The African Continental Free Trade Agreement (AfCFTA) is one of the most ambitious trade agreements in history. It aims to create a single market for goods and services across 54 African countries. This agreement, which officially began on January 1, 2021, seeks to boost intra-African trade by removing tariffs, reducing trade barriers, and encouraging the free movement of goods, services, and people. For businesses, including franchises, this presents both opportunities and challenges as they navigate this new landscape.
Understanding franchising in Africa
Franchising is a business model where a company (the franchisor) grants an individual or another business (the franchisee) the right to operate under its brand and use its business model in exchange for fees and royalties. Popular global franchises in Africa include fast food chains, like KFC and Pizza Hut, retail brands, and service-based businesses like education and fitness centers. Local African franchises are also growing, such as South Africa’s Nando’s and Nigeria’s Chicken Republic. With Africa’s rapidly growing population, urbanization, and rising middle class, the demand for franchised businesses is increasing. The AfCFTA could accelerate this growth by making it easier for franchises to expand across borders, but challenges remain.
Potential benefits of AfCFTA for franchising
EASIER MARKET EXPANSION
Before AfCFTA, businesses often faced high tariffs and complicated regulations when expanding across African borders. Under the agreement, tariffs on 90% of goods and services are set to be gradually removed, making it cheaper and easier for franchises to move products, equipment, and supplies across different countries. For example, a franchise based in South Africa looking to expand into Kenya or Ghana will benefit from lower import duties on equipment, raw materials, or even finished goods. This makes opening new franchise locations less expensive and more attractive.
A LARGER CONSUMER MARKET
The AfCFTA creates a single market of over 1.4 billion people with a combined GDP of around $3.4 trillion. For franchise businesses, this means greater access to consumers in countries where they might not have previously considered expansion. Fast food, retail, and service-based franchises that have already succeeded in one African country can replicate their success in others, benefiting from economies of scale. For example, a successful franchise in Nigeria could easily expand into Ghana, Côte d’Ivoire, or Senegal with fewer trade restrictions.
MORE INVESTMENT AND BUSINESS-FRIENDLY POLICIES
Many African countries are working to harmonize business regulations under AfCFTA, which could lead to more business-friendly policies. This includes simplified franchise registration, intellectual property protections, and clearer dispute resolution mechanisms, making it easier to set up and operate franchises across multiple countries. Additionally, as foreign and local investors see the benefits of a unified African market, franchisors may find it easier to attract franchisees who are willing to invest in opening new locations.
SUPPLY CHAIN EFFICIENCY
A major challenge for franchises in Africa has been supply chain inefficiencies, where delays and high costs make it difficult to get products and materials from one country to another. AfCFTA aims to improve infrastructure, customs procedures, and logistics networks, making it easier for franchises to source goods locally or from neighboring countries without excessive delays and costs. For instance, a clothing franchise in Tanzania may find it easier to source fabric from Ethiopia instead of importing it from Asia, reducing costs and lead times.
Challenges and risks for franchising under AfCFTA
REGULATORY DIFFERENCES BETWEEN COUNTRIES
While AfCFTA aims to harmonize trade rules, each country still has its own laws and regulations regarding franchising, taxation, and business operations. For example, some countries require local ownership percentages, while others have strict import rules for foreign brands. Franchisors and franchisees will need to navigate different regulatory environments in each country, which could slow down expansion plans.
INFRASTRUCTURE AND LOGISTICS BARRIERS
Despite improvements, many African countries still struggle with poor infrastructure, including bad roads, unreliable electricity, and inefficient ports. These challenges can increase costs for franchises, especially those that rely on consistent supply chains, such as food and retail brands. For example, a fast-food franchise that depends on cold storage and timely deliveries may face difficulties if power outages and transport delays disrupt operations.
CURRENCY AND FINANCIAL CHALLENGES
Different countries use different currencies, and exchange rate fluctuations can impact profitability. A franchise operating in multiple African countries may find it challenging to manage pricing, payments, and profitability when dealing with unstable local currencies. Additionally, access to financing for potential franchisees can be difficult, as interest rates and lending conditions vary widely across the continent. This might slow down the growth of new franchise locations.
COMPETITION AND LOCAL MARKET ADAPTATION
As AfCFTA opens up markets, competition will increase, both from international and regional franchises. This means that businesses will need to differentiate themselves and adapt to local tastes, cultures, and preferences. For instance, food franchises need to consider regional dietary preferences, while retail and service-based franchises may need to adjust pricing and marketing strategies to appeal to local consumers with varying income levels.
Final thoughts: A game changer, but not without challenges
The AfCFTA presents a historic opportunity for franchising in Africa, creating a larger, more connected market that could drive significant business growth. Franchises that adapt quickly, understand local markets, and navigate regulatory differences will be well-positioned to benefit from the agreement. However, challenges such as infrastructure gaps, financial constraints, and competition remain. Businesses looking to expand under AfCFTA must be strategic, flexible, and well-informed to seize the opportunities while managing the risks. For franchises willing to navigate this evolving landscape, AfCFTA could be a game-changer, unlocking unprecedented opportunities for expansion and success across the continent.