financial Constraints – Meeting obligations may demand substantial investment. Limited Local Expertise – Certain industries may struggle to find sufficiently skilled professionals.
• Technology Adaptation Issues – Integrating foreign technologies with local standards.
• Market Accessibility Barriers – Trade policies, competitive pricing, and export limitations.
• Accurate Measurement & Reporting – Companies must track contributions effectively.
• Time Constraints – A five-year timeline necessitates efficient execution.

D. SIGNIFICANCE OF THE 35% ECONOMIC CONTRIBUTION REQUIREMENT

This mandate plays a pivotal role in Saudi Arabia’s economic strategy by:

• Boosting the local economy through increased investments.
• Encouraging industrial growth and innovation.
• Promoting job creation across diverse sectors.
• Advancing economic diversification beyond oil reliance.
• Enhancing global competitiveness for Saudi businesses.
• Strengthening research & development initiatives.
• Supporting Saudi Vision 2030 for sustainable and long-term economic resilience.

E. CONCLUSION

The EPP program represents a critical opportunity for businesses to contribute to Saudi Arabia’s economic transformation. Compliance is mandatory for high-value tenders, and successful execution can lead to substantial benefits for companies and the Kingdom alike. Organizations must approach EPP proactively, ensuring they integrate the policy’s requirements into their broader strategies while optimizing contributions to local industries, innovation, and economic growth.