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Market Potential for Franchising in Africa
While some African countries do not yet have the economic and legal infrastructures in place sufficient to encourage substantial U.S. franchise growth, several African countries are demonstrating that they have the market size, growth, opportunities, and developing laws to support franchise development that would be attractive to forward-thinking, established franchisors and entrepreneurs looking for new investments. A short update follows.
Legal Infrastructure
A common roadblock to an increased U.S.-based franchisor presence in Africa is the perceived and, in many circumstances, real lack of a legal infrastructure to support franchising in many African countries. Recently, African countries have addressed this concern by drafting and enacting legislation specific to franchising. South Africa and Tunisia have enacted franchise legislation that includes mandated pre-sale disclosure for franchise operations. Tunisia recently passed legislation that dictates the terms that must be contained in franchise agreements. Nigeria has established laws to require registration of agreements containing the exchange of intellectual property. Soon, other African countries will follow suit.
Franchise Markets
Currently, the most developed franchise operations are in Egypt and South Africa. Research suggests that the growth in those countries is due primarily to economic and legal reforms that were, in some part, geared toward attracting foreign investment.
Approximately 19 African countries have some franchise operations, but data are limited about the extent of those operations. According to research conducted by the African Development Bank (“AfDB”), 200-plus international franchises have successful operations on the continent. The market value for food franchises alone is more than $300 million. In countries such as Morocco and Nigeria, franchise system growth has expanded rapidly each year.
African governments recognize the importance of small- and medium-sized enterprises (“SMEs”) to their local economies. Consequently, more African governments have moved to promote franchising as a means of encouraging business growth and stability. They have encouraged the entry of international franchisors through supporting the creation and promotion of country-specific franchise associations and other support mechanisms. These African franchise associations share common objectives of promoting franchising in Africa as a viable business model, strengthening intellectual property protection, stimulating investment, and promoting legislative reform.
As franchising becomes saturated in developed countries, emerging markets such as Africa have become prime targets for the world's most popular franchise brands. A look at franchising in two of the more vibrant countries, South Africa and Nigeria, indicates how franchising might develop in Africa, as well as the potential opportunities that exist today.
South Africa
South Africa is a model for potential franchise growth throughout the rest of the African continent, and franchising continues to bloom after the country's enactment of the Consumer Protection Act (“the Act”) in 2009. The Act codified franchise practices that had been advocated by the Franchise Association of South Africa (“FASA”) since the early 1990s. What is important about the Act is that franchisees are explicitly included as “consumers.” Pursuant to the Act, they are given a number of consumer rights, including the right to disclosure, fair and responsible marketing, honest dealing, and fair agreements. To protect franchisees in the contracting process, a franchisee has the right to cancel a franchise agreement without cost within 10 business days after signing the franchise agreement by giving notice to the franchisor.
A study by FASA indicates that currently about 12% of retail business in South Africa occurs through franchising, and TradeInvestSA puts the contribution at roughly R256 billion ($US 36 billion) annually. While this number still places it behind the United States and Australia, South Africa's experience demonstrates both the positive impact of a legal system that has franchise laws, as well as room for more growth. FASA notes that 17 business sectors have a franchising presence, and there is room for expansion in other business areas. Moreover, despite an overall economic downturn, franchising in South Africa showed an 11% increase in employment levels in 2010. Specifically, approximately 2,290 new businesses brought the total number of franchise outlets to 30,000, operating under 551 franchise systems. Local franchisors doing well in the country include restaurants Chicken Licken, Church's, and St. Elmo's, lodging company Protea, and telecommunications firm MTN South Africa. In fact, many of these brands have begun to expand and move into other African countries, most notably, Nigeria.
Nigeria
Nigeria has the largest consumer market in Africa. Food franchising has seen the most rapid growth in Nigeria, but according to TradeInvestNigeria, the opportunities in the country reach beyond retail and restaurants. Franchising in Nigeria is promoted actively by the Nigerian International Franchise Association (“NIFA”). It is touted as an on-the-ground trade body that actively supports franchising by providing services such as consulting, franchise recruitment, feasibility analysis, and financial and marketing advice. This past fall, the Private Sector Department of the AfDB held a seminar for franchise development in Africa that pulled together representatives from the SME sector, intellectual property firms, and government agencies. Significantly, the National Office for Technology Acquisition and Promotion co-sponsored the event with NIFA, and the Japanese government funded the event through Fund for African Private Sector Assistance.
Many foreign companies have established franchises in Nigeria, including consumer brands Avis Car Rental, Hawthorn Suites by Wyndham, KFC, Precision Tune Auto Care Center, and training seminar franchisors Crestcom and NIIT. Local companies also are driving Nigeria's franchise development, especially in the food sector; prominent franchisors are Nando's, Tantalizers, HiiT Franchise, Mr. Bigg's, Sweet Sensation, and Food Concepts and Entertainment.
A report by the U.S. Commercial Service, which helps outside businesses assess market entry into Nigeria, states that U.S. franchisors have immense opportunities. This is based in part on a positive perception of U.S. technologies, products, and services. The report notes that Nigeria's most promising sectors include fast food and beverage, hospitality, and educational services.
Kendal Tyre is a partner and Diana Vilmenay is an associate in the Washington, DC, office of Nixon Peabody LLP. Both are members of the firm's Franchise Team and are editors of a book to be published by LexNoir Foundation, Laws Governing Franchising in Africa.
