The future of franchising just got a little brighter


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Bright Future

The future of the South African economy is uncertain – but a little less so today now that President Cyril Ramaphosa has delivered details of government’s stimulus package.

‘Stimulus package’ has a nice ring to it, and look what it did to the American economy. The package South Africa has adopted is nothing like that the US adopted following the 2008 financial crisis, where liquidity was released into the market to stimulate the economy.

It has nothing to do with government spending money it doesn’t have – because we also have to have an eye on our sovereign rating – but rather on better planning and improved usage of existing resources. It is therefore neither a case of government dipping into its reserves nor borrowing internationally in order to launch new programmes.

The essential nature of the economic stimulus and recovery plan is the reprioritisation of spending towards such activities that has the greatest impact on economic growth, domestic demand and job creation. There will be a particular emphasis on township and rural economies, women and youth.

What does this mean for franchising?

It is unlikely that South African franchising will be a direct beneficiary of the package, but any improvement in the economy will be an improvement for franchising.

In South Africa as elsewhere, small businesses are critical to the economic health of the nation. Small business is likely to be a major beneficiary of the stimulus package, given the focus on stimulating demand and job creation. FASA’s annual research reports suggest that franchising is a strong source of jobs and economic output, notwithstanding that at the moment franchise business leaders are reporting that consumer spending decline is having an impact on their businesses.

Particularly in times of economic stress, franchising gives small businesses an extra dollop of help through access to proven business methods, marketing support and training provided by the franchisor.  Franchising offers the South African economy a strong foundation from which to encourage job growth and recovery, and improved demand will ensure that these small business entrepreneurs will be positioned to help lead us out of recession.

After all, with more than 320 000 people employed in 600 franchised brands across more than 31 000 franchise outlets, the spin offs in a country with an employment rate hovering at 27% can be substantial.

Stimulus details

To recap, there is no new money being released into the economy and no new plans to borrow. President Ramaphosa’s plan comes down to improving trust and improving execution. Arguably, that’s exactly what’s needed. More jobs in construction, agriculture, mining and tourism mean more people buying from franchises. The idea is that much of that money goes to township, rural economies, women and youth. Any franchise focused on those markets stands to benefit closely, but the spinoff will spread much further. Today, according to FASA, 26% of South African franchise outlets are owned by previously disadvantaged individuals operating across a wide range of business sectors. Moreover, franchise outlets on average employ about 14 people per business, of which 10 are black.

President Ramaphosa said he wanted to “clear the decks” to entice business to invest in the country:

  • Agriculture will be capitalised, and a new 10-person land reform advisory panel will be appointed
  • The Mining Charter has already been revisited, and parliament will be asked to withdraw the Minerals and Petroleum Resources Development Act.
  • South Africa’s visa regime will be reconsidered to stimulate tourism

More importantly, the president has embraced the private sector as catalyst for growth and recovery, and said he wanted to make that sector – as well as labour – fully-fledged partners.

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