SEMINAR ON FRANCHISING WITHIN A SMALL AND MEDIUM ENTERPRISES (SME) DEVELOPMENT STRATEGY

Organized by

JOINT AFRICA INSTITUTE (JAI)INSTITUT MULTILATERAL D’AFRIQUE (IMA)Tunis, Tunisia, November 29 – December 3, 2004

NIGERIA’s FRANCHISING PERSPECTIVES

Presentation by Dr. D.A. Okongwu, Director General, National Office for Technology Acquisition and Promotion (NOTAP), Abuja, Nigeria.

Key Points

1. Introduction

2. Franchising in Nigeria today – Situation Report

2.1 Introduction

2.2 Economy

2.3 Market/Know-How

2.2 Support Structures

- Regulatory/Legal Framework

- Financing

- Business Associations & Information Infrastructure

3. Strategic Sectors for Franchising in Nigeria

4. Recommendations for Franchise development in Nigeria

1. INTRODUCTION

Franchising has until recently been an uncommon word in

business lexicon in Nigeria mainly because, like all forms

of Intellectual Property, the business model had never been

part of the cultural milieu. BUT the situation is very

rapidly changing.

Due to nature of Nigeria’s business environment

Franchise system growth has a comparative advantage.

International Franchisors have not responded into Nigeria

(compare their response into Asia) largely because of

ignorance of immense market opportunities in Nigeria and

absence of Franchise - specific legal and regulatory framework.

Geographically, Nigeria is well-located to serve as a

strategic platform for AfDB’s Franchise Development Initiative

in sub-Saharan Africa, as entry point by International

Franchisors, and for the expansion of Franchise system

throughout West Africa.

SMEs in Nigeria face severe constraints but Franchising

(as a business model) provides entrepreneurs immense

opportunities (technology transfer, marketing/business support

services, skill acquisition, etc) to increase SMEs success rate

and energize the national economy.

2. FRANCHISING IN NIGERIA TODAY – SITUATION REPORT

2.1 Introduction

The earliest form of Franchising in Nigeria had been products

marketing, mainly of petroleum products (Texaco, Mobil,

Total, Agip, Elf, Esso, etc) and automobile (Toyota, Peugeot,

Ford, etc); and beverages (Coca Cola, etc). The last few

years however have witnessed significant growth and

emergence of business format Franchising especially in the

fast food sector, many of which are small indigenous

Franchisors.

Thanks to the sensitizing efforts of the National Office for

Technology Acquisition and Promotion (NOTAP) and the

Nigerian International Franchise Association (NiFA),

Franchising is steadily becoming understood and accepted

as attractive business model by Nigerian

entrepreneurs.

The earliest business format Franchise in Nigeria is generally thought to be by Duraclean International USA early 1980s (not registered).

The first Franchise (Technology Transfer) Agreement registered at NOTAP was in 1987 between Schweppes International Limited, Republic of Ireland and Nigerian Bottling Company Limited (NBC).

Agreement was:- for 3 years (1-7-87 to 30-6-90).- Terms of the Agreement:

* Schweppes was to provide NBC: knowledge and skill experience and right to sell Schweppes soft drinks

manufactured in accordance with the Schweppes formulae from said special flavour compounds and fruit materials under the trade mark “Schweppes”.

* A total of 6 Trademark Licenses were licensed to NBC pursuant to the agreement.

* Franchisor’s license fee was 1% of Net Sales for the 1st year of implementation of the agreement.

- The agreement has been renewed twice (1990-1993 and 1993-1996) under the same terms and condition as the first one but with Franchisor’s License fee of 2% net sales.

Hotel industries (Hilton, Sheraton, Meridien, Protea): operate as a Tradename Franchise, under Management Services Agreement: -

fees based on % net sales and lump sum.

Franchise in the food sector came into the national picture after 2000:-

- Mr. Biggs [of United African Company (UAC)], Tantalizer,- Chicken Liken, etc.

There is enormous interests in Franchising among Nigerian entrepreneurs. Table 1 gives list of some Franchise outfits in Nigeria today.

