SAUDI ARABIA

I. Economic data

A. Macro-economic data

• General data[1]

Population 2021 : 35,950,396 inhabitants

Area : 2,149,690 km2

Density : 14 inhabitants/km2

GDP (nominal) 2022 : $1.108 billion[2]

GDP/capita 2022 : $30,447.9[3]

GDP (PPP) 2022 : $2.158 billion[4]

GDP (PPP)/capita 2022 : $59,279.9[5]

Growth rate 2021 : 3.2 %

GNI/capita (PPP) 2020 : $46,130

HDI 2021 : 0.875

Literacy rate : 98 %[6]

Life expectancy 2022 : 77.5 years

• Policy[7]

Saudi Arabia is made up of thirteen emirates.

Saudi Arabia is a monarchy ruled by King Salman Ibn Abd al-Aziz al-Saud. The King appointed his son, Mohammed bin Salman, Crown Prince on June 21, 2017. Mohammed bin Salman also became Prime Minister on September 27, 2022. The latter had already begun reforms, both economic and social, with the "Vision 2030" plan launched in 2016[8]. Saudi Arabia's aim is to diversify its economy in order to become increasingly less dependent on hydrocarbons. To this end, the country has set various priorities: renewable energies, digital, industry, space, culture and, above all, tourism.

To promote the emergence of tourism, the Crown Prince has set up several projects, such as the city of Neom, described as a "futuristic city", the Red Sea luxury seaside resort, the Qiddiya city, and the creation of the Al-Ula archaeological site.

• Economic development

In 2005, Saudi Arabia became the 149th member of the WTO[9] . Saudi Arabia is also a member of the G20 and OPEC, (the Organization of Petroleum Exporting Countries).

Saudi Arabia experienced a period of recession in 2020, caused by the Covid-19 health crisis. However, the country's economic growth increased sharply during 2022, thanks in particular to the rise in the price of oil[10], making the Saudi economy one of the most dynamic in the world in 2022[11]. The Saudi economy is, therefore, largely driven by the oil industry, and in 2022, Saudi Arabia was the world's leading exporter of crude oil[12].

The Saudi authorities are forecasting an inflation rate of 2.1%, well below the IMF global average of 6.9%[13].

• Resources

Services, accounting for 52.2% of GDP, are the sector that creates the most wealth. It is also the sector that creates the most jobs, with 72.9% of the workforce employed in this sector. The mining and industrial sectors account for 45.5% of GDP and employ 24.8% of the workforce. Finally, the agricultural sector contributes 2.3% to GDP and employs 2.3% of the workforce[14] .

Saudi Arabia's main resource is hydrocarbons; in 2022, the country was the world's second largest oil producer[15].

• Population[16]

Saudi Arabia's population is largely urban. In fact, the urban population accounts for 85% of the total population.

24% of the Saudi population is under 15 years old, 73% between 15 and 65, and 3% over 65.

Of the 39.95 million inhabitants, over 36% are not Saudi nationals[17].

The ten most populous cities in Saudi Arabia are Riyad (6,506,700), Jeddah (3,976,400), Mecca (1,919,900), Medina (1,271,800), Al-Ahsa (1,136,900), Taëf (1,109,800), Dammam (975,800), Bur Aidah (658,600), Khobar (626,200) and Tabuk (609,000).[18]

• Foreign investment[19]

In 2021, exports of goods accounted for $276 bn, while imports of goods were around $139 bn[20] .

The publicly stated goal of diversifying the economy has boosted foreign investment in Saudi Arabia. Between 2019 and 2020, the inflow of foreign direct investment (FDI) rose by 20% to $5.39 bn. In 2021, the FDI inflow jumped to $19.28 bn, and then reached $7.88 bn in 2022. Investments are mainly directed towards the chemical, real estate, fossil fuels, automotive, tourism, plastics and machinery sectors.

Saudi Arabia's main investor countries are the United Arab Emirates, the United States, France, Singapore, Japan, Kuwait and Malaysia.

B. Economic data specific to franchising

• Historical background

The franchise sector was established in Saudi Arabia as early as 1970, and expanded considerably in the 1990s, notably through international franchises in the restaurant and hotel sectors[21] .

• Institution

Saudi Arabia welcomed the arrival of the Quality Franchise Association Saudi (QFA)[22] , established in 2018, which aims to encourage franchising in Saudi Arabia. The QFA supports franchised businesses and individuals wishing to get started in franchising. The QFA has set up a code of conduct, which is followed by its members[23] .

• Trade shows

The Saudi Franchise expo is held in Riyadh. The latest edition was held from January 28 to 31, 2024 at the Riyadh International Exhibition Centre. The Saudi International Franchise Expo aims to develop non-oil business sectors, in line with the "Vision 2030" reforms[24] .

Over 12,000 visitors attended the 2019 edition of the Saudi International Franchise Exhibition. The show also featured 139 exhibitors representing 170 brands from 15 different countries, with more than 230 contracts[25] being signed.

