Franchising in South Africa

Economy

South Africa has the world's 32nd largest economy based on GDP figures and is one of Africa's most stable economies.

Legislation

The Consumer Protection Act No. 68 of 2008 (CPA) which was updated and came into force in April 2009 regulates franchising law in South Africa. The Franchise Association of South Africa (FASA) currently provides guidance and regulations for members. Membership is voluntary for international franchisors.

Franchise Market

Franchising is one of the most successful business sectors in South Africa, contributing 12.5% to South Africa's GDP, and has created 67,000 jobs in recent years. The franchising sectors in South Africa are very diverse, with the fastest growing sectors in services and retail.

The current South African Government is very supportive of the franchising industry as it creates opportunities for the less skilled and non-high school educated unemployed, who remain the country’s largest group of unemployed.

Franchise Legislation

• South Africa is one of a select number of countries that treats franchisees as consumers. The CPA is largely therefore geared in favour of franchisees and imposes various obligations on the franchisor.
• Pre-contractual disclosure is mandatory for members of the FASA, however under the CPA it has been indicated that there will be mandatory disclosure and registration requirements (details which are yet to be disclosed) and these will be similar to that of the FASA.
• Approval is required by the South African Department of Trade and Industry where a South African concludes a licence and pays royalties to a foreigner. (Exchange Control Regulations) There are caps on the percentage of royalties that may be paid to an overseas franchisor. Theoretically it is possible to obtain permission to exceed the royalties cap, however in practice this is very challenging.
• The CPA has implemented various provisions such as, a ten (10) day cooling off period during which the franchisee can exercise the option to opt out of the franchise without incurring any cost or penalties. The prerequisite that the franchise agreement must be signed by the franchisee and the 'Right to Choose' (which restricts the franchisors ability to dictate suppliers and other conditions in the franchise agreement without evidence of its necessity) also applies to franchisors and their franchise agreements.

Conclusion

In light of the legislative changes introduced between 2008 and 2011 via the implementation of the CPA, seeking specialist legal advice to establish a presence in South Africa will be crucial to potential franchisors. The limitation on repatriation overseas is also further cause for innovative and experienced specialist legal advice.