Saudi Arabia will stop awarding contracts to foreign companies that do not have their regional headquarters based in the kingdom within three years in the latest move by Crown Prince Mohammed bin Salman to lure global groups to the oil-rich nation.

The measure will be enforced by entities including “agencies, institutions, and funds owned by the government,” and will take effect from the beginning of 2024, the state news agency said, citing an “official source”.

The statement suggests the move will relate to contracts made by foreign groups with the kingdom’s most powerful entities, including Saudi Aramco, the state oil company, and the Public Investment Fund, a $400bn sovereign wealth fund, as well as ministries.

The measure comes as Prince Mohammed has pledged to spend hundreds of billions of dollars on megaprojects to modernise the kingdom and reduce its dependency on oil. The government in the world’s top crude exporter is the main driver of economic activity and foreign companies working in Saudi Arabia typically look to state entities to secure lucrative contracts.

The kingdom boasts the Middle East’s biggest economy, but most global companies prefer to house their regional headquarters in Dubai, which has developed state of the art infrastructure to become the region’s premier trade and finance hub and offers expatriates a more liberal lifestyle.

Khalid al-Falih, the Saudi investment minister, said on Twitter that the decision would create “thousands of jobs” and transfer expertise “as it will contribute to developing local content and attracting more investments”.

It was not clear what would constitute a “regional headquarters” and a Gulf-based executive said it would be difficult to implement.

“It’s likely to be a scare tactic to coax companies into making pre-emptive moves and encouraging new entrants into the region to check out Riyadh first,” the executive said.

The Financial Times revealed last month that Saudi Arabia was offering foreign companies a range of incentives in an attempt to convince them to relocate their headquarters to Riyadh as part of a campaign championed by Prince Mohammed dubbed “Programme HQ”.

Weeks later, the authorities announced that 24 multinationals, including US engineering group Bechtel and Indian hotelier Oyo, had agreed to locate their regional headquarters in Riyadh.

Prince Mohammed, who is spearheading a “Vision 2030” economic reform plan, told an investor conference in January that he plans to transform the Saudi capital into one of the top 10 largest city economies in the world, up from its current position of 40. His blueprint envisions increasing its 7.5m population to about 20m by 2030.

But since launching his ambitious plans in 2016, Saudi Arabia has struggled to attract foreign investment, outside of the traditional sectors of oil and petrochemicals, to support his goals.

Some potential investors were put off by concerns about reputational risk after the 2018 murder of Jamal Khashoggi by Saudi agents triggered the kingdom’s biggest diplomatic crisis in decades. However, many companies have been putting aside those concerns as Prince Mohammed has forged ahead with his massive development plans.

The Saudi Press Agency quoted the unnamed official as saying the move would “not affect any investor’s ability to enter the Saudi market, or to continue their business with the private sector”.