FRANCHISE: Businesses to miss out on AfCFTA unless...
Wambugu Wa Gichohi
Africa is home to an estimated 445 million Micro, Small and Medium Enterprises (MSMEs) and 700 large corporates, with the majority of these corporates based in South and North Africa. Only an estimated 30 million of the 445 million MSMEs are formal SMEs and only 70 million formal micro enterprises. This means that the majority (335 million) are informal enterprises who are unlikely to benefit at all in African trade under AfCFTA, mainly because they are constituted to support survival of their founders.
Even when formalized and growth-seeking, access to local markets individually remains a big challenge, let alone accessing AfCFTA opportunities.
In Kenya when I address this issue of the opportunities availed by AfCFTA and how businesses can access them, I always pose the question; How do you hope to sell in Mauritania, Eswatini or the Magreb if you can’t crack it in your next door county or at best in neighboring Tanzania-which is considered a difficult market by many Kenyan businesses, big or small.
In short AfCFTA will remain a pipe dream to most of African MSMEs and indeed the large corporates if they do not plan to disrupt themselves.
The disruption I refer to lies in choosing business models that deeply involve as many locals in each target market as possible-as opposed to the current tendency to roll out brick and mortar units or appoint the largest distributor in town.
The former approach distributes efforts and wealth to a bigger part of the population, the latter concentrates wealth to only a chosen few. When more people are involved in the “route to market”, better social capital and profits are generated as opposed to when fewer are.
The answer to this disruption is business format franchising for the big corporates and micro-franchising for both the corporates and the MSMEs.
This is because franchising localizes the brand in each target market when franchisors from different countries grant franchise rights to locals-who understand the local market dynamics better.
In business format franchising, a tried, tested and trusted brand (franchisor) allows another, usually with no experience (franchisee), to use the former’s wealth of intellectual property and full business format to distribute specific goods or services in a given territory over an agreed period under strict supervision, in consideration for payment of an initial and ongoing fees.
All one needs is to protect their intellectual property in the target market, design and pilot an (or test an existing) appropriate franchise model and roll out.
Micro-franchising applies the same commercial principles but is more relevant to goods and services targeted for the bottom of the income pyramid by either a large corporate seeking to generate social capital – eg create employment while generating profits- or by MSMEs seeking to leverage on their peers across different markets. Micro-franchising avails goods and services in quantities and prices that can be afforded by the majority in the bottom of income pyramid. The majority of African population which is the effective market under AfCFTA is at the bottom of the income pyramid.
Even when franchising is chosen, some models are better focused than others to address this challenge. Using a combination of the area developer and the micro-franchise models entrenches the brand locally much faster and better.
Use of the master franchise model will achieve the same results only if the master franchisee is highly motivated, proactive and can quickly recruit an extensive army of sub-franchisees.
Most franchisors using the master franchise model do not wish to expend their energies directly at the bottom of the income pyramid, they would rather leave that to the local master franchisee.
IN SUMMARY
• Only an estimated 30 million of the 445 million MSMEs are formal SMEs and only 70 million formal micro enterprises.
• In short AfCFTA will remain a pipe dream to most of African MSMEs and indeed the large corporates if they do not plan to disrupt themselves.
• Micro-franchising applies the same commercial principles but is more relevant to goods and services targeted for the bottom of the income pyramid by either a large corporate seeking to generate social capital – eg create employment while generating profits- or by MSMEs seeking to leverage on their peers across different markets.
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The writer is the Project Promoter and Lead Franchise Consultant at Africa Franchising Accelerator Project aimed at achieving faster African socio-economic integration under AfCFTA. We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise. We turn around struggling indigenous franchise brands to franchise cross-border. We settle international franchise brands into Africa to build a well-balanced franchise sector. We create a franchise-friendly business environment with African governments for quicker African economic integration.