Graph gives a panoramic picture of the Franchise industry in Nigeria over the last 50 years.

S/N Name of Company Source Number of Outlets

1.2.34.5.6.7.

Food SectorMr. Biggs (UAC Plc )TantalizersTasty ChickenChum ChumSweet SensationChicken LickenBig Bite

LocalLocalLocalLocalLocalForeignLocal

12030383?2

1.Courier Service SectorUPS Nig. Ltd. Foreign

(JV)

1.2.3.4.5.

Petroleum ProductsTexaco Nig. PlcAGIP Nig. Ltd.Total Nig. Ltd.Mobil OilConoil (formerly National Oil and Chemical)

ForeignForeignForeignForeignLocal

300 plus?510265?

1.2.3.4.

HotelsSheratonHiltonLe MeridienProtea

ForeignForeignForeignForeign

2123

LIST OF MAJOR FRANCHISE COMPANIES

1960 1970 1980 1990 20002010

Indicator of No. of employees/outlets

Products FranchisePetroleum (Fuel stations)Auto Sales shopsBeverages (soft drinks, etc)

Business format FranchiseCourier Services Hotels Health Foods

Growing No. of Fast Foods Indigenous SMEs (Mr. Biggs,Tantalizer, Chicken Licken Southern Fries, etc)

Legend

x x x x x x

x x x x x x x x x x x x x x x x x

NO

TA

P

NIF

A

Franchising in Nigeria – A panoramic review (1954 – 2004)

x x x x x

Year

2.2 EconomyCountry Statistics: Population: 130m Land area 923,166 km2

A Federation of 36 States with a Federal Capital Territory, and 774 Local Governments

Major cities: Lagos, Abuja, Kano, Kaduna, Port Harcourt,Ibadan, Onitsha

The largest single market in West Africa World’s 6th largest crude oil exporter Oil provides 30% of GDP, some 90% of foreign exchange Economic programmes of Government aim at an active market oriented, private sector-led, technology-driven, highly competitive national economy Economic liberalization; privatization of all public enterprises in final

stages Strong emphasis on the support, growth and development of SMEs

through promotion of technology transfer and inflow of foreign investment.

2.3 Market/Know-How Though with great market potential, Franchising in Nigeria is at very rudimentary (emerging) phase.

Distribution Franchise system is the oldest sector- Petroleum products distribution (Texaco, Mobil, Esso, Total, Agip, etc)- Soft drinks bottling/distribution (Coca Cola, Seven-Up, etc)- Nutritional/Health products (GNLD, Forever Living Products).

An upsurge in Food Franchising started around 2000; was especially heightened by the ‘International Seminar on Franchising’

organized by NiFA and NOTAP in March, 2004. At the latest count there are at least 10 indigenous Food Franchise operators: - Mr. Biggs, Tantalizers, Sweet Sensation, Tasty Chicken, Chicken George, etc. The largest (Mr. Biggs) has over 100 outlets and gone international: - has an outlet in Ghana with plans for expansion. Mr. Biggs – a proven success story. In 2004 Mr. Biggs (UAC) secured a Master Franchise agreement with Innscor International for Innscor Products – Chicken Inn, Creamy Inn, Plazza Inn, Nando’s , Dial-A-Delivery, Inn the Jungle (to cover 40 outlets)

Franchise in Nigeria is at its learning stage. Know-How is yet to be fully developed.

Need to ensure “Best Practices” by promoting adequate Preventive and Detective Controls to minimize risk.Strategic Partnering & Relationship on “Win-Win” objective.

Key issues:

- Training at and by Transferors

- Operations Manual

- Purchasing system

- Advertising

- Site location/Store construction

- Visits

- Regular meetings/Reports

2.4 SUPPORT STRUCTURES

(a) Regulatory/Legal Framework

Statutory function of the National Office for Technology

Acquisition and Promotion (NOTAP): To Facilitate and

Register all technology transfer agreements involving

use of Intellectual Property between a local company

and a foreign enterprise (e.g. a local Franchisee and a

foreign Franchisor).

