Franchising in Africa
Evidence reveals that both Africa’s middle class and economy are growing.
Until recently, the United States has mostly overlooked Africa as a partner for significant investment opportunities in favor of larger economic partners like Europe. This is unsurprising because Africa has often been synonymous with poverty, corruption and lack of infrastructure. The continent, however, has started to shed those negative associations as governments across the globe have increased their direct investment in the country.
Recently, President Obama engaged in a tour of Africa, which included stops in Tanzania, Senegal and South Africa meeting with government, business and civil society leaders to strengthen the U.S. commitment to expanding trade, investment and economic growth and to invest in future African leaders. In another example, the U.S. Commercial Service, the International Franchise Association and the Franchise Times are sponsoring a trade mission to Kenya, Nigeria and South Africa to investigate partnership opportunities in franchising with area developers for the sub-Saharan Africa region.
One of the main reasons for this newfound interest in Africa is consistent evidence that both Africa’s middle class and its economy are growing. The African Development Bank has estimated that 34 percent of Africans or 326 million people make up the middle-class, up 7 percent over the last decade. It is estimated that African consumers will spend $2.2 trillion on goods and services by 2030.
Africa currently has a $1.8 trillion economy and approximately seven of the world’s 10 fastest growing markets are in Africa with five of them in the heavily populated sub-Saharan region. Another reason is that Africa is still rich with natural resources. One beneficial trade off for obtaining African commodities is that government partners have invested in improving technology, the infrastructure and local work forces in Africa. These factors combined together make it clear why Africa appeals to global businesses and governments.
A number of well-known international franchisors have already established footprints in both North Africa in countries such as Egypt, Morocco and Tunisia and in sub-Saharan Africa in Nigeria and South Africa. However, there is a lack of resources about how to open a franchise in these countries or their lesser known neighboring countries. It is important to understand that while most African countries do not require franchisors to provide pre-sale disclosure, Tunisia and South Africa are exceptions. However, many African jurisdictions, Nigeria for example, require central bank or other approvals to remit payments across their borders.
Franchisors concerned about protection of their intellectual property, franchisee access to capital and legal reforms should take note that local governments in Africa are making significant efforts toward legislative and economic reforms. In short, they have recognized how important franchising can be to their economies. While each African country’s economic, cultural, religious, business, language and legal landscapes are different, it is still critical that franchisors review each country’s laws and regulations, obtain competent legal, financial and other professional advice and select suitable franchisees in target countries.
Kendal H. Tyre is a partner and Diana Vilmenay is an attorney in the Washington, D.C. office of law firm Nixon Peabody. Find Tyre and Vilmenay at fransocial.franchise.org via the directory.
Additional information can be found in “Franchising in Africa: Legal and Business Considerations,” a book edited by Kendal Tyre and Diana Vilmenay. The book, published by LexNoir Foundation in July 2012, is a reference tool for practitioners, business people, and academics. It focuses on drafting relevant documents, financing franchise transactions and discusses the local legal issues in selected African countries including Angola, Botswana, Cape Verde, Egypt, Ethiopia, Ghana, Mozambique, Nigeria, South Africa, Tunisia and Zambia. Learn more here: http://www.franchise.org/publications.aspx.