While some African countries do not yet have the economic and legal infrastructures in place sufficient to encourage substantial U.S. franchise growth, several African countries are demonstrating that they have the market size, growth, opportunities, and developing laws to support franchise development that would be attractive to forward-thinking, established franchisors and entrepreneurs looking for new investments. A short update follows.
Legal Infrastructure
A common roadblock to an increased U.S.-based franchisor presence in Africa is the perceived and, in many circumstances, real lack of a legal infrastructure to support franchising in many African countries. Recently, African countries have addressed this concern by drafting and enacting legislation specific to franchising. South Africa and Tunisia have enacted franchise legislation that includes mandated pre-sale disclosure for franchise operations. Tunisia recently passed legislation that dictates the terms that must be contained in franchise agreements. Nigeria has established laws to require registration of agreements containing the exchange of intellectual property. Soon, other African countries will follow suit.
Franchise Markets
Currently, the most developed franchise operations are in Egypt and South Africa. Research suggests that the growth in those countries is due primarily to economic and legal reforms that were, in some part, geared toward attracting foreign investment.
Approximately 19 African countries have some franchise operations, but data are limited about the extent of those operations. According to research conducted by the African Development Bank (“AfDB”), 200-plus international franchises have successful operations on the continent. The market value for food franchises alone is more than $300 million. In countries such as Morocco and Nigeria, franchise system growth has expanded rapidly each year.
African governments recognize the importance of small- and medium-sized enterprises (“SMEs”) to their local economies. Consequently, more African governments have moved to promote franchising as a means of encouraging business growth and stability. They have encouraged the entry of international franchisors through supporting the creation and promotion of country-specific franchise associations and other support mechanisms. These African franchise associations share common objectives of promoting franchising in Africa as a viable business model, strengthening intellectual property protection, stimulating investment, and promoting legislative reform.
As franchising becomes saturated in developed countries, emerging markets such as Africa have become prime targets for the world's most popular franchise brands. A look at franchising in two of the more vibrant countries, South Africa and Nigeria, indicates how franchising might develop in Africa, as well as the potential opportunities that exist today.
South Africa
South Africa is a model for potential franchise growth throughout the rest of the African continent, and franchising continues to bloom after the country's enactment of the Consumer Protection Act (“the Act”) in 2009. The Act codified franchise practices that had been advocated by the Franchise Association of South Africa (“FASA”) since the early 1990s. What is important about the Act is that franchisees are explicitly included as “consumers.” Pursuant to the Act, they are given a number of consumer rights, including the right to disclosure, fair and responsible marketing, honest dealing, and fair agreements. To protect franchisees in the contracting process, a franchisee has the right to cancel a franchise agreement without cost within 10 business days after signing the franchise agreement by giving notice to the franchisor.
A study by FASA indicates that currently about 12% of retail business in South Africa occurs through franchising, and TradeInvestSA puts the contribution at roughly R256 billion ($US 36 billion) annually. While this number still places it behind the United States and Australia, South Africa's experience demonstrates both the positive impact of a legal system that has franchise laws, as well as room for more growth. FASA notes that 17 business sectors have a franchising presence, and there is room for expansion in other business areas. Moreover, despite an overall economic downturn, franchising in South Africa showed an 11% increase in employment levels in 2010. Specifically, approximately 2,290 new businesses brought the total number of franchise outlets to 30,000, operating under 551 franchise systems. Local franchisors doing well in the country include restaurants Chicken Licken, Church's, and St. Elmo's, lodging company Protea, and telecommunications firm MTN South Africa. In fact, many of these brands have begun to expand and move into other African countries, most notably, Nigeria.
Nigeria
Nigeria has the largest consumer market in Africa. Food franchising has seen the most rapid growth in Nigeria, but according to TradeInvestNigeria, the opportunities in the country reach beyond retail and restaurants. Franchising in Nigeria is promoted actively by the Nigerian International Franchise Association (“NIFA”). It is touted as an on-the-ground trade body that actively supports franchising by providing services such as consulting, franchise recruitment, feasibility analysis, and financial and marketing advice. This past fall, the Private Sector Department of the AfDB held a seminar for franchise development in Africa that pulled together representatives from the SME sector, intellectual property firms, and government agencies. Significantly, the National Office for Technology Acquisition and Promotion co-sponsored the event with NIFA, and the Japanese government funded the event through Fund for African Private Sector Assistance.
Many foreign companies have established franchises in Nigeria, including consumer brands Avis Car Rental, Hawthorn Suites by Wyndham, KFC, Precision Tune Auto Care Center, and training seminar franchisors Crestcom and NIIT. Local companies also are driving Nigeria's franchise development, especially in the food sector; prominent franchisors are Nando's, Tantalizers, HiiT Franchise, Mr. Bigg's, Sweet Sensation, and Food Concepts and Entertainment.
A report by the U.S. Commercial Service, which helps outside businesses assess market entry into Nigeria, states that U.S. franchisors have immense opportunities. This is based in part on a positive perception of U.S. technologies, products, and services. The report notes that Nigeria's most promising sectors include fast food and beverage, hospitality, and educational services.
Kendal Tyre is a partner and Diana Vilmenay is an associate in the Washington, DC, office of
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