Overview of Franchising In Nigeria
- A Report by U.S. Commercial Service, Lagos
U.S.Franchisors have a golden opportunity to play a leadership role in helping develop franchising in Nigeria. They have a rare opportunity to leverage on positive perception of US technologies, products and services to build alliances to support international master franchise and area development agreements. The Nigerian government has declared its willingness to support any initiative aimed at encouraging entrepreneurship and innovation, especially in line with the National Economic Empowerment Development Strategies (NEEDS). The African Development Bank (ADB) is supporting international efforts to develop franchising in Africa and Nigeria is one of the priority markets.
Like in other developing countries, reliable statistics and market intelligence are not easily available in Nigeria. According to industry opinion, oil/gas firms and Coca Cola International through Nigerian Bottling Company (NBC) began franchising in Nigeria in the 1960s. Oil and Gas firms such as Mobil, Total, Texaco, Elf Petroleum and Agip used product franchising for distribution and retail marketing of their products and services at local gas stations. This method of marketing remains popular in the down stream sector of oil/gas industry in Nigeria although ownership structures of these gas stations have seen a number of changes over time.
As the largest consumer market in Africa with a large population of resilient small and medium-sized enterprises, Nigeria offers U.S. franchisors a large pool of potential franchisees for International master franchise and area development agreements. It could offer a return on investment difficult to exceed anywhere else. The country has a viral, highly mobile, easily trainable and adaptive private sector, a key factor in determining market readiness for international master franchise and area development agreements. The most promising sectors include fast food and beverages, hospitality, educational services and training, management and business consulting, cleaning and environmental management, business support services, estate management, health and beauty clinics, etc. Given the country’s size and business culture, U.S. franchisors interested in this market should consider international master franchise agreements as the preferred strategy to build trust, insure compliance with franchise terms and reduce administrative conflicts.
Over the past two years, there has been a noticeable rise in the level of awareness about franchising in Nigeria. Market watchers attribute this development to a number of factors, particularly the emergence of several indigenous franchise concepts and systems spurred by influx of successful master franchise agreements from South Africa. Encouraged by the stunning success of MTN South Africa in the telecommunications market, many entrepreneurs from South Africa are moving to Nigeria through strategic alliances to explore trade and investment opportunities. Between 2003 and 2005, more than ten leading brand names from South Africa including Chicken Liken, Churches, Protea, M-Web, Saint Elmos, etc, have established a local presence and many more are coming. Industry and market analysts say that the estimated, current market size of fast food franchise alone is 200 million dollars and the market potential is well above 550 million dollars. Current annual market size for franchising in the country from all the industry sectors is put at 1.5 billion approximately. Nigeria has a large informal sector and an army of under served SMEs. There is no denying the fact that Nigeria is somewhat a difficult commercial environment, it promises an unmatched return on investment. But make no mistake about it, the country is fast evolving.
The biggest challenge facing U.S. Franchisors in Nigeria is enforcement of International master franchise or area development agreement. Nigeria does not have a well-developed franchise laws. The process for identifying, selecting and qualify a potential franchisee is not clearly articulated like in the United States. Franchising relies on commercial laws, which are largely developed from British case laws. These laws should offer sufficient protection to US franchisors but they require a competent attorney to sift through the various legal books and law reports and to articulated them into a coherent franchise agreement. The US Commercial Service in Nigeria can assist US firms identify a competent and reputable attorney.
The US Commercial Service in Nigeria offers both standard and customized services to support U.S. firms interested in doing business in Nigeria. The Service include International Partner Search (ICP); Gold-key Service (GKS); International Company Profile Report (ICPR); Customized Market Research (CMR) and/or Product Promotion (PP); Country Briefing and Matchmaking especially through International Buyer Programs (IBPs). The foundation of all the services and programs offered by the US Commercial Service in Nigeria is called NUSA (Networking with United States of America). It is a system of client service and information management which allows us to proactively identify, verify, pre-qualify and register a Nigerian company as a potential user and/or reseller of US technologies, products and/or services. NUSA focuses on a firm’s credibility, business status and capacity to include profiles of its principal promoters/directors.
