I INTRODUCTION

The past 12 months have undoubtedly been challenging for many countries within the African region. Oil prices continued to fall for most of 2016, harming economies such as those of Nigeria,2 Angola3 and Algeria,4 which depend in large part on oil exports. Many countries have also struggled with their foreign exchange liquidity, with the national currencies in a number of countries including Uganda,5 Angola6 and South Africa7 falling to record lows. Other factors such as political instability, the persisting threat of militant insurgencies and terrorist attacks8 and lack of infrastructure continue to create uncertainty in the region and potentially deter investment.

The World Bank and World Economic Forum both predict that growth for the region in 2017 will not match the highs of previous years, anticipating it will fall lower than the 5 per cent average over the past decade.9 However, growth in the region is still anticipated to exceed the prospects of many other developed and developing countries10 and a number of countries within Africa will still be growing above 6 per cent. Africa therefore still provides plenty of potential opportunities for franchisors looking to expand their brand internationally. Many African countries are focusing on harnessing the potential for growth from advancements in technology, in particular mobile payment networks, allowing poorer individuals living in both cities and rural areas to have greater access to the wired, global financial economy, and providing faster and more secure payment and money transfer systems.11 Other countries, such as Ivory Coast, Rwanda, Kenya and Tanzania, have invested heavily in infrastructure, helping boost their anticipated growth rates up to 6–7 per cent12 and ensuring that they are attractive prospects for foreign brands looking to invest in the region. Legislative and economic reforms have also been introduced in several countries to ensure local laws – particularly those relating to repatriation of funds and the protection of trademarks – do not deter foreign brands. The number of countries that have ratified the African Tripartite Free Trade Area agreement (TFTA) continues to grow, with Zambia (number 17) ratifying the agreement in June 2016.13 Once the TFTA is fully ratified between its 26 signatory states, it is hoped it will add greater stability to those countries and facilitate economic integration of the region as a whole, providing increased harmonisation in the areas of rules of origin, customs cooperation, non-tariff barriers and dispute settlement.

Franchising continues to be recognised by governments in the region as a fast and effective way to increase employment among local populations. With the price of oil and other major commodities still low, it has also been promoted as a way to help build more sustainable economies based on small and medium-sized enterprises operating in a range of sectors, rather than relying on the traditionally strong industries such as oil and mining. The past few years’ high rate of growth across the region has resulted in a burgeoning urban middle class in many countries, with a consequential increase in the demand for western brands. The World Economic Forum also highlights the ‘fast growing youth population’ and the urbanisation of the region, which is expected to result in over 50 per cent of Africans living in cities by 2050,14 as key reasons to keep Africa in mind with regards to expansion and investment. Continued improvement in infrastructure and policy across the region will undoubtedly strengthen this growth and ensure brands, both foreign and domestic, remain focused on Africa and its vast potential.

II FRANCHISE LAW

i Legislation

As in Europe and the United States, there is no unified or consistent approach to franchising in the African region. South Africa and Tunisia have enacted franchise-specific legislation, although each differs in its application. Nigeria, Angola, Kenya, Sudan and Uganda regulate technology transfer and commercial agency agreements, which may impact on franchise agreements depending on how the franchise is structured and the sector it operates in. Other countries rely on their civil codes, foreign investment laws, and competition or consumer protection regimes to regulate franchise arrangements.

ii Pre-contractual disclosure

Few African countries require franchisors to provide franchisees with pre-contractual disclosure. Franchisors entering into agreements in Tunisia and South Africa, however, should be aware that these countries are the two exceptions, requiring a minimum amount of information to be provided a set number of days prior to signing (20 days in Tunisia, and 14 in South Africa). A general duty to act in good faith both prior to signing and during any commercial – including franchise – agreement may be understood to require disclosure in certain countries such as Morocco, Algeria, Angola, Cape Verde, Congo and Mozambique, although the extent to which this is enforced is unclear.

