Franchising Articles

The Franchise Outlook in The Kingdom of Saudi Arabia (KSA)

Written by Farhaa Xha for Gaebler Ventures

This article exhibits the phenomenal opportunities and current scenario of the franchise industry in Saudi Arabia.

There is a popular saying in the franchise world "be your own, but not on your own."

This quote aptly epitomizes the idea of owning a franchise for the people in KSA. Saudi Arabia has been the hub of franchising for the past 11+ years and has become an attractive destination for franchises in the Middle East. According to industry data, it is growing by an annual average rate of 12% a year and estimates show the lucrative size of the franchise market stands at $1 billion.

At the outset, the franchise market was mainly comprised of fast food outlets and hotels, but recent trends signify an increase in medical, retail beverages, laundry, automotive services, beauty, fashion, printing, logistics, and car leasing franchises as well . However, fast food outlets still account for the largest share - where American firms own nearly 70% of this upbeat market.

Why would I like to be a part of the franchise industry in Saudi Arabia?

The Kingdom is determined to transform itself into the top 10 most competitive economy by the 2010 and the government is resolute to aid and promote any sector that promises a flourishing future. Classically, Saudi Arabia has been an oil based economy but they are keenly concentrating on diversifying into more non oil based sectors.

The Kingdom has a growing population, about 1.8% per year coupled with a very high GDP per capita of $20,700 (CIA world fact book 2008 EST). This leaves Saudi consumers with a high disposable income (0% individual income tax) to spend; nevertheless they don't just pay out on any product!

Saudi consumer trend has changed dramatically in the last five to six years - transforming them into more refined, savvy consumers who demands value for money, a recognized brand and quality customer service- like any other consumer in the world.

Saudis are not ignorant of international brands - as they tend to travel a lot or study abroad. Having one third of the working force comprised of expatriates aids to lessen the 'product familiarity' deficit in the market as well.

The greater part of the Saudi population is young, 40% being below 15 and 57 % below 25 years of age. This unlocks new and profitable prospects for franchises that particularly appeal to this age group. Fashion and leisure sector has seen positive growth over the years, Fashion products predominantly aimed at women, teenagers and children has seen good growth and likely to grow. Traditionally, Saudis prefer to be self employed and have good capital to start with. Unemployment rates are also high among Saudi youth. As a result, more and more Saudis are being trained and encouraged to set up their own business. According to Marcom research the Saudi Franchise market has developed many of their own ideas which have become global as well.

The last few years of rising oil revenues has enabled the country to build cities out of sand!

Currently the six 'economic' cities are under construction each of them aspiring to become the economic powerhouse of the entire region. One of them is King Abdulaziz Economic city which will accommodate 2 million people and is destined to become the most sought after cities to undertake business projects in the coming years. It has incredible infrastructure, location, advanced telecommunications, education, financial incentives and leisure facilities to make it the most attractive destination to live and do business. According to Saudi Arabian General Investment Authority, the city will have the following business features:

1. 100% foreign ownership of projects, including property required to support the business activities, in addition to owning private residences and employee accommodation

2. Minimum capital requirement and no restrictions on repatriation of capital

3. No personal income tax and a minimal 20% corporate tax for foreign companies

4. Ability to carry forward losses indefinitely

5. Exemption of import fees for selected raw materials imported for manufacturing products

On a recent survey of Best places to start up Business 2009, Saudi Arabia has jumped almost 7 places to position itself at 18th most ease of starting up a business. Profuse capital availability, steady prices, very low taxes has enabled KSA to top the chart for quality macroeconomic environment.

Saudi Arabia is expectant to become the center for business and trade in the Middle East. With rapid urbanization, rising economic growth and a talented young population - it is increasingly becoming a very attractive destination for doing business with ease and make profits.

Farhaa is a student pursuing a concentration in Economics and Finance at London school of Economics and Political Science, University of London. She is passionate about making accounting and economics accessible to entrepreneurs. Farhaa will also be sharing unconventional yet effective ways of recruiting.

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  • Spiros Catechis posted on 7/27/2009
    Spiros Catechis
    A very insightful article which draws a real picture of the state of the economy and opportunities that the Kingdom has to offer. I have vistited the Kingdom on a few occasions and I can see a positive upswing trend in progress. Still there are some issues and challenges that an investor faces (e.g. very hard to get a visa issued, get comfortable with the weather and the culture) but the benefits outweigh any issues that may arise.

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