African Economic Growth Impacts Franchising on the Continent ...

Written by: Editorial Staff on September 15, 2012.

Recent research has revealed that African nations make up seven of the world?s ten fastest-growing?economies. The industries seeing the largest growth on the continent are wholesale and retail?commerce, transportation, telecommunications, and manufacturing. According to this research,?much of Africa will have attained ?lower-middle? to middle-class majorities by the year 2030 and?consumer spending will expand from US$680 billion in 2008 to US$2.2 trillion. Today, Africa has?more middle class consumers than India despite the fact that India has a larger population.

This economic growth parallels developments in the franchise sector. According to the U.S.?Commercial Service, the trade promotion agency for the U.S. Department of Commerce, more than?200 international franchises currently operate in Africa. The market for food franchises alone exceeds?US$300 million. Major U.S. brands, covering a broad range of services and products, have debuted?on the African continent this year and others have indicated plans for further development?throughout the continent. This growth is likely to continue so long as legislative and economic?reforms continue to take hold on the African continent and Western franchisors and others look to
new markets to expand after years of declining growth in their own domestic markets. African?governments have even taken their own initiatives to promote franchising as a tool to promote the?growth and stability of home-grown business enterprises.

The increasing popularity of franchising is due, in part, to legislative reforms in countries that had?previously hindered the repatriation of royalties and franchise fees. In addition, some countries have?also enacted franchise-specific legislation. For example, South Africa enacted franchise legislation in?2008. Tunisia drafted a legislative framework for franchising that took effect in 2010, and Angola has?had franchise laws in place since 2003. Other countries on the continent are likely to follow their
lead.

Franchising in Africa is not without its challenges, however. A basic understanding of any franchise?arrangement is that the intellectual property of the franchisor is licensed to franchisees for a limited?time and under certain terms and conditions. The ?rule of law? is critical to maintaining and?protecting the franchisor?s intellectual property. Concerns over the relatively weak protection of?intellectual property have been expressed by several brands.

Access to capital is another concern. Franchisors generally request franchisees commit over 50% of?the total investment, but African banks are cautious lenders to small and medium enterprises and?start-ups. However, reforms in the African banking industry are changing the lending landscaping.?Local banks in certain countries now have franchise departments and are starting to view franchising?not as a business start-up, but as a support system for business enterprises that may merit a closer?inspection.

Despite these challenges, the developments in the franchising sector in Africa may merit?consideration for companies expanding their presence worldwide.

By?Kendal Tyre and Diana Vilmenay-Hammond, editors of Franchising in Africa: Legal and Business Considerations, a publication of LexNoir Foundation.

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Source: http://www.afribiz.info/content/african-economic-growth-impacts-franchising-continent

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