Can franchising in SA keep up with global growth?

Ayabulela Njingolo, FASA chair and OBC rep. Image supplied

According to FASA’s 2023/24 Franchise Survey that covered the three years of Covid-19, this sector that spans around fourteen different business sectors, showed remarkable resilience in weathering those turbulent years, with the 727 franchise systems and its 68,463 franchisees contributing 15% to the country’s GDP and employing in the region of 500,000 people.

But, according to Fred Makgato, FASA’s CEO, some franchise companies are struggling to regain their footing and new franchise concepts are impeded by political uncertainty, higher interest rates, rising cost pressures and cautious consumer spending.

“With government committing billions to transformation through small business development, it needs to look at the franchising business format as the ideal way to roll out viable business enterprises based on the tried-and-tested universal franchising principles – not only on the commercial front but in terms of using franchise business principles to roll out public/private partnerships to address service delivery.”

Despite the headwinds that franchising is experiencing due to global political and economic shifts, franchising around the world remains buoyant and viable as it remains the backbone of many economies. Leading the field is the USA where a report from the International Franchise Association, produced in partnership with Frandata, projects an economic output from franchised companies in the United States to exceed $936.4bn in 2025 generated from is 830 876 franchise establishments that create 8.8 million direct jobs.

The economic context of South Africa

“Franchising has emerged as a powerful engine of growth and economic development worldwide, and South Africa is no exception. In a country grappling with high unemployment, economic inequality, and the need for sustained entrepreneurial activity, franchising offers a viable and sustainable business model.”

That’s the view of Eric Parker of Franchising Plus, a founding member of FASA and South Africa’s franchise guru who is a strong proponent of franchising as a sustainable business option for South Africa, examining its potential benefits, challenges, and the overall impact on the South African economy.

“South Africa’s economy is characterised by a dual nature: a well-developed industrial base co-existing with widespread poverty and unemployment” says Parker. “According to recent statistics, the unemployment rate remains alarmingly high, and economic growth has been sluggish. Against this backdrop, small and medium-sized enterprises (SMEs) are viewed as critical drivers of economic development and job creation. Franchising, as a business model, aligns well with these national priorities.”

Franchise statistics

In a franchise survey that the Franchise Association of South Africa conducted and sponsored by Absa, the franchise industry’s estimated turnover for 2023 reached R999bn, marking a 36% increase from 2019.

This substantial figure underscores the industry’s growth and represents 15% of South Africa’s total GDP of R6,660bn in 2022.

Benefits of franchising in South Africa

1. Job Creation and Economic Empowerment:

Franchising has a significant multiplier effect on job creation. Each new franchise outlet not only creates direct employment opportunities but also stimulates indirect jobs in supply chains and related services.

In a country where youth unemployment is a critical issue, franchising can provide young entrepreneurs with a structured pathway into business ownership and management.

2. Entrepreneurial Development:

Franchising offers a lower-risk route to entrepreneurship. Franchisees benefit from the established brand, proven business models, training, and support from the franchisor. This reduces the likelihood of business failure compared to starting an independent business.

For many South Africans with limited business experience, franchising provides an accessible entry point into the business world.

3. Economic Decentralisation:

Franchising can promote economic activity beyond the urban centres, reaching rural and underdeveloped areas. By leveraging local resources and markets, franchises can contribute to the economic decentralization and development of remote areas.

This geographical spread can help alleviate regional economic disparities.

4. Knowledge and Skills Transfer:

The franchising model is based on a symbiotic relationship between the franchisor and franchisee. The franchisor provides ongoing training, operational support, and marketing expertise, ensuring that franchisees are well-equipped to run their businesses effectively.

This continuous skills transfer is invaluable in a country where educational and skills deficits are prevalent.

Challenges of franchising in South Africa

1. Access to Finance:

One of the primary barriers to franchising in South Africa is access to finance. Many potential franchisees lack the capital required to invest in a franchise.

While some franchisors offer financing options, there is still a need for more robust financial support mechanisms from both private and public sectors.

2. Regulatory Environment:

Navigating the regulatory landscape in South Africa can be challenging. Potential franchisees and franchisors must contend with various laws and regulations, including labour laws, tax regulations, and industry-specific legislation.

A more streamlined and supportive regulatory framework could enhance the growth of franchising.

3. Market Saturation:

In urban areas, certain franchise sectors, such as fast food and retail, are approaching saturation. This necessitates innovation and the exploration of new sectors and markets, including healthcare, education, and renewable energy, which are less saturated and hold significant growth potential.

In 2025, the franchising industry stands at a crossroads of opportunity and challenge. Success will hinge on the ability to adapt to economic shifts, embrace technological innovations, and align with evolving consumer values.

The Franchise Association of South Africa appeals to government to partner with it to plan a growth roadmap to capitalize on opportunities, unlock the entrepreneurial spirit that can transcend generations, stimulate new business opportunities that will lead to job growth and prosperity.