Franchising holds secret to business growth and jobs

One of the issues occupying the minds of eminent economists in Africa and indeed governments across the continent is the unemployment scourge that is festering by the day.

Although Africa’s burgeoning youthful population is viewed as potentially a great asset, there is also fear that the absence of skills and knowledge that can create jobs locally and export others is dire.

According to recent UN forecasts, the continent population will double by 2050, from one billion to nearly 2.4 billion people; and half of that population will be less than 25 years old. Kenya’s youth unemployment situation is particularly perilous. Statistics show that in the period 2017-2018, aggregate unemployment fell from 11.50 to 9.30 per cent, but the share of unemployed youth is at 11.4 percent or an estimated 1.22 million young adults.

Kenya has set an ambitious target of becoming a middle income country by 2030. This goal not only requires uninterrupted growth of 10 percent per year, but will also demand citizens with globally-competitive skills.

The million-dollar question is what must be done to close the skills gap and prepare our youth to become problem solvers, enable them to enter the job market and indeed become job creators.

One of the ways – which is by no means exclusive – that Kenya and indeed Africa can fight back unemployment is through creating the right environment for franchising.

A franchise is a type of licence that a party (franchisee) acquires to allow them to have access to a business’s (the franchiser) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’ name.

In exchange for gaining the franchise, the franchisee usually pays the franchisor an initial start-up and annual licensing fees. According to a publication by the African Development Bank, franchising contributes to the public policy initiatives of employment creation and poverty reduction while creating entrepreneurship through the transfer of technologies and knowledge.

In Africa, South Africa leads the way in the franchise industry and clearly illustrates how African economies can grow using this business model. The Franchise Association of South Africa – which has been in existence for four decades – says the country has 865 franchises systems and over 45,000 franchise outlets.

This industry contributes an estimated 13.3 per cent to South Africa’s GDP and employs more than 300,000 people. This success clearly demonstrates that franchising can be a successful business growth strategy for Africa.

In Kenya, franchising is still nascent as evidenced by the fact that there are no specific franchise laws in Kenya. Investors must, therefore, rely heavily on existing commercial laws and various applicable business laws.

According to a report by the U.S. Department of Commerce, the franchising market in Kenya is steadily growing and evolving from single-unit owners to multi-unit operators employing professional staff of field and unit managers, while they focus on strategy and growth. The report states that franchises in the food, restaurant and beverages industries are the most successful – ranking them by growth, branch and demand.

The writer is managing director, KCB Foundation.