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Franchising: Nigeria fails to tap into N721trn revenue

Despite Nigeria’s position as one of the top economies in Africa, the country has failed to tap into the enormous global franchising industry which yields N721 trillion revenues annually.

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The International Franchise Association (IFA) estimates that the Franchising businesses post approximately $2 trillion (N721trn) annually and these businesses have more than 90 per cent success rate, making this the lowest failure rate of any type of business.

Franchising involves an individual setting up a business with a model that can be replicated in different locations across the world. The individual, known as the franchiser, grants another party, known as the franchisee, the right to use the business trade name, system and processes to produce and market a good or service according to certain specifications developed by the original owner.

The Founder of Franchise Business Development Service (FBDS), Chiagozie Nwizu, believes that franchising has remained relatively unknown and unsuccessful in Nigeria, with the few that were set up, such as Mr Biggs, struggling to survive.

This is contrary to the situation in many countries, such as South Africa and the United States, where franchising businesses are major sources of revenues.

For instance, the US Department of Commerce, reports that franchise businesses account for about 10 per cent of all business establishments in the United States, 50 per cent of all retail sales, account for over $890 billion in direct economic output, employ more than 15 million Americans with more than 75 industries using franchising to distribute goods and services to consumers.

Franchise USA also observed that while 20 per cent of individual start-ups were still in operation after 7 years in business, franchised businesses were still operating at a rate of 91 per cent. 

The top 10 franchises in the world include McDonald’s, KFC, Burger King, SUBWAY, 7 Eleven, Hertz, Pizza Hut, Marriott International, Wyndham Hotels and Resorts, Hilton Hotels & Resorts and many of these franchises operate in Nigeria. 

There are emerging franchised businesses in Nigeria such as Slot and House of Tara, but the gap in development remains huge.

A bill for an act to establish the Institute of Chartered Franchise Executives of Nigeria has passed a second reading in the House of Representatives but still has a long way to go before it becomes a legal framework for the regulation of franchising in Nigeria.

Nwizu believes lack of legal framework, funding challenge and poor capacity have been factors that hindered development of franchising in Nigeria, adding that the Institute will go a long way in providing a direction for franchising in the country.

In the meantime, the FBDS, which Nwizu is its Managing Consultant, has developed Nigeria 2018 Franchise Agenda, with the goal of finding businesses that can be franchised and piloting the franchising of 10 of such businesses in the next six months.

The Minister of State for Industry, Trade and Development, Hajia Aisha Abubakar, also believes that there is need for a legal framework to support franchising in the country.

Speaking to a delegation from FBDS, the Minister said there was need for franchising in other businesses and not just fast food.

She said it is a good way for small start-ups to survive and the model ensures sustainability.

It is interesting to note that most franchises are small and medium sized businesses as they do not really need huge investments. A typical fast food franchise involves buying a franchise from the owner, and replicating the business in a location with less than N5 million.

Many individuals wishing to go into franchising can leverage on Dangote Fund being managed in the Bank of Industry (BOI) from which N5 million to N10 million single interest digit loans can be accessed without collaterals. 

NOMINATE AFRICAN OF THE YEAR 2019

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