Africa franchise report: A study of franchising in Africa

At FASA’s 2021 Conference, The African Export-Import Bank (Afreximbank), a pan-African multilateral financial institution established in 1993, gave their initial findings on a market study on the franchising sector in Africa, and have now published their final research findings.

Afreximbank, under the Create and Connect pillars of its Intra-African Trade Strategy, has prioritised franchising as a critical instrument to unlock opportunities for entrepreneurs, especially small and medium enterprises (SMEs) that are seeking new business ventures on the African continent.

This report presents findings of market research on the franchising sector in Africa. It is made up of eight chapters, which cover the scope of the study and research methodology, key research findings and outputs concerning the development and current state of franchising on the African continent, untapped and emerging opportunities for transforming the franchising industry in Africa, and recommendations of possible roles for Afreximbank and other partners to facilitate the development of franchising on the continent.

Scope and Methodology

To achieve the study’s overall objective, an in-depth analysis of 18 countries was conducted, representing all five regions of the continent (Southern Africa, East Africa, West Africa, Central Africa, and North Africa). The research study was undertaken in three phases that mapped and identified the roles of important stakeholders and market holders, examined the policy and regulatory environment (including identifying the roles and impact of institutions and other authorities facilitating the growth of the franchising industry in Africa), and uncovered market potential, opportunities, and gaps. The study made use of both primary and secondary data through interviews, an online survey, and desk research.

Franchising and Franchise Systems

Business Format Franchising and Product Distribution Franchising were identified as the most popular methods of operation. The continent also has a high prevalence of micro franchising, and, to some extent, social franchising. In Business Format Franchising, the franchisor provides the franchisee with its trade name, products and services, training, brand standards and marketing support, and the entire business operating system. With Product Distribution Franchising, the franchisor gives the franchisee licensed rights to sell a product or perform a service as a dealer.

Mapping Africa’s Franchising Sector

The study revealed that, apart from South Africa, Nigeria, and the examples within the Northern Africa region of Arabic/French and Arabic/English-speaking sub-regions, the franchising sector on the continent is not well-developed. The study also noted the prevalence of major South African and Zimbabwean franchise brands, which have expanded beyond their borders (outbound) within the Southern Africa Development Community region and beyond.

Common challenges from a franchising perspective across the continent include:

  • A weak ecosystem which serves as a constraint to the franchising business model. The countries examined in the report have a variety of constraints at both the macro and micro levels. Key aspects of the ecosystem in the countries were found to be weak for franchising, including the lack of access to capital/financing, limited skills, and policy vacuum.
  • General bias towards in-bound franchising, which tends to require the importation of some goods.
  • Limited and costly access to finance.
  • Unavailability of competent and financially qualified franchisees to oversee franchise operations.

Conversely, opportunities exist in the region. Shifting consumer patterns offer potential for a strong franchise market and the respective governments have expressed willingness to support franchise development. These opportunities include:

  • Growing a relatively untapped market for a broad range of franchise concepts across sectors supported by infrastructure development, creating markets opportunities beyond the commercial capitals.
  • Using technology and leveraging diaspora communities as crucial sources of foreign direct investment.
  • Emerging business arenas such as e-commerce, renewable energy, green initiatives/recycling, convenience, and technology.

Transforming the Franchising Landscape

Franchising has the potential to drive the next phase of growth for the African continent. Undoubtedly, the franchising sector is a critical yet often overlooked potential path to economic growth. With 55 countries in the African market, many and fragmented, scaling a business on the continent presents many challenges. All stakeholders must take active charge in the development of franchising on the continent. To transform the franchising landscape, this investigation finds it necessary to:

  • Enable comprehensive operational systems for franchising: The legal and regulatory environment is inconsistent across different countries on the African continent. It is crucial to harmonise the legal and regulatory environment as part of a strategic effort to grow and transform franchising.
  • Foster awareness of the franchising model for SME development: Access to information of the benefits of franchising as a robust option for business growth and development are lacking in many parts of the African continent.
  • Bridge financing gaps:

The failure to introduce tailored financing solutions by the commercial banking sector is a barrier to African entrepreneurs and SMEs overcoming the challenges of the high start-up costs for franchising.

  • Build skills and capacity:

Building skills and capacity within the franchising sector (both inbound and outbound) requires partnerships and collective actions among stakeholders including academic institutions, governments, and industry groups/trade associations.

  • Foster engagement between franchisors and potential franchisees:

Trust is an essential asset in business development and significantly so in an environment where franchisors and franchisees must form a business relationship.

  • Enact stable, forward-thinking policies:

This is country specific. Putting in place policies that promote an enabling environment for franchising and franchise agreements is critical and must include targeted policies. Franchising will benefit from significant government support and policy assistance.

  • Protect intellectual property:

Franchise agreements authorise the franchisee to use the trademark, patent, or other intellectual property related to the franchise. This right of use forms a basis of the underlying value of the franchise. Intellectual property protection laws revolve around several key elements. Intellectual property must be registered to enhance the rights of the franchisor, to enhance enforceability, and to better transfer technology key for African countries.

Click here to read the Executive Summary in full