South Africa’s economic growth has been “exceptionally weak” in recent years and gross domestic product (GDP) growth has been averaging 3.1% since 1994, but the country has been nowhere near that since 2012, said financial institution FNB’s chief economist, Sizwe Nxedlana, at the FNB franchising summit that was held in Johannesburg, Gauteng, last month.

He noted that the weak growth environment was likely to persist, with economic growth expected to average 1.4% this year and slow to 1.2% next year.

“A lot of the weakness is concentrated in the mining sector and the supply chain linked to that; however, there are sectors that continue to grow Africa’s economic outlook and, as a result, don’t see the present as an appropriate time to buy durables,” he said.

He noted that consumers were adopting a defensive strategy, which suggested weak growth in household spending, particularly on durable goods.

Nxedlana expected the continued weak growth in domestic expenditure, coupled with partial compensation from net trade, to result in the South African economy posting weak growth in the 1% to 1.5% range this year and in 2016.

“Franchises, therefore, need to continue to innovate and adapt to changing market conditions to ensure that they stay abreast of changing times . . . businesses have become more risk averse, but are willing to take calculated risks to grow and develop their businesses.”

FNB head of franchising Morné Cronjé said that, to plan for the future, a rejuvenated business environment was key to ensuring the survival and growth of many franchises.

“Currently, franchise businesses, big and small, face many challenges. We are seeing slower economic growth, increased unemployment, new regulations, imposed water restrictions and labour unrest – all these factors increase the cost of doing business and make it difficult to justify new investment opportunities,” he pointed out.

He noted that there was also evidence of increasing pressure on consumers and people would be more selective on how they spend their money. “In South Africa, the franchise industry has remained solid despite challenging economic conditions, and the country remains attractive to local and international franchise brands,” Cronjé pointed out.

He said that the industry’s contribution to GDP was estimated at almost 12.5%, with more than 31 000 franchised businesses operating and employing about 320 000 people countrywide.

However, the shift in the franchising landscape was changing and businesses needed to start planning for the future. An aggressive strategy focusing on franchise value-add, customer requirements, innovative products and solutions needed to be considered, Cronjé said.