Growing The Industry

Franchising could play an important role in much-needed post-pandemic economic recovery, yet insiders believe government support for the sector is lacking. Anita du Toit, franchise development consultant and director of Franchise Fundi, says: “The lack of specific programmes supporting franchising indicates that government doesn’t emphasise the sector’s role in economic development. Franchises are more sustainable than start-ups and economically more viable than subsistence businesses. The fact that the major commercial banks all have franchise divisions focused on funding the sector indicates that this is a strong one commercially.”

Though there are several programmes that support small, micro and medium enterprises (SMMEs), the only direct support for franchises from government comes from the Small Enterprise Finance Agency (SEFA) within the Department of Small Business Development, adds du Toit. “They are seemingly the only government agency with a clear focus on franchising, though the National Empowerment Fund (NEF) does provide some franchise funding under its iMbewu fund, and other initiatives provide transformation-focused financing.”

Look for support outside of government 

Still, for those looking for support, the best route is often through other institutions, du Toit adds. “SEFA is a member of the Franchise Association of South Africa (FASA) and has signed a memorandum of understanding (MoU) with the association to assist franchisees applying for finance.

“It’s not always clear what SEFA’s requirements are, but it’s worth it for applicants to contact FASA because of the MoU that is in place,” explains du Toit. “Another alternative is to speak to commercial banks about government funding and guarantee schemes, as some of them co-operate with these agencies to facilitate finance.”

There is no government master plan for the sector and no programmes that leverage its admirable track record when it comes to job creation and skills transfer. According to FASA, the sector employed close to half a million people in 2019 in over 800 franchise systems with around 48 000 outlets.

“Franchises promote job creation and skills transfer in a country burdened by severe unemployment and skill shortages, yet franchisees face cumbersome laws and red tape,” says du Toit.

Shenelle Nair, engagement manager at management consulting and investment firm Letsema, says relaxing regulatory and market access barriers will be essential for growth in the sector. And the numbers are there to back up such a drive. “Around 70 per cent of businesses fail within their first two years of operation, while the franchising failure rate is estimated to be as low as 10 per cent.”