• Statistics

Approximately 60% of the Middle East franchise market is located in Saudi Arabia[26] .

More than 165 brands have been registered in the retail, restaurant, automotive, healthcare, tourism and hotel sectors[27] .

Retail is a sector that is attracting more and more franchises, such is the size of the market. Household spending in this sector, for example, was $293 bn in 2019[28] .

Nevertheless, the dominant franchise sector remains food, accounting for $44.6 bn in 2017. By contrast, spending in the fashion sector reached $14.8 bn[29] .

Investment in the franchise market in Saudi Arabia is in the region of $14.93 billion[30]. To support and enable the development of franchising in Saudi Arabia, and in line with the "Vision 2030" program, the Social Development Bank offers a franchise program for its citizens, through financing ranging from 150,000 to 4 million riyals and lasting up to 8 years[31] .

• Contract content

Franchise fees average between 4% and 10%[32]. Generally, the duration of a franchise agreement offered by the franchisor can vary, and is usually either 5 or 10 years[33].

• Special features[34]

Saudi Arabia has a number of specific characteristics that require a tailored approach.

For example, the applicable regulations require that food sold must be halal. This must be taken into consideration by franchisors in the restaurant or food sector wishing to set up in Saudi Arabia, and who must tailor their supply system to comply with these regulations.

In addition, Saudis, both men and women, wear culturally specific clothing. However, there is no strict control over foreigners, who remain free to choose their own attire, provided it respects local customs.

• Economic impact

The franchise market in Saudi Arabia is worth $1 billion[35] .

• International

More than 300 companies with franchises in Saudi Arabia are foreign[36]. Moreover, foreign brands account for around 86% of total brands in the franchise industry[37].

II. Legal information

A.Legal information directly related to franchising

• Main applicable texts

The Saudi franchise law[38] came into force on April 22, 2020, together with implementing regulations[39] .

The Saudi Franchise Law does not apply to franchise contracts already in existence at the time it came into force, but only to contracts signed after the law came into force (preamble no. 2 of Royal Decree no. 9152).

Section 1 of the Saudi Franchise Law defines franchising as an agreement under which a franchisor grants the right to the franchisee to carry on for its own account the activities covered by the franchise, linked to any brand or trade name that belongs to the franchisor or the person granted the right to use them. The rights granted include the provision of technical expertise and know-how, and determination of the how the franchise works, in return for financial or non-financial consideration other than sums paid by the franchisee to the franchisor for the goods or services.

The franchise agreement must be drafted in Arabic or, failing that, must be translated into Arabic by a certified translator in Saudi Arabia[40].

Saudi franchise law requires registration of the franchise agreement and disclosure of pre-contractual information to the potential franchisee.

A Commercial Franchise Center, established within the General Authority for Small and Medium Enterprises (Monshaat), has been set up to oversee the implementation of the Saudi Franchise Law[41] .

• Pre-contractual information

According to franchise law, a pre-contractual information document must be delivered 14 days before the franchise agreement is signed or before any franchise fee is paid to the franchisor.

The pre-contractual information document must be written in Arabic, or failing that, must be translated into Arabic by a certified translator in Saudi Arabia[42] .

Section 6 of the implementing regulation sets out the information to be included in the pre-contractual information document. This document must be accompanied by a copy of the proposed franchise agreement.

Once signed, the franchise agreement and the pre-contractual information document must be registered by the franchisor with the Ministry of Trade and Industry within 90 days of the date of signature of the agreement[43] .

• Contractual performance

The franchisor and franchisee must act in good faith towards each other, according to Section 10 of the Saudi Franchise Law.

Section 11 of the Franchise Act sets out the elements that must be included in a franchise agreement. In particular, the franchise agreement must include the franchise activity, the duration of the agreement, the terms and conditions for amending the agreement, the territorial limits of the agreement, the fees to be paid by the franchisee to the franchisor, the parties’ obligations, the mechanism for resolving any disputes arising from the franchise agreement, the conditions under which the franchisee has the right to grant a unit franchise to third parties and its provisions, and the effects of any change in the ownership of the franchisor, the franchisee or any person controlling either.

Section 8 of the implementing regulations adds that the franchise agreement must contain the trademark, trade name and any intellectual property rights used, the franchisor's relationship with the trademark owner if it is not the owner, provisions relating to whether or not the agreement may be renewed, the rights and obligations of the parties arising from termination or expiry of the contract, any non-competition clause, the franchisee's undertaking not to damage the reputation of the franchisor and the franchised business, the obligations of the parties relating to confidentiality of information and data protection.

• Jurisdiction and applicable law

Saudi Arabia has ratified the 1958 New York Convention[44] facilitating recognition and enforcement of foreign arbitral awards.

• Trademark

Saudi Arabia is a party to a number of international conventions on intellectual property rights, including the 1967 Paris Convention, which specifies that each contracting State shall grant the same protection to nationals of other contracting States as it grants to its own nationals in respect of industrial property.

