Government finally acknowledges role of franchise sector

Government has finally acknowledged the role the franchise sector play in the country with the minister of small business development urging the Franchise Association of South Africa to engage with her department to provide a more comprehensive business support system and improve access to effective participation of SMEs.

The franchise sector in South Africa has become one of the largest contributors to the country’s economy through its almost 800 franchise systems, close to 70 000 outlets that employ around 500 000 people contributing R999 billion in estimated turnover, equating to 15% of gross domestic product (GDP), Fred Makgato, CEO of the Franchise Association of South Africa (FASA) says.

“I am in the business of politics and policies and you are in the politics of business and this is why we must work together. As businesses, you must come on board and advise us,” Stella Ndabeni-Abrahams, the minister, said at FASA’s recent Franchise conference.

She confirmed that government will work with FASA and other partners to ensure the industry benefitted all stakeholders, while maintaining franchising’s inherent set of ethical and business practices, as well as mitigate inherent risks, especially when it comes to financing.

Referring to the South African SMMEs and Cooperatives Funding Policy that was recently gazetted for public comment and presented to the National Economic Development and Labour Council (Nedlac), Ndabeni-Abrahams called for an increased focus by government in supporting SMEs to create jobs through certain reforms, including procurement and access to funding.

Commenting on a long-held view that the mainstream franchise market remained expensive and out of reach for the majority of potential entrepreneurs, Ndabeni-Abrahams confirmed that this required deliberate efforts by stakeholders in the ecosystem to address the barriers to entry. 

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Franchising one of the most successful sectors of economy

Makgato says franchising is one of the most successful sectors in our economy, contributing more to the country’s GDP than many other important sectors like mining, manufacturing and agriculture.

“FASA knows that, if mobilized effectively and given the right operating environment, franchising, in all its formats including micro, social and tandem franchising, can make a marked difference.  But what we need less red tape, more functional municipalities, a conducive operating environment and better funding.

The minister welcomed FASA’s offer to assist government in exploring innovative franchising models and also acknowledged the challenges facing entrepreneurs in these groups, such as infrastructure impediments and high crime in townships.

“The hard facts on the ground are that the economy is in crisis and we urgently need recovery plans to support business growth and create jobs now, not in five or ten years’ time,” Maria D’Amico, chair of FASA says.

 “We went through the 1998 economic meltdown and the 2008 financial crisis and both had a significant impact, which in a way prepared us for the impact of Covid-19. During the pandemic we were called in to do a lot of scenario planning to assist our clients.

“If there was one thing that the past four years taught us, it was that everyone learned to collaborate: franchisors, franchisees, suppliers and key stakeholders had to come together and work together to find new ways of doing things,” James Noble, head of wholesale, retail and franchising at Absa, says. Absa sponsored the FASA survey and conference.

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Franchise sector survey

The FASA survey showed that the franchise industry grew in estimated turnover generated from R734 billion in 2019 to R999 billion in 2023, from contributing 13, 9% to the country’s GDP to contributing 15,0%. The only decrease was in the number of franchise systems coming on board – dropping from 813 in 2019 to 727 in 2023.

Makgato says this was probably due to the uncertainty of the past four years that has impeded new franchise concepts from starting and perhaps also due to struggling newcomers having to shut their doors.

“This lack of growth in the establishment of new franchise and business systems must be urgently addressed as entrepreneurship is the life blood of any economy, as it stimulates small business development, skills transfer and ultimately job creation.”

He believes that the only way to avoid an impending disaster in South Africa is for the government to deal with load shedding and to recognize that it is the businesses, both large and small that are keeping the economy going.

“On the back of such a strong survey of the franchising sector, that is prepared to safeguard its position as a significant contributor to the country’s economy and is willing to play its part to keep the wheels of business and entrepreneurship turning, we call on government to now do their part in rectifying the debilitating state of the country for the sake of the economy, its citizens and the future of South Africa.”