Franchising touted as untapped engine for SA’s economic recovery

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JEREMY MAGGS: Franchising, as I understand it, contributes around 15% of South Africa’s GDP and employs hundreds of thousands of people. Yet many economists still treat it as a side story.

Now the new chief executive officer of the Franchise Association of South Africa, Freddy Makgato, says franchising could be the fastest route to economic recovery, job creation and youth employment if the sector, he says, is scaled properly.

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The organisation is gearing up for its 2026 conference with a bold agenda, bigger national impact, deeper skills transfer and real financing solutions. The question, I guess, is if franchising works, why are we not doing more of it? Freddy Makgato, a very warm welcome to the programme.

If franchising is such a powerful engine, then why do you think it is underutilised and for so long? Who or what is blocking the scale?

FREDDY MAKGATO: I think when you look at the current operating environment in South Africa, we are struggling badly with job creation for the youth, one; two, we are struggling to grow the economy because I think our economy is foreign-focused, if I could put it that way.

But we seem to be concentrating on the historically excellent sectors, but with changing times we see those sectors actually dwindling.

We see some investors exiting the country, investing somewhere else. We see skills flying out of the country, and we don’t look around as to what is it that can work for us. We still pursue the traditional route.

But when you look at the countries that you seem to be looking for solutions from, they have built their economies around franchising.

So the question then becomes: why aren’t we using franchising to build our own economy? Because if you look at other developed markets, the economies are almost 40% to 50% reliant on franchising.

JEREMY MAGGS: All right. Let’s push your argument a little further then. What, in your opinion, is the greatest unrealised franchise potential, and why do you think that hasn’t happened already?

FREDDY MAKGATO: I think the biggest issue is the focus on social upliftment through easy mechanisms. If you look at the focus now, it is to push education to the pass rate of 30% so that you can have an avalanche of children who are “educated”, but we leave the skills issue behind.

I think as much as we can do, as much as we are franchising, but if we don’t have those that can actually invest in franchising or run franchise businesses, then we’ve got a problem.

So the whole idea is that as the Franchise Association of South Africa, let’s bring this to the fore. So that everybody [realises]; guys, there’s this model. It’s working. It has [been] proven over the years. It has managed to build other countries’ economies. Why can’t we do the same?

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So that is why we pushed to have engagement with the Department of Small Business, who are the custodians of SMMEs [small and medium-sized enterprises], to say, look, there are opportunities that we can bring that could open up opportunities for young people and women entrepreneurs and everybody and anybody who can invest in franchising and run a very sustainable business.

JEREMY MAGGS: Freddy, which sectors within the franchising universe offer the most potential in that respect?

FREDDY MAKGATO: I think traditionally we know food. But we do now see health, beauty and wellness. We see education, and education is one of the biggest growing sectors because now I think that with technology, we are moving away from bricks and mortar, where you go to schools every day, where you can do online material and so forth.

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I think with AI now coming at a [storming] pace, we will see changes even in other sectors as well, where consumers can access products…

JEREMY MAGGS: You make a very compelling argument, but how do you ensure that franchising doesn’t simply make the rich richer, but genuinely includes new entrants and those particularly without a large amount of capital?

FREDDY MAKGATO: That is why we have what we call the Franchise Manager Occupational Training Module, which is accredited with SAQA [South African Qualifications Authority] —SAQA is now with QCTO [Quality Council for Trades and Occupations] — to say anyone that wants to get into franchising and they’ve got the appetite, you can do that module. That module will open more opportunities for those who are not in business for now.

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Then what we also have is we have an MoU [Memorandum of Understanding] with [5:08 … ] Seta [Sector Education and Training Authorities], to say we need to upskill middle-income earners to a level where they can also manage businesses. So skills development is one of the major issues. We cannot run a business without skills development.

But what we are also saying is that you must not only look at owning a franchise business; there are opportunities in the franchise, like being part of the supply chain, being the manufacturers, doing all those things. So if we aim well, I think that we can make it.

JEREMY MAGGS: But the problem still is entry into the sector. High club fees, royalties, equipment costs. Your challenge surely is always going to be to make franchising affordable for township and even rural entrepreneurs.

FREDDY MAKGATO: There are two streams. We have what we call the social franchising, which is one of the areas that is also growing. So social franchising, you look at those social issues that affect… that you have somebody who’s got the skills, who’s got the energy, who can run a business from that point. So that is the low end.

We also have what you call the micro franchising. Micro franchising are not those big brands or big businesses that you see. There are big brands that also are scaling down to create models that can be affordable to those who do not have millions.

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If you look around, you can see some stores that go down to only provide for takeaways.

In terms of the new models, you no longer have those bulk sit-in [restaurants], but also see sit-ins have a small takeaway. Now we can see some stores diversifying. Like yesterday, I went to a bookshop, then you had a small restaurant there. So we see those kinds of things.

They will be affordable businesses out there that are coming up. I think we are at an era where we need to innovate.

We cannot cry about foreign aid when we have the necessary tools that we can use to develop our economy. If we can move our contribution from 15% to 25%, I can assure you that that will be a big achievement.

JEREMY MAGGS: All right, Freddy Makgato, thank you very much indeed, chief executive officer, the Franchise Association of South Africa. I do appreciate your time.

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