Saudi Arabia to introduce new franchising laws

Government agencies are working to promote the role of franchises in economic development and in doing so reduce unemployment and improve living standards. (Shutterstock)
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Updated 17 February 2020

Saudi Arabia to introduce new franchising laws

  • Regulations are designed to increase transparency and encourage investment in the Kingdom

RIYADH: New franchise regulations designed to increase transparency and encourage entrepreneurs to invest are expected to be implemented in Saudi Arabia within a few weeks, according to the chairman of the Franchise Committee.

The franchisor will be required under the new law to disclose all relevant information, including employee numbers, profits and losses, and the number of its outlets that have closed. The regulations will increase entrepreneurs’ awareness of their rights and may encourage them to acquire a franchise, committee chairman Muhammad Ibrahim Al-Mojel said. 

Franchises offered Saudi companies a good opportunity to expand their businesses, he added.

“Franchising allows a franchisee to run and own an investment and get support from the franchisor, who enjoys considerable experience and has the power to help the franchisee to market the product profitably,” he told Arab News. “This system will help small and medium enterprises prosper and survive in today’s markets.”

A franchisor, Al-Mojel said, brought with it years of experience and a strong brand identity, which helped franchisees to establish themselves and survive in the marketplace.

If the franchisee faces marketing, financial or logistic difficulties, Al-Mojel said, the franchisor will offer support and help the franchisee to succeed because their relationship is reciprocal. 

The franchising system had been in the Kingdom for many years and there were countless successful examples, he added, including hotels and fast-food restaurants. 

One of the biggest challenges in the Kingdom was a lack of awareness of how a franchise operates and how it differs from an agency, according to Al-Mojel. He advised the franchisee and franchisor to agree on a detailed contract that prevents the franchisee from getting into trouble by abusing the contractual relationship.

Some Saudi brands have successfully franchised in other countries, enhancing the global reputation of the brand owners and their partners. 

“For a franchise to succeed, the franchisor should have an integrated training and control program that allows it to monitor closely the work of the franchisee and make sure all requirements and conditions of the franchise have been satisfied and understood properly,” said Al-Mojel. 

“The franchisor should provide the franchisee with detailed operational manuals for the site, including cleaning and the final layout.”

Al-Mojel added that he hoped government agencies would work together closely to promote the role of franchising in economic development and in doing so reduce unemployment and improve living standards.

Decoder

Franchise

In a franchise, legal, financial and administrative responsibilities are divided between franchisor and franchisee, while an agency is characterized by a close relationship between the company and a local agent.


$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.