iii Registration

Currently, no African country imposes registration requirements on franchise agreements specifically, although many countries – such as Nigeria, Democratic Republic of Congo and Georgia – require a trademark licence to be registered, and it is recommended (but not mandatory) in Malawi. A notable exception to this rule is Egypt, where a trademark licence may be registered, but it is recommended not to do so because of the difficulty involved in deregistering a licence.15 Ethiopia has also recently indicated that it may impose registration requirements on franchise arrangements. In August 2016, the Ethiopian Parliament adopted the Commercial Registration and Business Licensing Proclamation No. 980/2016 (CRBLP), which introduced, for the first time, a definition of a ‘franchise agreement’.16 The CRBLP indicated that ‘the franchise’ must be registered,17 although the exact requirements of the registration (including confirmation as to whether it is the franchise itself or the franchise agreement that must be registered) were not made clear. Those details will be provided in the implementing regulations issued under the CRBLP by the Council of Ministers. There is no defined timetable for the publication of those regulations, though they could come later this year. As set out above, a number of other countries also regulate technology transfer agreements, which may capture franchise agreements and therefore also require registration.

Any agreement that may result in the payment of money outside Zimbabwe by a business entity operating in Zimbabwe must be registered with and approved by the Zimbabwe Exchange Control Authority. South Africa, Cape Verde and Mozambique impose similar registration requirements in relation to agreements containing foreign payment provisions. While not strictly a registration requirement, central bank approval is necessary for the remittance of payments abroad in a number of African states, including Sudan, Angola, Congo, the Democratic Republic of Congo, Ghana, Gabon, Botswana, Burundi, Rwanda, Cape Verde and Egypt.

Franchisors should also be conscious of any post-signing requirements that exist under local law. For those countries where agreements or trademark licences must be registered, or documents must be provided to central banks for remittance approval, this documentation will generally require some form of notarisation or legalisation, and may need to be provided in the local language. While it is rare for this to be an overly onerous requirement, these formalities can be expensive and cause delays if not planned and provided for in advance.

iv Mandatory clauses

The absence of franchise-specific legislation across the region means that there are few mandatory clauses that must be included in a franchise agreement, beyond those requirements that exist in countries’ general contract law or civil codes. Foreign franchisors should, however, be aware of particular restrictions that regulatory or national bodies impose on doing business more generally. In Nigeria, for instance, all foreign technology agreements must be registered with the National Office for Technology Acquisition and Promotion (NOTAP), and a broad range of obligations may be imposed on the agreement before NOTAP will approve its registration. Of particular importance to franchisors, NOTAP may limit royalty payments at 5 per cent of net sales or profit and prohibit any agreement having a term greater than 10 years. In a similarly protectionist manner, Zimbabwe has enacted indigenisation laws that require businesses in particular sectors or of certain types or size operating in Zimbabwe to be controlled by indigenous people.

Franchisors should also be aware of additional tax or foreign exchange restrictions that may apply to franchise agreements deemed to be ‘service agreements’ on that basis that at least part of the agreement relates to ‘services’ (such as initial training, guidance on the use of trademarks, etc.) being provided by a franchisor to a franchisee in exchange for a ‘service fee’ (howsoever named). In Angola, if a franchise agreement contains such service provisions, it is likely to be classified as a Technical Assistance and Management Agreement, which must satisfy certain criteria (including the requirement that the services cannot be obtained within Angola, and that the provision of the services will bring significant benefits to the ‘franchisee’ and the Angolan economy), must be licensed by the Ministry of Economy, and any fees paid thereunder will be subject to a higher tax burden. Similarly, the lack of foreign currency and struggling domestic economy in Zimbabwe has recently led to the Reserve Bank of Zimbabwe imposing a restriction on the level of any service fee being greater than 3 per cent of gross annual revenue.18 Franchisors considering these markets will, therefore, have to consider how best to structure their arrangements with their franchisees to ensure they are compliant with all local laws, while also ensuring they receive the full benefits of the anticipated deal.