Market Profile
Nigeria is a growth market for international master franchise and area development agreements including franchise development services. Much of what the local business community and the general public know and understand as franchising today come from indigenous concepts and systems inspired largely by leading brands from South Africa. Over the past five years, business format franchising has witnessed a rapid development in Nigeria following sales promotions and aggressive outreach programs by various indigenous franchisors led by a local fast-food brand known as “Mr. Biggs”. Mr. Biggs is owned by UAC Nigeria Limited, one of the oldest trading companies in Nigeria. This company is currently expanding and promoting its franchise concept and system across West Africa starting from Ghana where it has established a presence. U.S. firms wishing to play in this market must prepare for aggressive competition from franchise concepts and systems from South Africa. They must be flexible enough for local adaptation.
The Nigerian Bottling Company (NBC) holds Coca Cola International’s product franchise agreement for Nigeria. This business arrangement permits NBC to produce coca cola soft drinks using concentrates in accordance with Coca Cola’s global standards. NBC by virtue of its local distribution and retail network across the country remains the largest product franchisee in Nigeria. According to the National Office for Technology Acquisition and Promotion, the first franchise (technology transfer) agreement registered in Nigeria in accordance with the act establishing it, was in 1987 between Schweppes International Limited of Republic of Ireland and NBC. The agreement was for a three-year license for Schweppes to provide NBC knowledge, skills, experience and the right to sell Schweppes soft drinks in Nigeria.
DuraClean International USA is generally believed to have introduced the first known business format franchising in Nigerian in 1980. This franchise agreement, however, was not listed at that time in any official register including the National Office of Technology Acquisition and Promotion (NOTAP), which has the sole responsibility to register franchise agreements and also, supervise franchising in Nigeria. According to NOTAP, the first duly registered franchise agreement in Nigeria was the NBC and Schwepps International franchise agreement recorded in 1987.
Currently, Nigeria has less than 100 officially registered and listed franchise firms with about 2000 outlets across the country. Most of these franchise firms operate mainly in the food and beverage industry sub-sectors, the down stream sector of oil and gas (product marketing and distribution), the hospitality industry particularly hotel management, cleaning and environmental services, courier Services, and information and communications technology industry (training, development and consulting services).
In 1996, the US Commercial Service in Nigeria began Nigeria’s first deliberate efforts to promote publicly franchising as a method of doing business. In 1997, it promoted and led the first Nigerian official delegation to International Franchise Expo held in Chicago. In March 2003, the US Commercial Service in Nigeria organized the first ever international seminar on franchising in Nigeria with the theme, “Franchising - America’s Way to Success”. The seminar was targeted at small and medium-sized enterprises and financial service firms particularly banks. Over a thousand business people and corporate executives including the Managing Directors of First Bank of Nigeria Plc, Oceanic Bank Plc, NAL Bank Plc and Union Bank Plc attended the seminar at the MSUON Center in Lagos.
The US Commercial Service is working with Nigerian International Franchise Association (NiFA) and the franchise regulatory agency – National Office of Technology Acquisition and Promotion (NOTAB) to popularize franchising in Nigeria. This collaborative initiative has resulted in successful hosting of seminars and outreaches in major commercial centers in Nigeria. The single most critical challenge to franchising and franchise development in Nigeria is massive ignorance about what franchising means and who it is for. Other barriers may include lack of a unified franchise law and/or a standard protocol such as the Uniform Franchise Offering Circular (OFOC) operative in the United States. Other critical factors include a cultural tendency, which somewhat favors the freedom offered by independent business ownership rather than the restrictions which franchise systems impose on franchisee. Weak and sometime unavailability of appropriate business infrastructure and institutional support and the very absence of a national strategy for franchise development are other negative, market influences in this commercial environment.
Availability of Finance for payment of franchise agreements and other associated upfront charges use to be a big market-access barrier until Nigeria introduced the Small-Medium Industry Equity Investment Scheme (SMIEIS) in June 2001. Investment capital for franchising and other business ventures in Nigeria is available for SMEs under the Equity Investment Scheme. The scheme makes it mandatory for every Nigerian bank to set aside 10 percent of its profit before tax to fund through equity participation, investment proposals from SMEs.
Opportunities in Nigeria for American Franchisors exist in several industry sectors. Currently, franchising in Nigeria is dominated by business format franchising in the food and beverage. The leading brands are local (Mr. Biggs, Tantalizers, Sweet Sensation, Tasty Chicken, etc followed international brands from South Africa. In 2004, the United Niger Company (UAC) who are the owners of “Mr. Biggs”, signed a franchise agreement with Innscor International for a number of products including Plazza Inn, Chicken Inn, Inn the Jungle, Creamy Inn, Nando’s and dial-A-Delivery. The best prospects for franchising and franchise development services in Nigeria include the following: Franchise development services targeting SMEs; hospitality services focusing on hotel management, Fast food, traveling & tours; educational services including professional training and development; Online services including internet support services, business advisory services, home-based transactions; Business consulting Services; Specialty Graphics, Digital imaging and printing Event management and promotion; and cleaning and environmental sanitation.
