AfDB Supports Franchising in Egypt - US$ 40 Million for Franchising Sector Support Program

26/02/2009
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Tunis – 25 February 2009 - The Board of Directors of the African Development Bank Group has approved a US$ 40-million loan to finance a Franchising Sector Support Program (FSSP) in Egypt.

The Program seeks to promote franchising in Egypt as an effective business strategy for private sector development and SME growth. The proposed FSSP will encourage the establishment and expansion of primarily local franchising concepts resulting in entrepreneurship development, economic growth, and job creation. The medium-term objective of the FSSP will be to establish solid local financial instruments and collaborative structures that address the current gaps in the franchising market. The Social Fund for Development (SFD), as the main coordinator and champion of small enterprise development in Egypt, is an excellent partner to achieve these objectives.

The project has two interlinked components: (i) debt financing through a senior loan of US$ 40 million to the Egyptian government, channelled through SFD to local financial institutions and onward to franchisees; (ii) capacity building of local stakeholders (SFD, Egypt Franchise Development Association, Financial Institutions, consultants, lawyers, judiciary), with specific support to the SFD’s Franchising Unit, and with subsequent support to franchisors to ensure that sound local and foreign franchise concepts are developed and successfully applied to the Egyptian context. Franchisors will be selected on the basis of various eligibility criteria, including financial wherewithal and adherence to sound franchise practices.

The project is in line with the Egyptian government’s Vision 2022, its 5-Year Plan, and 10-Point Action Plan, whose objectives include promoting private sector development (including SMEs & franchising) and reducing unemployment. The AfDB’s Country Strategy Paper and private sector strategy also highlight the need to support the private sector, and in particular, financial intermediation for SMEs.

Overall, FSSP is a project with high development impact and high commercial visibility that is expected to create 375 franchise outlets, over 7,000 direct jobs (and a larger number of indirect jobs in the value chain), and will increase the number of SMEs operating in the formal sector. It will also bring technology transfer to SMEs, fostering increased productivity and export potential, thereby increasing government revenues.

The Bank promotes franchising, where appropriate, as a successful SME development model in Africa, given the high survival and low risk, and higher level of technologies applied. The project will fill a gap in the financial services market by providing long-term funding that is not available from commercial sources on competitive terms. The Bank’s participation is vital in this program given the Bank’s technical expertise in Franchising, thereby creating the necessary technical and financial comfort for SFD and commercial banking partners to support and promote Franchising in Egypt.