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

Organized by

JOINT AFRICA INSTITUTE (JAI)

INSTITUT MULTILATERAL DAFRIQUE (IMA)
Tunis, Tunisia, November 29 December 3, 2004

NIGERIAs FRANCHISING PERSPECTIVES

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

Key Points 1. 2. Introduction Franchising in Nigeria today Situation Report 2.1 2.2 2.3 2.2 Introduction Economy Market/Know-How Support Structures - Regulatory/Legal Framework - Financing - Business Associations & Information Infrastructure 3. 4. Strategic Sectors for Franchising in Nigeria 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 of the cultural milieu. BUT the situation is very changing. Due to nature of Nigerias business environment Franchise part rapidly

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 Initiative International

strategic platform for AfDBs Franchise Development in sub-Saharan Africa, as entry point by Franchisors, and for the expansion of throughout West Africa.

Franchise system

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 and energize the national economy. success rate

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. * Franchisors 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 Franchisors 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.

LIST OF MAJOR FRANCHISE COMPANIES

S/N Name of Company Food Sector Mr. Biggs (UAC Plc ) Tantalizers Tasty Chicken Chum Chum Sweet Sensation Chicken Licken Big Bite Courier Service Sector UPS Nig. Ltd. Petroleum Products Texaco Nig. Plc AGIP Nig. Ltd. Total Nig. Ltd. Mobil Oil Conoil (formerly National Oil and Chemical) Hotels Sheraton Hilton Le Meridien Protea Source Number of Outlets 120 30 3 8 3 ? 2

1. 2. 3 4. 5. 6. 7. 1.

Local Local Local Local Local Foreign Local Foreign (JV) Foreign Foreign Foreign Foreign Local Foreign Foreign Foreign Foreign

1. 2. 3. 4. 5. 1. 2. 3. 4.

300 plus ? 510 265 ? 2 1 2 3

Franchising in Nigeria A panoramic review (1954 2004)

Indicator of No. of employees/outlets x x x x x x x x x x

Legend xxx xx x
Products Franchise Petroleum (Fuel stations) Auto Sales shops Beverages (soft drinks, etc)

NOTAP

Business format Franchise Courier Services Hotels Health Foods

NIFA

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

1960 1970 1980 1990 2000 2010

Year

2.2 Economy Country 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 Worlds 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, Nandos , 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 and Promotion (NOTAP): To Facilitate and Acquisition

Register all technology transfer agreements involving use of Intellectual Property between a local company and a foreign enterprise foreign Franchisor). No Franchise specific laws in Nigeria as yet. At present, Franchisor/Franchisee relationships are Contract, Patents, Trademarks/Service Marks, Industrial Designs, Copyright, NOTAP. (e.g. a local Franchisee and a

governed by the following laws: -

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 nations National Assembly.

(b) Financing Franchising Forms 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 involved in (2002) and promoted by Nigerians who have been actively Franchise development [Special mention Demola Quadri, (Secretary)]. NiFA is run by 10-member Board of Directors, has 52 charter NiFA seeking to bring Franchising to West Africa through the NiFA provides a forum for prospective and Franchise practitioners to collaborate, source information/assistance for the promotion and development of Franchise industry. members active in Franchise opportunities. formation of the Franchise Association of West Africa. (FAWA).

Goals of NiFA 1. 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. Franchise Therefore need improved and better infrastructure and

capacities in Nigeria in order to benefit from AfDBs 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