‘In our country, we like franchising,’ a sentiment revisited
Illustration by Jonathan Hankin
Dateline: Cairo, Egypt
In this column a decade ago I told the story of a meeting I was requested to attend at the Ronald Reagan Building with a very senior official of a foreign country, to speak with him about franchising (September 2009). After a bit of time, he walked across the conference room, closed the door to avoid being overheard, and spoke quietly and purposefully. I paraphrased:
“In our country we like franchising. It provides jobs, and that’s important to us. It provides opportunities for suppliers to the franchisors, and that creates even more jobs … If we could get all our retailers—in fact, our commercial sector generally—to observe the franchising industry closely, and to emulate it, we would have a better climate for businesses and for consumers in our country. Can you help us?”
I didn’t identify the country because of its fragile political situation, but it was, of course, Egypt. We know what has happened since then. First, enough tumult and chaos that there was no appropriate way to respond to the inquiry, “Can you help us?” The uprising in 2011, a significant component of the so-called Arab Spring, replaced the longtime autocratic ruler, Hosni Mubarak, with Mohamed Morsi of the Islamic Muslim Brotherhood, and many more events followed.
How has this cascading series of events affected the prospects for franchising in Egypt? And are the official’s sentiments in 2009 echoed today?
The prospects for franchising
The search for answers to those questions led me to Cairo in January (full disclosure: that and the invitation by the Egyptian Franchise Development Association to keynote the association’s first Legal Franchise Symposium). Like almost everything else in this part of the world, the answer turns out to be not so simple.
It is true that growth is expected to revive further in 2019; a recovery in private investment is envisaged; investment from abroad is climbing; the unsustainably high unemployment rate continues to decline.
But Egypt remains low on most gauges of economic freedom and freedom of the press, governance and transformation. Far too large a portion of the population is below the poverty level. On such practical measurements as the effort required to start a business and enforce contracts, the country’s standing continues to underperform despite improvements due to reforms.
Taken together with the looming shadow of the military and of what appears to be one-man rule for the foreseeable future, what is the mood of this group of businesspeople and lawyers gathered for the first discussion of franchising in the most populous Arab country in the region? And what do their reactions tell us about the prospects for franchising?
First, their numbers are impressive. More than 100 registered for this two-day program.
They come from many of the countries in the region, as well as from Europe and the United States.
They are diverse—businesspeople, lawyers from firms of all sizes, academics, judges and a heavy sprinkling of government officials.
The sessions are on a wide range of highly relevant franchise topics, addressed by panels of experienced commentators and policymakers.
One of the focal points is the discussion of a new proposed franchising law in Egypt. Years in development, it draws enthusiastic support from some, and some vigorous attacks. If adopted, it would be the first franchise law in the region.
Some of the questions from the audience reflect the lack of familiarity with franchising and the role of government, which is not surprising. (“Why should we support the entry of foreign franchisors, instead of focusing on our own native retailers?”) Others are thoughtful and sophisticated; the head of a government department wants us to discuss the role of government as franchisor, as franchisee, and as the stimulant for social franchising.
But these impressions are from a self-selected group of the elite. For a broader perspective let’s look beyond the state-of-the-art facilities of the prestigious Cairo Regional Centre for International Commercial Arbitration, with which the franchise association has partnered.
I don’t mean the usual “musts” for a visitor: the pyramids (check); the Sphinx (check); both sunrise and sunset on the Nile, and a (cheesy) evening cruise on that storied river (check); Tahrir Square and the Egyptian Museum (check); fending off the vendors (check); the incredible solar boat (check); and watching the making of papyrus (check). And, of course, no tap water, no souvenirs made in China, and no making eye contact with the beggars (check, check and check).
I refer instead to some pretty clear evidence of the growth of franchising: 800 franchise systems operating in Egypt, almost half of them indigenous; 60,000 franchise units; 1.5 million people directly employed, with direct investment of 80 billion Egyptian pounds, and with both of those numbers much higher when taking into consideration those individuals and companies which support and supply the franchise industry.
Many new malls
A walk down almost any street in downtown Cairo and in many of the neighborhoods of this city of 20 million plus will bring one face-to-face with a great many of the franchised names with which we are familiar. Which makes another recent development especially intriguing to a U.S. franchisor considering entering the country: there are 16 new malls under construction.
So perhaps the vision of the Egyptian official of a decade ago is beginning to be realized. That’s certainly what the investors making a heavy bet on those 16 new malls believe. And that’s what many of those gathered at Egypt’s first Franchise Legal seminar certainly seem to believe.
Philip Zeidman is a partner in DLA Piper’s Washington, D.C., office. Reach him at 202.799.4272 or email@example.com.