Franchising in Saudi Arabia
Economy
Saudi Arabia has the world's 26th largest economy. Saudi Arabia
is the largest country in Middle East Asia. There are over 4
million non-Saudis employed in the Saudi Arabian economy, this is
due to the imbalance in the supply and demand of graduate’s degrees
and the skills and knowledge required in the private sector.
Legislation
There are no specific franchising laws in Saudi Arabia. There
are however agency laws governing franchise agreements and
franchise relationships. The Commercial Agency Regulation, Royal
Decree No. 11 of 22 July 1962 and the Rules for the Implementation
of the Commercial Agency Regulations issued pursuant to Ministerial
Resolution No. 1897 of 30th March 1981 and Ministerial Order No.
1012 of the Minister of Commerce made on 20th March 1992, all
impact upon the regulation of franchising in Saudi Arabia.
Franchise Market
Fast food franchises account for more than sixty (60) percent of
the total franchise market in Saudi Arabia. More than seventy (70)
percent of the franchises in Saudi Arabia are U.S franchise
businesses in sectors such as fast food, hotels, car leasing and
hire, laundry services and printing.
It has been estimated that annual growth across the Middle East
franchising industry will be approximately twenty seven (27)
percent.
Franchise Legislation
- Contrary to most jurisdictions it is the franchisee as opposed
to the franchisor who must register the franchise agreement with
the Saudi Arabian Ministry of Commerce within six (6) months of
executing the agreement.
- Failure to register the agreement does not invalidate the
agreement or affect its enforceability. The franchisee will however
incur a financial penalty.
- There are no disclosure requirements in Saudi Arabia on either
party.
- Franchise agreements are subject to commercial agency laws and
regulations.
- Saudi Arabia is governed by Shariah law and all regulations and
laws are read and interpreted in accordance with this; as a result
there are often provisions used which cannot be enforced or are
strictly prohibited under Shariah law. It is critical that
franchisors consult local counsel to ensure the enforceability of
their franchise agreements.
Conclusion
Despite the lack of franchise specific legislation in Saudi
Arabia, franchise relationships are subject to a number of
contributory regulations, to ensure compliance with these, any
potential franchisors such seek specialist legal advice.