With the shock decline in gross domestic product of 3.2% in the first quarter from a 1.4% expansion in the prior three months, can government live up to its post-election hype and deliver on its promises? This contraction, the highest in a decade, puts South Africa at risk of slipping into a second recession in successive years and has all sectors, including the franchise sector concerned for its future.
The sudden electricity outages at the start of the year contributed to this sharp decline, the deepest in a decade, knocking business and investor confidence to a new low. Many of The Franchise Association of South Africa’s members (FASA), gathered at the association’s AGM in February expressed their concern back then that the long-term effects of those outages at the start of the year would have a ripple effect that would impact their businesses through the year.
Whilst the agricultural industry contracted the most, declining 13%, mining fell 11% while manufacturing decreased 8.8%, the franchising sector in a survey conducted in 2018 showed a growth of 15,7%. But, according to Vera Valasis, Executive Director of FASA, “whilst the franchise industry still delivers growth despite the negative economic environment – testament to the long history of the development of powerful brands that are household names – many of the association’s members feel they are fighting a losing battle as salary and wage costs escalate together with huge increases in electricity and rentals, a weak Rand-Dollar exchange rate and increases in almost every other input cost for doing business in South Africa today. Interest from prospective franchisees to acquire franchises has dwindled seemingly as the ‘wait-and-see’ attitude from investors has become entrenched in recent months.”
If the franchise sector, and especially small business, warns Vera Valasis, does not get the relief it was promised by President Cyril Ramaphosa in the form of reduction of costs and the removal of barriers to entry for small businesses, the franchise sector may well be another casualty as entrepreneurs look elsewhere. Return on investment in the industry is similar to investing one’s funds in a traditional interest bearing product so would-be business owners question why they should take on such a huge risk in a declining economic environment.
Consumers also need to see the roll out of debt relief measures as promised by government to restore confidence and help with economic investment and growth.
Would the newly appointed Khumbudzo Ntshavheni as Minister – Small Business Development be able to deliver the goodies? Her predecessor, Lindiwe Zulu received much criticism during her 5 year term for her department’s poor performance in assisting small business and, according to various reports in the media, controversy has also dogged Ntshavheni in her roles at the State Information Agency (SITA) and at the Department of Telecommunications and Postal Services.
According to Ntshavheni’s LinkedIn profile she is the former chief operating officer for the State Information Technology Agency (SITA) and her role at SITA involved managing and offering strategic direction to the business operations. She holds an MBA degree from Bradford University UK (2008) a BA Hons Development Studies (1999) and BA Hons Labour Relations (1999) both from the University of Johannesburg.
The Franchise Association hopes that Khumbudzo Ntshavheni will give new vigour to this important ministry and recognise that the franchise sector plays a significant role in nurturing franchise entrepreneurs who in turn start small businesses and create much-needed jobs, especially as she herself has run several small businesses over the years. “We invite the Minister to engage with the Franchise Association to work together to explore ways to open new doors to business expansion through the tried-and-tested franchise format.”