The following tips on Market Access are extremely important: The services of the US Commercial Services still is the best, most dependable and most cost-effective market entry strategy to Nigeria, franchising or otherwise. This Post offers both standard and customized services to support U.S. firms interested in doing business in Nigeria. They include International Partner Search (ICP); Gold-key Service (GKS); International Company Profile Report (ICPR); Customized Market Research (CMR) and/or Product Promotion (PP); Country Briefing and Matchmaking especially through International Buyer Programs (IBPs).
The foundation of all the services and programs offered by the US Commercial Service in Nigeria is called NUSA (Networking with United States of America). It is a system of client service and information management which allows us to proactively identify, verify, pre-qualify and register a Nigerian company as a potential user and/or reseller of US technologies, products and/or services. NUSA focuses on a firm’s credibility, business status and capacity to include profiles of its principal promoters/directors.
Market Trends
Indigenous franchise concepts and systems specially in the fast food sector lead international master franchise and area development agreements in Nigeria. Their activities define current market trends and influence much of public policy and private sector debate on market development.
Franchise concepts and systems out of South Africa are making inroads into Nigeria. The companies rely on cultural and traditional affinities and international experiences garnered while doing businesses in several other African countries. They smartly adapt their systems to suite Nigerian needs and the realities of the commercial environment. A number of US franchisors who in the past showed interest in Nigeria, lost their enthusiasms following delays resulting form their protracted insistence on operating according to US market conditions. Every country and every market is different. As a result, the US Marine mantra, “adapt and conquer”, should apply in exploring franchise opportunities in Nigeria. Anything short of this approach may lead to outright failure. Truth is, US franchisors can adapt and conquer in Nigeria without hurting the reputation of their systems and without losing their core values.
Business format franchising is fueled by the obvious need to help Nigeria resolve one of its most excruciating enterprise development challenges – which is “how to” operate a business. Local experts say most entrepreneurs in Nigeria know what businesses to engage in to make money but the biggest headache and one of the common causes of business failures is lack of a reliable system of engagement.
Import Market
Nigeria imports much of the technologies, equipment and services it needs for franchising and franchise development services. In fact, market experts say some of the reasons major franchisors and international brands in the mold of McDonalds have not entered Nigeria are associated with problems of sourcing essential production inputs such as meat, potatoes, etc
Nigeria depends on imports to meet much of its franchise needs and franchising is at the very stages of development in the country. International Master franchise agreement has a great promise in Nigeria and offers leading US franchisors a growth market. Currently, South Africa followed by Europe accounts for much of the international master franchise and area development agreements operating in Nigeria today. The structures and terms very widely but most of the systems derive their impetus from adaptation to the dynamics of the local market conditions.
Competition
Competition revolves around adaptation to local needs and business practices. Considering that franchising is at its earliest development stages in Nigeria, competitive factors include the ability to do the necessary hand-holding and to coach potential local franchisees to get the fundamentals rights.
Indigenous franchise concepts and systems account for much of business format franchising in Nigeria followed by international brands from South Africa. American and European franchises dominate the country’s product franchise market at the moment. A common problem noticed during this market research is that several Nigerian firms who hold different product licenses have difficulties classifying their licenses. Many could not say categorically whether their licenses are product franchise agreement or just distribution license.
U.S. firms interested in exploring this market should use services of the US Commercial Service in Nigeria to identify and qualify potential master franchisees or area developers. They should seek the assistance of competent franchise attorneys preferably those recommended by the US Commercial Service in Nigeria. Some key competitive factors include a clear and unambiguous plan to establish a local presence by committing to a long-term, market development goals, readiness to deal with the ever-changing dynamics of the local market conditions and a deep interest in the local business culture. Other variables factors include responsiveness to on-going customer needs, the overall pricing structure, availability of training and technical support, product quality and originality, advertising and promotional opportunities available to local partners and end-users, and willingness to participation in local trade events. As always, the lower the upfront fees, and the loyalties, the easier the market-access because of the wide disparity between the value of the Naira and the dollar (USD1=135 Naira)
End-Users
The end-users of US franchise concepts and systems are potential local franchisees who desire an effective and cost efficient method of doing business. Potential beneficiaries include trainable, aspiring entrepreneurs, investors, and managers of SMEs who need simple to understand and replicable systems to grow their market shares. For US franchisors who may wish to establish a local presence via owner-operated franchises, the end-users will of course be the general public or a particular segment of the market that desires their particular brands.