No Franchise specific laws in Nigeria as yet.

At present, Franchisor/Franchisee relationships are

governed by the following laws: -

Contract, Patents, Trademarks/Service Marks,

Industrial Designs, Copyright, NOTAP.

Patents: Patents & Design Act 1970 (Cap 344, Laws

of the Federation of Nigeria 1990)

Trademarks: Trademark Act 1965 (Cap 436, Laws of the

Federation of Nigeria 1990)

Copyright: Copyright Act 1988 (Cap 68, Laws of the

Federation of Nigeria 1990)

NOTAP: Act No.70 of 1979 (Cap 268 Laws of the

Federation of Nigeria 1990)

Trademarks, Patents and Industrial Design legislations: administered by the Registrar Trademarks, Patents and Industrial Design, Federal Ministry of Commerce.

Copyright legislation: by the Nigerian Copyright Commission under the Federation Ministry of Culture.

NOTAP Act: governs conditions for registration of all contracts or agreements for the transfer of foreign technology to Nigerian parties involving:

- Intellectual Property (Patents, Trademarks, Know-How, etc)- Consultancy Services- Supply of Technical Services/Expertise- Management Support/Services- Supply of Machinery, Plants, Equipment- Supply of basic or detailed engineering

Thus all agreements between Franchisors and Franchisees are submitted to NOTAP for registration, in compliance with NOTAP Act.

Nigerian Intellectual Property laws are being revised with assistance of

World Intellectual Property Organization (WIPO) and the US Department

of Commerce Commercial Law Development Programme (CLDP) to be

TRIPs and WTO compliant and to bring all legislation under a single

institution: Intellectual Property Commission of Nigeria (IPCON).

Bill is soon to be passed into law by the nation’s National Assembly.

(b) Financing FranchisingForms of funds available for Franchising include: Owners Equity, (Savings, Angels, etc) Short/Medium term loans from banks, Equity funding

• Owners Equity: Small business lack access to funding, owners savings usually inadequate and must rely on institutional lending

• Short Term (repayable <1 year) or Medium Term (1-3 years) loans from Banks attract high interest rates.

• Equity financing: is through Small and Medium Industry Equity Investment Scheme (SMIEIS). Under SMIEIS: -

- All Banks in Nigeria are to set aside 10% of their PBT for equity investment in SMIs.

- SMI defined as establishment with total assets (excluding land) and working capital < N200m (US$1.5m) with 10-300 employees.

- To qualify enterprise must be limited liability company, comply with tax laws regulations, and with Companies & Allied Matters Act (1990)

- Investment shall exit after a minimum of 3 years.- Bankers Committee encourages Banks to ensure that all

funds set aside for the scheme are utilized within a given period.

(c) Business Associations & Information Infrastructure

The Nigerian International Franchise Association (NiFA) formed

(2002) and promoted by Nigerians who have been actively

involved in Franchise development [Special mention –

Demola Quadri, (Secretary)].

NiFA is run by 10-member Board of Directors, has 52 charter

members active in Franchise opportunities.

NiFA seeking to bring Franchising to West Africa through the

formation of the Franchise Association of West Africa. (FAWA).

NiFA provides a forum for prospective and Franchise practitioners to

collaborate, source information/assistance for the promotion and

development of Franchise industry.

Goals of NiFA1. To create awareness to the public, especially potential Nigerian

investors and entrepreneurs, in fundamentals of Franchising and its proven track record of increasing success and growth in business.

2. To create a conducive atmosphere in Nigeria that attracts foreign Franchise companies.

3. To network with international Franchise bodies to share ideas and information.

4. To cooperate with government regulatory bodies to encourage policies and standards that will enhance Franchise best practices in Nigeria. Guarantee of protection to Franchisors and Franchisees. Advocate ethical conduct in all Franchise transactions.