Saudi Arabia has also joined the Nice Agreement.

Saudi Arabia, however, has not joined the Madrid System, which allows it to benefit from the international trademark.

Trademarks are protected for 10 years from the date of filing (10 years in the Hegira calendar, equivalent to 9 years and 8 months in the Gregorian calendar[45]). To be registered, the trademark must be lawful, and therefore not contrary to Islamic values (e.g., applications to register trademarks for alcoholic beverages and pork meats are rejected). The trademark may take the form of a name, a word, a signature, a letter, a symbol, a number, an address, a seal, a drawing, a photo, an inscription, packaging, a graphic element, a shape, a color, a combination of colors, as long as it is distinctive from other products or services[46].

The Saudi IP Authority[47] was established in 2018 with the aim of regulating, supporting, developing and enforcing intellectual property rights[48]. It is with the Saudi IP Authority that the application for trademark registration is made.

B. Peripheral legal data

• Competition law

Franchise agreements must comply with competition law.

The Saudi Competition Law[49] , which came into force on March 7, 2019, specifies in Section 4 that the prices of goods and services must be set according to the principle of free competition and comply with market rules, other than prices of goods and services set by a resolution of the Council of Ministers or by virtue of a law.

Section 5 of the Competition Law Act prohibits practices, including agreements or contracts between entities, if they aim or have the effect of harming competition, including the following practices:

-Set or propose prices for goods, service charges and conditions of purchase or sale;

-Set the size, weight or quantity of goods produced or services provided;

-Restrict the free flow of goods and services to or from markets, in whole or in part, by unlawful concealment, storage or refusal to market;

-Divide up markets for the sale or purchase of goods and services, or designate them according to any standard, including the following: geographic area, distribution center, consumer type, seasons and periods.

The General Competition Authority[50] is the competent authority that ensures compliance with competition law.

• Personal data

Saudi Arabia has recently introduced legislation governing personal data: the Personal Data Protection Law (PDPL)[51].

Section 1 defines personal data as any data, whatever its source or format, which may directly or indirectly enable a person to be identified, including name, personal identification number, address, contact number, telephone number, bank and credit card numbers, photos and videos of an individual, and any other personal data.

The scope of this law covers any processing of personal data taking place in Saudi Arabia or relating to natural persons resident in Saudi Arabia. This includes the processing of data on deceased persons if this leads to them, or a member of their family, being specifically identified. Personal data processing limited to personal or family use is excluded from the scope of the PDPL (Section 2 of the PDPL).

The PDPL confers a number of rights on data subjects, including the right of access to data collected by the controller, the right to obtain data collected by the controller in a clear and readable format, the right to have personal data corrected and updated, and the right to request its destruction (Section 4 of the PDPL).

Personal data may be collected and processed with the data subject’s consent (Section 5 of the PDPL), or if the processing of personal data serves his/her interests but it is virtually impossible to communicate with him/her, if the processing is carried out under another law or pursuant to a previous agreement to which the data subject is a party, if the controller is a public entity and the processing is necessary for security purposes or to meet legal requirements, and if the processing is necessary for the purposes of the legitimate interest of the controller, without prejudice to the rights and interests of the data subject, and provided that no sensitive data is processed (Section 6 of the PDPL).

The Saudi Data and artificial intelligence Authority[52] is responsible for ensuring compliance with the PDPL.

• Special provisions for foreign investments

Section 5 of the aforementioned Saudi Franchise Law specifies that foreign franchisors may offer a franchise provided it has been in operation for at least one year, by at least two people, with at least two points of sale.

Section 2 of Saudi Arabia's Foreign Investment Law[53] specifies that the Ministry shall issue a license for the investment of foreign capital in any investment activity, whether permanent or temporary.

Section 5 of the Foreign Investment Act specifies that authorized foreign investments may take one of the following forms:

-Company owned by a domestic investor and a foreign investor;

-Company 100% owned by a foreign investor.

The General Investment Authority of Saudi Arabia is the competent authority for granting investment licenses to foreign companies to set up in Saudi Arabia.

Main websites

-Intellectual property: https://www.saip.gov.sa/en/# ;

-Quality Franchise Association: https://saudi.franchise-association.org/;

-Vision "2030": https://www.vision2030.gov.sa/en/;

-Personal data: https://sdaia.gov.sa/en/default.aspx ;

-Foreign investment: https://misa.gov.sa/en/;

-Legislation: https://ncar.gov.sa/?Id=tsZdirjUwV%2BLaqnNi0zQ%2BQ%3D%3D#welcome;

-Competition law: https://gac.gov.sa/#;

-Central Statistics and Information Service: https://www.stats.gov.sa/;

-World Bank: https://www.banquemondiale.org/fr/home;

-International Monetary Fund: https://www.imf.org/fr/Home

[1] Unless otherwise indicated, the data below is taken from the Atlas socio-économique des pays du monde, Larousse, 2024 edition.