Franchising in Nigeria: A Strategic Avenue for Business Expansion
This article explores the definition of franchising, its different formats, the legal framework applicable in Nigeria, and the essential elements of a franchise agreement. It also outlines the process for establishing a franchise in Nigeria.
Franchising has emerged as a powerful model for business expansion, embraced by both multinational corporations and local enterprises. Companies like Domino's Pizza, Shoprite, and Spar—originally based in the United States and South Africa—have successfully tapped into the Nigerian market using the franchise model.
Understanding Franchising
According to the International Franchise Association (IFA), a franchise is a contractual relationship between two legally independent entities. Under this arrangement, the franchisor grants the franchisee the right to market a product or service using the franchisor's trademark, trade name, and often an entire business model. This provides the franchisee with access to a proven brand that typically enjoys wide market recognition.
Notable franchise players in Nigeria's quick-service restaurant (QSR) sector include Mr. Bigg's, Domino's Pizza, Chicken Republic, Kentucky Fried Chicken (KFC), Debonairs Pizza, Tastee Fried Chicken (TFC), and Tantalizers.
Types of Franchises in Nigeria
1. Job Franchises
Small-scale, sole proprietorship models with low capital requirements—often involving mobile setups like bicycles or small kiosks. Example: Fan Yogo bicycle vendors or one-man sports betting outlets.
2. Product/Distribution Franchises
The franchisee sells goods using the franchisor's trademark without adopting its broader business system. Examples include tire wholesalers and computer retailers.
3. Business Format Franchises
These involve adopting both the franchisor's trademark and full business model, including marketing systems and operational procedures. Common examples include fast-food chains and gym franchises.
4. Investment Franchises
High-capital franchises that typically require franchisor involvement in operations to ensure returns. Examples: Five-star hotels and shopping malls.
5. Conversion Franchises
Independent businesses that convert into franchises by adopting the franchisor's branding and operational standards. These often involve strategic partnerships. Example: Professional services firms such as Deloitte (formerly Deloitte Akintola Williams).
Legal Framework for Franchising in Nigeria
Nigeria currently lacks a dedicated franchise law. However, the Franchising (Establishment) Bill, 2022—awaiting passage—seeks to align franchise agreements in Nigeria with international standards.
In the meantime, franchising is regulated under various provisions scattered across different laws. A key player is the National Office for Technology Acquisition and Promotion (NOTAP), established by the NOTAP Act (Cap. N62 LFN 2004), which oversees agreements involving technology and intellectual property transfers.
Franchise Agreements: Legal Requirements
Under Section 4 of the NOTAP Act, franchise agreements must be registered if they involve:
- Use of trademarks
- Patented inventions
- Technical assistance or expertise
- Engineering designs
- Machinery and equipment
- Managerial or operational staff and training
Key Provisions in a Franchise Agreement typically include:
- Rights Granted: Use of trademarks, patents, or other intellectual property
- Fees: Initial and ongoing payments to the franchisor
- Term: Usually between 5–10 years, with renewal options
- Franchisee Obligations: Compliance with operational standards
- Restrictions: Both during and after the agreement's term
- IP Protection: Guidelines for the use and protection of brand assets
- Insurance: Covering liabilities as required
- Termination: Though rarely flexible for the franchisee, legal avenues may exist
- Exit Strategy: Possibility to sell the franchise to the franchisor or a third party
NOTAP typically approves franchise agreements for an initial period of three years, renewable in similar increments. It also reserves the right to reject agreements that:
- Mandate exclusive sourcing from the franchisor
- Require dispute resolution outside Nigerian jurisdiction
How to Launch a Franchise in Nigeria
1. Register the Business:
Any entity wishing to operate in Nigeria must be registered with the Corporate Affairs Commission (CAC) under the Companies and Allied Matters Act, 2020.
2. For Foreign Investors:
Foreign-owned businesses must register with the Nigerian Investment Promotion Commission (NIPC) and obtain a business permit under the Immigration Act, 2015. If foreign nationals will be employed, an Expatriate Quota must also be obtained.
3. Register the Franchise Agreement:
Franchise agreements must be registered with NOTAP. The Federal Competition and Consumer Protection Act (FCCPA) nullifies any clause that sets minimum resale prices for goods in Nigeria.
4. Register Trademarks:
Nigeria follows a "first to file" principle for trademark protection. Even if a trademark is registered abroad, it must be registered locally to gain legal protection in Nigeria.
5. Secure a Location and Comply with Sector-Specific Regulations:
Obtain a lease for the business location, hire staff, and register with the Federal Inland Revenue Service (FIRS) for taxation. Some franchises may require additional licenses—e.g., franchises in the oil and gas sector must be approved by the Department of Petroleum Resources (DPR).
Conclusion
For franchising to reach its full potential in Nigeria, the legal framework must be strengthened through the enactment of dedicated legislation. Franchising represents more than just a business model; it is a strategic tool for economic development. It fosters local entrepreneurship, promotes technology transfer, retains capital within the economy, and should therefore be supported through institutional and policy reforms.
By the Editorial Team – Afrique Franchise