Footnotes

1 Nick Green is an associate at Bird & Bird. The author would like to thank Vieira de Almeida & Associados and its network of offices and associated offices in Angola, Cape Verde, Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon, Guinea-Bissau, Mozambique and São Tomé e Príncipe for their valuable contributions to this chapter.

2 ‘Falling oil prices: How are countries being affected’, BBC News (18 January 2016), available at:
www.bbc.co.uk/news/world-35345874.

3 Shawn Donnan, ‘Angola turns to IMF for bailout amid oil price fallout’, Financial Times (6 April 2016), available at: www.ft.com/content/732e5b5a-fc24-11e5-a31a-7930bacb3f5f.

4 ‘Algeria’s Economic Outlook – Spring 2016’, The World Bank, available at: www.worldbank.org/en/country/algeria/publication/economic-outlook-spring-2016.

5 ‘BMAU Briefing Paper [12/16]: Uganda Shilling depreciation in FY2015/2016: Can a re-occurrence be mitigated?’, Ministry of Finance, Planning and Economic Development (May 2016), available at:
www.finance.go.ug/dmdocuments/12-16-PFM.pdf.

6 Rogerio de Almeida Vieira, ‘Angola’s dollar shortage deepens’, This is Africa (11 January 2016), available at: www.thisisafricaonline.com/News/Angola-s-dollar-shortage-deepens?ct=true.

7 Christopher Whittall and Patrick Mcgroarty, ‘South Africa’s Rand Falls to Record Low After Finance Minister’s Dismissal’, The Wall Street Journal (11 December 2015), available at: www.wsj.com/articles/south-africas-rand-falls-to-record-lows-after-finance-ministers-dismissal-1449853788.

8 World Bank Group, ‘June 2016: Global Economic Prospects : Divergences and Risks’, International Bank for Reconstruction and Development/The World Bank (2016), p. 22, available at: http://pubdocs.worldbank.org/mwg-internal/de5fs23hu73ds/progress?id=dYBjI8_fbqZ16H6kg2bDGO2kSXpWXiL6xUfxz6M6Ux4,&dl.

9 ‘World Economic Forum on Africa’, The World Economic Forum, available at:
www.weforum.org/events/world-economic-forum-on-africa-2017.

10 Ibid. footnote 8, p. 4.

11 Tarek Sultan Al Essa, ‘6 reasons to invest in Africa’, The World Economic Forum (6 May 2016), available at: www.weforum.org/agenda/2016/05/6-reasons-to-invest-in-africa/.

12 Lee Mwiti, ‘10 things the IMF wants you to know about Africa’s economy’, The World Economic Forum (15 April 2016), available at: www.weforum.org/agenda/2016/04/10-things-the-imf-wants-you-to-know-about-africas-economy.

13 ‘Zambia signs Tripartite Free Trade Area Agreement’, Common Market for Eastern and Southern Africa (COMESA) (18 June 2016), available at: www.comesa.int/zambia-signs-tripartite-free-trade-area-agreement/.

14 Ibid. footnote 11.

15 Kendal H Tyre Jr, ed., Franchising in Africa 2014: Legal and Business Considerations (LexNoir Foundation, 2014), p. 26.

16 ‘Proclamation No. 980/2016 Commercial Registration and Business Licensing Proclamation’, Federal Negarit Gazette of the Federal Democratic Republic of Ethiopia (5 August 2016), Part 1, Article 2(33), available at: www.mot.gov.et/trade-proclamations.

17 Ibid. footnote 16, Part 5, Article 37.

18 ‘Exchange Control Operational Guidelines and Compliance Framework to Authorised Dealers on Exchange Control Policies and Compliance Measures Issued in the January 2016 Monetary Policy Statement’, Reserve Bank of Zimbabwe (8 February 2016), paragraph 7, available at: www.rbz.co.zw/assets/exchange-control-guidelines-for-authorised-dealers-0ecogad7-2016.pdf.