Franchising is flourishing, reports Sherine Nasr Fuji Film, Kodak, Radio Shack, Pizza Hut, KFC, McDonalds, JB and Reebok are among the 200 brand names that for over a decade have been operating successfully in Egypt. Franchising in Egypt is one of the great success stories of recent years. The 211 franchises which already exist have contributed an estimated LE22 billion to economic growth in the form of direct investment over the past few years. The sector employs 36,000 people and generates LE6 billion in sales annually. In addition, a range of feeding industries has developed to service the sector. Since 2000 franchising in Egypt has been supported by a growing number of organisations and initiatives. In 2003 the Egyptian Franchise Development Association (EFDA) was established. Two years later EFDA was accepted as a full member of the World Franchise Council (WFC). "We are the second country in Africa -- following South Africa -- and the first in the Middle East to qualify," said Hatem Zaki, board member of EFDA and director of the franchise development department affiliated to the Social Fund for Development. Speaking during the National Conference on Franchising Development held in Cairo last week Zaki revealed that EFDA has targeted $20 million worth of contracts over the next four years. Participants at the conference included representatives from African countries, senior officials, franchisers and franchisees as well as bankers. The African Development Bank (AFDB), one of the participants, placed special emphasis on developing the small- and medium-sized enterprises (SMEs) through franchising. "The bank has identified franchising as one of the most successful tools for developing SMEs in Egypt," said Luciano Borin, director of the Private Sector Department at AFDB. AFDB estimates that there are more than 17,500 franchise systems operating globally, supporting over 1.2 million franchisees and 12.5 million employees. Although franchising is still in its infancy in Africa it is rapidly becoming a vehicle for SMEs to launch high quality services and products with brand recognition in home markets. "Franchising makes a huge contribution to GDP and to the development of the private sector," said Borin, who added that from a banking perspective franchising constitutes a sector with limited risk. "As a bank we have an interest in promoting franchising across the region in collaboration with local banks," said Borin. By providing new entrepreneurs with a proven business model and support from the franchiser, franchises have a greater success rate than the majority of SMEs. Typically, the franchisee provides between 20 to 35 per cent of the total investment required. Capital costs range LE200,000 to LE2.5 million depending on the type of franchise. According to Zaki the remaining capital comes from banks in the form of loans guaranteed by the Social Fund for Development, which allow franchisees a number of benefits including a five-year tax exemption and a one-year grace period in addition to a simple interest rate. Providing the necessary financial tools and services for franchising projects to flourish in Egypt was not an easy task: "Initially banks could easily guarantee properties but not brands," says Zaki, who adds that, with growing familiarity with the sector this is no longer the case. Commercial International Bank (CIB) was among the first banks to provide financial services to local franchisees. Other banks soon followed suit, including the National Bank of Egypt, Banque Misr, the Saudi Egyptian Finance Bank and now the National Société Générale Bank, and it is now common for banks to have special department with trained staff servicing the sector. Meanwhile, AFDB has formulated specific initiatives to further assist SMEs by providing guarantees and remittances. "Both enhance access to finance. Other initiatives include providing technical and financial support. Ultimately the focus of the AFDB is to partner with local institutions to provide business development services and ease access to finance to create sustainable mechanisms that last beyond the bank's assistance," said Borin. Such initiatives on the part of the AFDB in promoting the franchising sector have a positive impact on further developing the sector in Egypt. "The AFBD encourages local banks by providing equity guarantees and deferred loans on behalf of the franchisee," said Zaki, who adds that the bank can also help build the capacity of local-based franchise associations and provide much needed technical assistance. Within the sector low cost franchises are expected to grow rapidly. "We found that the equity participation is beyond the capacity of the majority of small entrepreneurs and so it became important to tailor low cost franchise systems to suit a wider range of franchisees," said Zaki. The first low cost franchise model -- a standard kiosk for selling French fries -- recently opened in the governorate of Qalioubiya. "The client paid only LE2,000 out of the total cost of LE20,000. The experience proved to be a big success. Other models providing different services will soon be rolled out in other governorates," revealed Zaki. It is worth noting that Egypt will host the semi-annual meeting of the WFC in June 2007. "The meeting is a major event in the world of franchising and 57 member countries will participate. The event will promote Egypt further as a potential market for franchising industry."
