Small business master plan, but no space for franchises

We have a small business master plan, but there is no space for franchises in it, although many franchises are started by people who did not run a business before. After many years of trying to work with government, even the Franchise Association of South Africa (Fasa) does not know where to turn anymore.

According to the department’s website, the National Integrated Small Enterprise Development (NISED) Master Plan represents the next 10-year strategic approach to facilitating the promotion of entrepreneurship, growth and support of SMMEs in line with the NDP targets to assist small business. It was recently by the minister of small business development, Stella Ndabeni-Abrahams.

The NISED fact sheet on the website proclaims that the master plan is necessary because support for SMMEs remains uncoordinated and fragmented with duplication of initiatives based on symptoms, despite considerable resources and policy intervention to support them.

“Support for SMMEs remains uncoordinated and fragmented with duplication of initiatives based on symptoms. Research and data to monitor SMME performance remains elusive at national level resulting in ill-informed design of programmes and support to match SMME’s financial and non-financial needs and opportunities. This continues to result in low survival rates of SMMEs and stagnant growth.”

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Franchise Association not happy with master plan

However, not everybody is happy about the plan, with Fasa saying reforms to enable SMME growth through efficient governance has seen years of draft master plans going nowhere in the same way that the energy crisis in South Africa has dragged on with no solution in sight.

“The SMME Master Plan’s focus of five to ten years is laughable. The economy is in crisis, with unprecedented high unemployment. We have to create jobs now, not in five to ten years’ time,” says Fred Makgato, CEO Fasa.

“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, a crisis plan needs to be put in place to fast-track the SMME Master Plan and take it beyond just being another fanciful document gathering dust.”

Before the pandemic, the franchise sector generated R734 billion (13.9% of GDP) across fourteen different sectors through its over 800 franchise systems and over 48 000 franchise outlets, employing, directly and indirectly, around 500 000 people.

However, the franchise sector has been largely ignored by government. Efforts to engage the ever-changing ministers that have headed up the department have fallen on deaf ears as have efforts to engage with the department of trade, industry and competition.

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Franchises stimulate entrepreneurship

Makgato says it is time for government to recognise 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.

He points out that master plans and incentives to stimulate small business growth will not succeed if the energy crisis plan fails.

“While 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 took their toll on the franchise sector, with many in survival mode.”

Larger franchise groups were in a better position to withstand loadshedding as they could install generators and adjust their business models, the smaller franchisees had to shut down for hours at a time while still paying for rent, services, salaries, royalties and stock.

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Franchises doing well despite broader economy

Mukheibir, CEO of Cash Converters, says despite uneasiness with the broader economy and load shedding, trade has picked up with overall figures up 30 – 40% during the past three months and their franchisees seem buoyant.

“We recruited a few new franchisees in the last 18 months 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 generates new jobs and contributes to easing unemployment.”

Systems government belatedly put in place to get small business back on its feet are not working, but Fasa still hopes that meetings scheduled with the department 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.

Pertunia Sibanyoni, chairperson of Fasa, says franchising, as a business format, proved over the years to be easier and quicker to duplicate because it is based on an established network, with built-in mentoring and skills training and offers on-going support.

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Less red tape, more conducive operating environment

She says franchises need less red tape, more functional municipalities, a conducive operating environment and better funding.

“The lack of engagement with entities such as business associations and forums and especially with Fasa, that represents the franchise community.”

Franchises contribute almost 14% to the country’s GDP, more than agriculture, mining and manufacturing.

“Despite the franchise industry’s huge job-creating potential there was no interaction with government since the development and promulgation of the Consumer Protection Act between 2008 and 2011.”

How could a business SMME master plan be published and government start talking about restructuring the national employment fund, small enterprise development agency and small enterprise finance agency without the experts is inexplicable.

“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.”