Market Access
Technologies and equipment meant for franchise and license agreement and technology transfer in Nigeria must be registered with the National Office of Technology Acquisition and Promotion (NOTAP).
Identifying, selecting and qualifying a potential franchisee can sometimes be a daunting task in Nigeria in spite of the country’s large population of over 130 million people growing at an annual average of 2.8 – 3 percent. The reason is that Nigeria is over burdened by an unusually large, highly mobile informal sector which contributes a well over 75 percent of its GDP. Dealing with this complex informality can drain energies and disciplining a potential franchisee who has stayed in the informal sector for a reasonable period of time can be quite challenging. Habit die-hard. So, getting an informal player to comply and work with systems and regimentation requires patience, commitment, understanding and empathy.
There are no policies, regulations or laws targeting US exports to Nigeria. According to "Guidelines for Imports into Nigeria," effective April 1, 1996 all imports into Nigeria must possess a Clean Report of Finding (CRF) and an Import Duty Report (IDR) to be cleared through customs. Prior to this new policy guideline, imports valued less than USD 1,000 and imports classified as personal effects were exempt from pre-shipment inspections. The guidelines states that all imports regardless of value, whether containerized or not, including accompanied personal effects, shall be subject to pre-shipment inspection. However, personal effects will be imported under zero duty as certified by pre-shipment inspection agents. Consequently, from April 1, 1996, any good imported without an IDR will be confiscated and the importer prosecuted while the shipping line will be liable to a fine not exceeding the value of the import.
Note: The provision regarding pre‑inspection for personal and accompanied items, seen as ineffectual, has since been rescinded. For more information refer to www.buyusa.gov/nigeria
To reduce delays in the import clearing process, a Central Clearing System (CCS) has been introduced as a one-stop shop to replace the "long‑room” method, which most importers associate with corrupt practices. Imports from the U.S. are inspected by:
Intertek Services International
3741 Red Bluff Road Houston, Texas 77503
Attn: Ms. Susan Finch
Market Entry
The Nigerian market offers significant opportunities for U.S. franchisors but a clear road map and a well thought-out business strategy are required. CS Nigeria is on the ground in Nigeria to assist U.S. firms in maximizing their export potentials in this dynamic and diverse country. The first step is for you to contact the USEAC nearest you. With their help, you can begin to familiarize yourself with the U.S. Commercial Service’s export promotion program and to access important market reports. Contact information for the USEACs and other key information on exporting are available at http://www.export.gov/nigeria
For your convenience visit our web site: www.buyusa.gov/nigeria Specific requests for these products/services or any other requests for export assistance should be addressed to USCS Nigeria/Head Office at any of the addresses below:
U.S. Mailing address: Electronic address:
The U.S. Commercial Service office@mail.doc.gov
Department of State
8300 Lagos Place
Washington, D.C. 20521-8300
Street Address in Nigeria:
2 Walter Carrington Crescent
Victoria Island
P.O. Box 554
Lagos, Nigeria
Phone / Fax numbers:
Tel: 011-234-1-2610241, 2610050, 2610078
Fax: 011-234-1-2619856
Market Promotion
Participation in local trade events including seminars such as FranchiseNigeria and forums organized by Nigeria International Franchise Association is imperative. Business magazines and newspapers distributed or published in Nigeria that may be of use to U.S. franchisors include: Franchising (Nigeria/West Africa), African Technical Review of Business and Technology, BusinessDay, The Guardian Newspaper, Financial Standards, and Thisday Newspapers.
Key Contacts
Managing Director
Hotel Support Services Limited
93 Allen Avenue
Ikeja, Lagos
Tel: 234-1-4970003, 234-1-7742309
Managing Director
Mr. Biggs
63 Kudirat Abiola Way
Olusosun Orgen
Lagos – Nigeria
Managing Director
Tantalizers
Markay Plaza
21 Road, I close
Festac Town
Lagos - Nigeria
Managing Director
NIIT/DMI International
Oba Akran Road
Lagos – Nigeria
Managing Director
Quik Internet
Entrance 7, Suite 20c, 2nd Floor
Tafawa Balewa Square, Race Course
Lagos - Nigeria
|