Article 1: Nurturing a vibrant franchising sector in East Africa by Wambugu Wa Gichohi

Wambugu Wa Gichohi November 2, 2018 No Comments

The EABC Franchising Project aims to create 370 indigenous Tanzanian franchise brands and attract at least 100 international franchises into Tanzania by 2023. Regardless of your sector, we have equity finance sources interested to finance your business up to USD 100m if you choose to grow through franchising. For more details, please email: franchising@eabc-online.com

 

Walking on the streets of business and residential districts of Dar Es Salaam and other leading cities in East Africa, you will notice many new high-end establishments selling all sorts of items. Most visible are fast food, hospitality and auto-related brands among many others. What most East Africans do not know is that as our local entrepreneurs outdo each other opening company-owned outlets, owners of multinational brands realized long ago that the easiest way to grow is through building an army of dedicated business partners running their own businesses using the multinationals’ long-established brands under pre-agreed arrangements, thereby guaranteeing cheap and quick worldwide footprint. The reality is that multinational franchise brands are trooping into Africa attracted by Africa’s youthful population and the burgeoning middle class, coupled with market saturation back home. If the situation is not addressed actively, early, we will end up like Philippines where 70% of the franchise sector is controlled by foreign brands as opposed to South Africa where 90% of all franchises are home-grown.

 

In deciding between the Philippines and the South African model, we consider benefits of each. Multinationals play a very significant role in creating jobs, transferring skills, playing commercial diplomacy and creating wealth. But they repatriate all their profits and import most inputs, creating the bulk of jobs out there. This also exacerbates trade imbalance between their host countries and their mother countries. If EAC economies are to meet their development goals, this imbalance needs to be addressed and one way of doing this, in addition to encouraging multinationals to source inputs locally, is to encourage indigenous brands to perfect their business at home (Buy East Africa Build East Africa) then export to SADC, COMESA and the Africa Continental Free Trade Agreement (ACFTA) and other trading blocks of the world. This worked in South Africa during economic sanctions of apartheid days and when economic sanctions were lifted, their brands could only grow one way-outwards. This explains why South African brands control 90% of the franchise sector.

 

Franchising has been used by businesses across the world to quickly and cheaply transfer skills, create jobs, play commercial diplomacy and generate massive wealth thereby contributing enormously to GDPs of countries such as USA at 2.5%, Mexico at 6%, Australia at 10% and closer home, franchising contributes 15.7% of South Africa’s GDP. In East Africa, its contribution is negligible because we still believe in brick and mortar models of company-owned outlets.

 

To address these and mainstream the contribution of franchising to EAC’s GDP, Advertising Dar has partnered with a leading Franchise Consultant to educate the Tanzanian business community on the franchising ecosystem aimed at nurturing a vibrant franchising sector in Tanzania and the entire EAC region with a good balance of indigenous and foreign brands. For the foreseeable future, we will run this column weekly. The consultant will write about franchising, how it works, how businesses can use franchising to scale up, how multinational franchise brands work, what the Tanzania Government would gain by facilitating and can do to facilitate indigenous brands to franchise, minimum legal environment needed to nurture a vibrant sector, what brand owners stand to gain by franchising, what to do when looking for a franchise, what to do to franchise your brand, what could go wrong when franchising, your role as a franchisor, your role as a franchisee, expectations for suppliers to franchise networks, role of Franchise associations and many other areas of interest to franchising.

 

Introducing the EABC Franchising Project

 

The EABC Franchising Project (EABCFP 2019-2023) is a disruptive 5-year initiative aimed at nurturing the growth of a vibrant franchise sector in East Africa, balanced with international franchise brands alongside strong indigenous franchise brands, as a tool for achieving a seamless economic integration of the EAC. The project is a partnership between the East African Business Council, the apex body of the private sector in East Africa and Worldahead, a premier franchise consultancy brand. The project is implemented under the EABC brand and has other major partners as follows;

  1. The EAC as the main beneficiary of successful delivery through economic integration of EAC,
  2. Statera Capital as the main equity finance advisor/aggregator
  3. PSFU- Uganda National Focal Point and implementing partner in Uganda,
  4. TPSF- Tanzania National Focal Point and implementing partner in Tanzania,
  5. KEPSA- Kenya National Focal Point and implementing Partner in Kenya,
  6. PSFR- Rwanda National Focal Point and implementing partner in Rwanda,
  7. CFCID- Burundi National Focal Point and implementing partner in Burundi and
  8. Country Franchise Associations, where such exist.

As the national implementing partners, the national focal points are tasked with mobilizing the private sector in their countries, through workshops, conferences and constant communication, to start embracing franchising (either as franchisors or franchisees of international franchise brands) as the growth model for future-focused brands in order to transform East Africa into a modern economy. The rest of the project components are implemented directly by EABC and Worldahead under the umbrella of the national implementing partners.

 

Major stakeholders in each country, apart from the private sector members of the above national focal points include government ministries of Trade & Industry, Labor, Youth & Gender, Justice & Constitutional Affairs, Finance and EAC matters. Others include franchise associations where such exist, the national chambers of commerce and industry, SMEs and corporates who are not members of these associations and the academia (Strathmore University).

 

In addition to attracting at least 400 international franchise brands from all over the world, the project targets to create at least 1,500 indigenous franchise brands mainly in 17 sectors of the EAC economies in line with international best standards. These brands are spread as follows per country: Kenya 600, Uganda 430, Tanzania 370, Rwanda 80, Burundi 20

 

Apart from the baseline surveys needed to validate targeted project activities and the policy and legal components, the project will build the capacity of local resource persons to support growth of the franchise sector by training local franchise consultants, lawyers, banks and members of the judiciary. It will also develop capacity of local suppliers to meet standards required to supply to international and local franchise networks. Further, it will offer technical assistance by hand-holding identified local franchise brand champions to franchise, including availing equity investment to roll out their franchise networks from its proposed USD 500M Revolving Franchise Growth Fund to be established with seed capital from development partners and sustained through private equity and government grants. Though the project is currently at fund-raising stage, through Statera Capital, we are currently working with over 20 private equity funds from Europe and North America to support indigenous East African brands to develop and roll out their franchise networks and acquire foreign franchises. We are also offering franchise development consultancy at a fee to such brands to develop and roll out their franchise networks.

Further, the project matches international franchise brands with local businesses seeking international franchises and also incubates the currently-moribund franchise associations in East Africa to start recruiting members and to take their place as the self-regulatory mechanism for this important new sector. The project is targeted to evolve into the Eastern Africa Franchise Federation to harmonize the franchise sector at a broader regional level, including other countries in Eastern Africa namely Ethiopia, South Sudan, Mauritius, Madagascar, Comoros, etc. The Federation’s membership would be drawn from the partners identified above, the revived franchise associations and similar partners from the additional countries. At project sunset, these associations will sustain in-country growth of the sector as is the case in other countries where franchising flourishes.

 

We are extremely excited as we embark on this journey of hope and look forward to making a difference in how business is done in East Africa to achieve higher intra-EAC trade, a seamless EAC integration and position Eastern Africa businesses strategically to take advantage of the upcoming African common market through the African Continental Free Trade Agreement.

 

The writer is a Franchise Consultant at EABC helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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