SMME master plan to dovetail with energy crisis plan
Fred Makgato, CEO of the Franchise Association of South Africa

In the same way that the energy crisis in South Africa has dragged on with no solution in sight, reforms to enable SMME growth through efficient governance has also seen years of draft master plans going nowhere. The National Integrated Small Enterprise Development (NISED) Master Plan published recently by the Minister of Small Business Development is yet another in a long line of initiatives that show no urgency and are simply tools for delay.

The SMME Master Plan’s focus of five to ten years is laughable says Fred Makgato, CEO of the Franchise Association of South Africa. “The economy is in crisis, with unprecedented high unemployment; we have to create jobs now, not in five to ten years time. In the same way that President Ramaphosa has finally recognised the seriousness of the situation and brought all the relevant players together, both public and private sector, to try and implement a workable energy crisis plan, so a crisis plan needs to be put in place to fast-track the SMME Master Plan and take it beyond it just being another fanciful document gathering dust.”

The Franchise sector, which, before the pandemic, generated R734bn (13.9% of GDP) across fourteen different sectors through its over 800 franchise systems and over 48 000 franchise outlets and employing, directly and indirectly, around 500 000 people - has been largely ignored by government. Efforts to engage the ever-changing ministers that have headed up the Department of Small Business have fallen on deaf ears as have efforts to engage with the Department of Trade & Industry.

It is time that government recognises that the franchise business model is one of the best vehicles to stimulate entrepreneurship, skills transfer and job creation – not only in mainstream businesses but also in proven models such as micro franchising and social franchising - aimed at offering opportunities and establishing public/private partnerships that can redress many of the inadequacies plaguing government service delivery.

“At the risk of putting ‘the cart before the horse’, no amount of master plans and incentives to stimulate small business growth will succeed if the energy crisis plan fails,” says Makgato. “Whilst franchising has fared far better than independent businesses, thanks to the strength of the collective, the effects of the pandemic, floods, rioting, the Ukraine war and ongoing load shedding have taken their toll on the franchise sector, many of whom are in ‘survival mode.”

The larger franchise groups have been better able to withstand the load shedding as they install generators and adjust their business models to compensate but it is the smaller franchisees that have had to shut down for hours at a time whilst still paying for rent, services, salaries, royalties and stock - that are at risk.

The success of franchising globally has always revolved around new concepts coming on stream that in turn encourage people to take that step into self-employment by joining a franchise brand. Whilst there has been a definite slowing down of new system entrants into the market, the feedback from FASA franchisor members is that, given the option to go it alone or join a franchise, the safety of a well-run franchise operation that offers a turn-key operation, wins hands-down.

According to Richard Mukheibir, CEO of Cash Converters, although there has definitely been uneasiness with the broader economy and load shedding has not helped, in the last two or three months, their trade has picked up with overall figures up 30 – 40% and their franchisees seem buoyant. “We’ve recruited a few new franchisees in the last 18 months or so, and the general sentiment is that if we are going to stay in the country, we need to ‘row our own canoes’ and a franchise business is perfect for that as it offers a viable business format with ongoing support. As a brand, we remain convinced that the key to growing the South African economy is in franchising – every new business that opens, generates new jobs, and contributes to easing unemployment.”

Acknowledging the fact that the systems the government has belatedly put in place to get small business back on its feet aren’t working, FASA hopes that meetings scheduled with the Department of Small Business will yield positive steps to finally convince them that the franchise sector - if mobilised effectively and given the right environment - can boost economic growth and create jobs through innovative franchise initiatives. Says Pertunia Sibanyoni, Chairperson of FASA, “franchising, as a business format, has proved over the years to be easier and quicker to duplicate because it is based on an established network, has mentoring and skills training built in and offers on-going support.”

What is needed is less red tape, more functional municipalities, a conducive operating environment and better funding. The lack of engagement with entities like business associations and forums and especially with FASA that represents the franchise community that contributes almost 14% to the country’s GDP – more than agriculture, mining and manufacturing – is frustrating and shocking. In spite of the franchise industry’s huge job-creating potential there has not been any interaction with government since the development and promulgation of the Consumer Protection Act between 2008 and 2011. How a business SMME master plan could be published and talk of restructuring of the national employment fund, small enterprise development agency and small enterprise finance agency – without engaging with those at the coalface and who have the know-how to make things happen, is inexplicable.

Concludes Makgato, “This calls for a SMME business crisis plan to run concurrently with the Energy Crisis Plan so that, as we solve our energy and socio-political problems, a task team between government and business opens up the routes to new and innovative business and franchise models – be they commercial, micro or social – that can be the perfect vehicles to stimulate economic recovery in South Africa and provide those much needed jobs.”