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Franchising holds secret to business growth in Kenya

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

In Summary
  • In Kenya, franchising is still nascent as evidenced by the fact that there are no specific franchise laws
  • As many corporates as can need to examine this model both for business growth opportunities and for job creation

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 1 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 per cent 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 an uninterrupted growth of 10 per cent 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 license 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 a professional staff of field and unit managers, while they focus on strategy and growth. The report states that franchises in the food, restaurant, and beverage industries are the most successful - ranking them by growth, branch, and demand.

Franchising has been growing in popularity especially with global fast-food brands present in Kenya. While franchising is most common in the hospitality industry, other franchising industries in Kenya include the clothing industry.

At KCB Foundation, we believe that franchising can offer a partial panacea to the unemployment that we see every day all around us. Under our 2jiajiri programme, we are currently exploring partnerships with some of the largest and well-known brands in the region that are aligned to the five training areas of agriculture, domestic services, beauty, automotive engineering and in building and construction.

The objective is to not only train but to absorb these young people in employment and train them with a view to releasing them to franchised outlets where they can run their own businesses and employ others. The co-ownership model enables immediate leverage of tried and tested enterprise management systems, supply chains and existing client base from the well-known brands. This also cushions the youth against their pre-existing institutional weaknesses.

As many corporates as can need to examine this model both for business growth opportunities and for job creation. We, in fact, need all hands on deck if we are going to beat back the rising problem of unemployment.

Jane Mwangi is the Managing Director of KCB Foundation