5. To act as a clearinghouse for international Franchise companies interested in expansion into Nigerian markets by providing current information, cultural orientation, and briefings on local business practices, referrals to legal and financial professionals, and other consultative services.

6. To develop and promote indigenous Franchise concepts and brands within Nigeria.

7. To create a database of all Franchise businesses in Nigeria.

NiFA Projects

NiFA organized the 1st International Seminar on Franchising at

Abuja, Nigeria (March 31, 2004) in collaboration with the National

Office for Technology Acquisition and Promotion (NOTAP). The

Seminar attracted international Franchise executives from USA and

Canada. Was well attended by Nigerian Franchise stakeholders -

the financial sector, the legal communities, large number of small

business owners and relevant government agencies.

The objective of the seminar was to create Franchising

awareness and to highlight its importance as a tool for the

development of SME in Nigeria.

The turn out (attendance) was very high: – rising interest in

Franchising.

NiFA participated as exhibitor and also coordinated delegates of

Franchising stakeholders to attend the 2003 and 2004 editions of

the International Franchise Expo in Washington D.C. USA.

NiFA has constituted a National Committee on the Future of

Franchising in Nigeria to identify regulatory barriers and

advocate support for Franchise development from both

government and non-governmental organizations.

West African Franchise Expo and Workshop is being scheduled by

NiFA for Abuja in 2005. International Franchise companies and

delegates from all West African countries are expected to

participate at the event.

Strategic Partners of NiFA

The National Office for Technology Acquisition and Promotion (NOTAP).

National Association of Small and Medium and scale Enterprises (NASME).

NiFA Vision

To quote NiFA Bulletin:

“We see a bright future for franchise growth in Nigeria with clear goals,

experience, entrepreneurship, leadership, active members, highly visible

projects and strategic partners”.

3. STRATEGIC CATEGORIES FOR FRANCHISING IN NIGERIA

Most popular and fastest growing sector for Business Format

Franchising remains the Fast Foods.

The following area likely to prove strategic in future:

Construction Materials/Real Estate

Automotive Products/Services

Educational Services (e.g Pre-school, Information Technology)

Health/Beauty/Nutrition/Fitness

Purified Water

Internet Services

Cleaning/Janitorial Services

Social and Spiritual Clubs

Catering/Entertainment outfits

4. RECOMMENDATIONS FOR FRANCHISE DEVELOPMENT IN NIGERIA

Massive funds mobilization through AfDB, Nigerian Government and

Banks for the development of Franchising in Nigeria.

(Government, AfDB)

Banks need to establish Franchising (unit/dept) for Franchise specific

financing program – promotion of indigenous Franchisors. (Banks)

Creation of awareness on Franchising among entrepreneurs,

prospective investors, general public: through seminars,

workshops, franchise trade fairs, exhibitions and other

Franchise-related international events. (NiFA, NOTAP, AfDB).

Active linkage between NiFA and other International Franchise

organizations in order to benefit from their experience. (NiFA).

RECOMMENDATIONS – Contd

Stronger IP protection for Patents, Trademarks, Service

marks, Know-How, etc in order to attract potential

international Franchisors. (Government).

Nigeria Franchisors and Franchisees should imbibe the

concept of Best Practices, which is the bedrock upon which

Franchising system is founded. “Strategic Partners”, “Win-Win”

objectives, etc (All Parties)

Enthrone Preventive and Detective Controls to minimize risk in

Franchising business (noting that Franchisor: low investment

in collateral assets, moderate/high investment in IP, highest

investment in employees. Franchisee: high investment in

collateral assets, low investment in IP, high investment in

product/direct labour). (All Parties).

As largest West African market, Nigeria would become gateway

for Franchising in West Africa and a platform for Franchise

development in Africa possibly 2nd only to South Africa.

Therefore need improved and better infrastructure and

capacities in Nigeria in order to benefit from AfDB’s Franchise

Development Initiative. (Government, AfDB).

Urgent need for the World Franchise Council to grant

membership and support to NiFA so as to promote Franchising in

Nigeria. (WFC).

THANK YOU