Saudi laws create franchising boost

New laws and development funds are creating a new era of growth and opportunity in Saudi Arabia.

Ministry of Investment in Saudi Arabia, Kalid A. Al-Falih, declared that the Investment Law to be issued this year by Arab Kingdom of Saudi Arabia, “Will now have many principles under one umbrella to ensure the investors’ rights.” For example, equality between Saudi and foreign investors, easy entry, exit and capital transfer, as well as expropriation proceedings when there is a national necessity.

According to the Minister’s participation in this year’s World Economic Forum’s (WEF) annual meeting in Switzerland, these legal amendments are seen to be one of the country’s best developments in years.

“Investment incentives are being prepared by a national committee and will include tax exemptions, using some private economic zones, as well as King Salman International Airport’s Logistics zone.”

The Minister added that, “There are also other economic zones which will be announced when completed.”

Al-Falih also confirmed, “The number of international companies opening regional offices in Riyadh has reached 80.” This is up from 44 corporations taking up regional offices in the Saudi Capital last October.

New Companies Law

In accord with the Investment Minister’s declarations, The Kingdom of Saudi Arabia declared the effectiveness of the New Companies Laws and its Implementing Regulations on the 19th of January, 2023.

New Companies Law comes as a progression in the development of trade laws in the Kingdom. The Ministry of Investment of Saudi Arabia have been at the core of issuing and developing more than 60 laws. The key laws pertaining to franchise; bankruptcy; e-commerce; and anti-concealment laws.

The new laws will have a significant impact on economic life and will attract a succession of new foreign investments, as it regulates all provisions related to commercial, non-profit and professional companies to be in one legislative document.

The New Companies laws were prepared in light of the international practices to address the challenges facing the business sector by participation with many public or private entities and opinions of professional institutions, international organisations and competent consulting offices.

Pursuant to the new law, a company incorporated according to the New Companies Laws shall take one of the following forms: Limited Liability Company, Limited Partnership, Partnership, Joint-Stock Company, Unlimited Liability Company.

The New Law facilitated the requirements of small and micro businesses, the requirements and procedures of companies’ incorporation and gave flexibility in including special provisions and terms in companies’ Articles of Incorporation and Articles of Association. It found enabling mechanisms for entrepreneurs, venture capitalists and private property.

Saudi Fund for Development

Strategy of the National Fund for Development aims at supporting Sustainable Development Objectives of all economic sectors by transforming it into an integrated national funding institution to contribute in achieving the 2023’s Kingdom vision. Through the affiliated funds and banks, the Fund aims at encouraging the contribution of the private sector with more than the triple of the developmental impact on the Kingdom’s Economy by 2023. The fund also aims at contribution in the Kingdom’s real GPD by injecting more than 570 Billion Saudi Riyals by 2023. It also works at increasing the non-oil GPD to more than triple (605 Billion Saudi Riyals) as well as finding many job opportunities in the Kingdom by 2023.

SFD’s achievements at the first quarter of 2022 included strategic cooperation agreements and loan agreements for different economic sectors and social groups, exceeding (135) Saudi Riyals of the approved funding value and supporting amounts in the previous year.

Small and Medium Enterprise Bank (SME Bank)

According to the National Development Fund’s quarterly report, the Development Fund established the SME Bank to increase financing provided to the small and medium enterprises sector; to bridge the financing gap in SME Sector; and to increase its share in GPA as a main motive for financing, learning, that in return, six financing products designed for sector’s needs and market’s requirements.

Also, the fund issued their approval on incorporating Saudi Industrial Development Fund (SIDF) that aims at supporting the national strategic objectives in industry and economy development of the Kingdom, increasing the private sector’s investment in the enterprises funded by SIDF, and attracting local and international investors to the targeted sectors. Furthermore, SIDF entered into funding agreements with NEOM GREEN HYDROGEN COMPANY (NGHC) to build the world's largest green hydrogen plant with the purpose of sustainability and green development.

Franchise and Hotels

Last quarter, Tourism Development Fund (TDF) launched the “Awn Tourism and Hospitality Program.” This was designed with small and micro tourism businesses in mind to support new tourism establishments in addition to remodeling the existing ones. They did this by leveraging the flexible financing solutions provided by TDF, with allocations of up to 10 million Saudi Riyals. It has a repayment period of up to 10 years. Along with commercial franchising, the initiative will provide the targeted projects the tools they need to meet their needs in the areas of accommodation, restaurants and cafes, as well as entertainment.

Saudi Export-Import Bank (Saudi EXIM)

Saudi EXIMP increased efforts to promote the development and diversification of Saudi exports and increase their ability to compete in global markets by providing credit insurance exceeding (14.6) Saudi Riyals since early 2022. The exports, covered by credit insurance, reached almost (8.2) Saudi Riyals, and the exports funding exceeded (6.4) Saudi Riyals, including different vital sectors, such as fertilizers, petrochemicals, glass, plastic, iron and steel, and others.

These credit insurances contributed in promoting exports to international markets in more than 60 countries around the world. They are consistent with the banks strategy for the upcoming five years, and fall  within its efforts in providing more financing and insurance solutions to develop the national products exporting and to increase their exporting opportunity to regional and international markets by bridging the financing gap and decreasing the exporting risk to promote trade exchange between the kingdom and its partners.

Positive Effects on Franchise

In reference to previous developments and the progression in Saudi Economy in all fields, franchising will be one of the positively affected sectors by the new decrees and laws (as international trademarks will increase in different areas of the Kingdom). By reviewing some numbers, we find that international trademarks such as Macdonald’s have more than 600 branches, Dunkin’ Donuts have more than 500 branches and Starbucks have more than 330 branches. AMERICANA has signed a partnership contract with Yum! Brands to relaunch Pizza Hut in the Saudi market and is planning to open additional 30 Pizza Hut branches by the beginning of 2023, and 100 branches during the upcoming three years.

In 2020, Saudi Arabia updated their Franchise Laws, implementing regulations which were approved by Council of Ministers. The Laws encourages franchise activities in the Kingdom by framing the relationship between franchisor and franchisee on a basis of reinforcing transparency and honesty. This law also provides the necessary protection for the franchisor and the franchisee.

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