Saudi Arabia is the largest market in the Middle East with the fastest growing economy in the region. The oil sector remains the core of economic activity in Saudi Arabia, providing the financial backup for government expenditure plans and broader economic confidence.
Due to sustained high oil prices over the last few years, the Saudi budget and current account surpluses are at record levels. With growing liquidity available, the non-oil economy continues to strive and has been the main engine of economic growth. The Saudi government has placed a large emphasis on economic diversification and has increased private sector participation. A published economic study by a local bank stated that there would be substantial growth in the non-oil sector despite the slump in oil revenues. Hundreds of billions of US dollars will be spent in the next 10 years on these highly ambitious and diversified projects taken up by the Kingdom of Saudi Arabia. With relatively low inflation rates, low taxes and ample capital availability, Saudi Arabia remains an attractive destination for foreign investments.
Franchising has witnessed remarkable growth in the Middle East region over the last few years with an increasing number of international companies seeking to establish a presence in the region. According to a business journal, franchising projects represent 50 percent of retail business models worldwide with a total value of $9 billion, out of which 5 percent is represented by the Middle East. The past five years have witnessed a tremendous growth in the Franchise market in Saudi Arabia with many successful American, European and local franchise concepts taking shape. Many of the brand names are already well entrenched in the market. It is estimated that Saudi Arabia represents a multi-billion dollar market for franchising with an estimated value of $1.3 billion in annual fees and royalties, and expected to grow an average of 12-15 percent per year. Most of the franchise concepts are focused in the restaurant, food & beverage and retail fields. Catching on the trend, many local Saudi franchise developers have managed to promote more than 30 Saudi concepts using franchising within the Kingdom, with some of them having gone international. Franchising is perceived to be an ideal business model for small to medium enterprises (SME’s) in Saudi Arabia.
Despite the global economic crisis, the Saudi economy remains resilient due to stricter fiscal policies and regulations. U.S. companies should realize, however, that there still are no specific laws and regulations applicable to the franchise industry in the Kingdom. Franchise agreements usually duplicate the existing agency/distributorship agreement set forth by the Ministry of Commerce and Industry.
By Mohammed Shujauddin