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Africa money franchises target africa with fashion, food and fitness

´╗┐From fried chicken to ice cream and body-building supplements, international franchises are making inroads into Africa, tapping into consumers' hunger for their brands as developed markets stagnate. Hilton Hotels, owned by asset manager Blackstone, Yum Brands' Kentucky Fried Chicken and the fashion retailer Mango are some of the companies driving the growth of franchising in Africa. Others in the fast food, automotive and education sectors are also expanding into the continent. Franchising creates opportunities for African entrepreneurs and provides jobs in the formal sector, while for brands it is a chance to enter a new market at a lower cost and with a business partner who is familiar with the terrain."It's an inexpensive means to expand using the money of others," said Kendal Tyre, editor of a new book on franchising in Africa. "You have a franchisee who is coming in and paying a franchise fee to have access to your system that you've developed over some period of time."However, weak judicial systems, corruption and poor infrastructure are still deterrents for potential franchisors. The repatriation of profits from some African countries can also be difficult and there are concerns about the protection of intellectual property. Until recently, franchising in Africa had only taken hold in the continent's more advanced economies, such as South Africa and Egypt. South Africa's 300 billion rand ($36 billion) franchise sector accounts for 12 percent of GDP, according to Standard Bank. The industry employs around 500,000 people directly. Nearly 700 brands operate franchises, including KFC and McDonald's, and home-grown businesses such as Nando's, a chicken restaurant. But as Western brands face slowing growth at home they are paying closer attention to the rest of Africa, encouraged by legal and economic reforms and governments keen to spur the growth of small businesses, said Tyre, who edited Franchising in Africa: Legal and Business Considerations.

Countries such as Nigeria, Kenya and Zimbabwe have established franchise associations, which can provide a code of ethics and standards and also assist in disputes. The African Development Bank (AfDB) is also helping Senegal, Tanzania and Ethiopia set up their own associations. As more Africans enter the middle class, franchisors also hope to benefit from pent-up demand for their products. By 2020, Africa's consumer spending will amount to $1.4 trillion and 128 million households on the continent will have discretionary income, according to McKinsey."There's a growing middle class that is really eager for a lot of goods and services that aren't currently available," said Tyre. "And it's not simply fast food. It's automotive, beauty, clothing stores, professional services, childcare."

NIGERIAN ALLURE Franchising in Nigeria, whose 160 million people have an almost insatiable desire for imported goods, is still in its infancy but firms see it as too big to ignore, said Anayo Agu, a commercial specialist at the U.S. consulate in Lagos."In the last two years we've noticed tremendous interest in Nigeria," he said. "If you can access Nigeria you actually have the whole of Africa to tap into."KFC, which entered Nigeria in 2009, is the most well-known international franchise. Spanish fashion retailer Mango also has three stores in the country, adding to its five in South Africa.

Two major fast food retailers are due to set up franchises before the end of the year, said Agu, declining to name them. He added that an ice cream retailer was also looking to move in. Other U.S. firms that have signed deals include Crestcom International, which provides management training, Precision Tune Auto Care and IN2IT, a nutrition and fitness franchise which offers kickboxing and pilates classes, along with muscle building pills and protein shakes. Agu believes franchising may be the best way of limiting Nigeria's huge informal sector as it gives entrepreneurs a template for running a business."The biggest problem is getting people to understand that the only way you can run a business and grow it is if it is system-driven," he said. "Once you have a system like that you can't avoid tax. You must play by the rules."Many countries have made progress in the areas of intellectual property protection and repatriation of profits, but franchisors often find it difficult to seek legal redress for problems because of inefficient legal systems, according to the AfDB, which is planning its first conference on franchising in Africa next year. Perhaps the biggest sign of progress would be the proliferation of McDonald's restaurants throughout Africa. It is only in a handful of countries, like South Africa, Mauritius and Egypt, suggesting others do not meet its stringent rules and standards."It gives you a good indication of whether or not there's something important missing," said Robert Zegers, chief investment officer at the AfDB.

Analysis islamic finance pressured to join accounting mainstream

´╗┐Rapid growth of Islamic finance is increasing pressure for the industry to enter the accounting mainstream, by seeking guidance from the International Accounting Standards Board (IASB), the global body which sets the tone for book-keeping in conventional finance. It would be a controversial move - by basing itself on religious principles, Islamic finance seeks to set itself apart from conventional finance. But some experts think the industry is becoming so big that it can no longer sit comfortably outside a trend towards harmonizing accounting rules across the world."The whole thing about financial reporting around the world today is the global move towards a single comparable set of high-quality financial reporting standards..." said Samer Hijazi, financial services audit director at accounting giant KPMG, who monitors the development of Islamic finance. Islamic financial assets hit $1.3 trillion globally in 2011, a 150 percent increase over the past five years as the industry expanded into new countries beyond core markets in the Middle East and Malaysia, financial lobby group TheCityUK estimated last week. At present the industry remains governed by a patchwork of national regulators, Islamic standard-setting bodies and scholars interpreting Islamic law - a recipe for different rules and practices. This is creating confusion among investors, especially as major Western banks begin to enter the market. Most of the countries in which Islamic banks operate already use the IASB's International Financial Reporting Standards (IFRS). But these standards have been developed for conventional finance, not Islamic transactions, in which interest and pure monetary speculation are banned and trades must be underpinned by physical assets. So there is the potential for conflict between Islamic finance and conventional accounting rules. For example, in order to earn returns but not contravene the ban on interest, Islamic banks buy an asset such as a house on behalf of a customer and lease it out until the customer is able to acquire ownership. Under current IFRS standards, accountants say, this would probably be treated as a financial lease, requiring the bank to record the lease as an interest-earning loan - in apparent contravention of sharia law."IFRS is all about substance over form whereas sharia law is very much about compliance with legal form," said Andrew Hawkins, director at PricewaterhouseCoopers.

GUIDELINES The solution, some experts say, is to have the IASB introduce standalone guidelines under its IFRS framework that are tailor-made for Islamic finance. These guidelines would ensure a uniform approach across the industry while blending with the IASB's standards for conventional finance. Bodies such as the Asian-Oceanian Standard Setters Group (AOSSG), a regional organization which creates accounting guidelines, are calling on the IASB to put the drafting of Islamic finance standards on its agenda. The AOSSG has set up a working group to liaise with the IASB. More than three-quarters of 24 financial standards-setting bodies that responded to a survey by the AOSSG at the start of this year said there should not be separate Islamic accounting standards issued by other bodies outside the IFRS framework, because they could be incompatible with the global move towards convergence around IFRS, according to the AOSSG. Involving the IASB in Islamic finance may not be easy, however. While the IASB has said Islamic accounting may move onto its agenda as it begins to identify its project priorities in coming months, the body is preoccupied with a range of regulatory initiatives around the world, so it is unclear if Islamic finance will become a priority anytime soon.

Also, the whole idea of having global reporting standards is that there is one set of rules which are not industry-specific. Adding standards specifically for Islamic finance could undermine the uniformity of IFRS standards and spur demands for other exceptions to be made. For example, the problem of how Islamic banks classify their leases to customers might be solved if the IASB agreed to describe them as operating, not financial, leases. But the IASB might not be willing to do this for fear of violating a basic accounting principle and disadvantaging conventional banks. In an interview with Reuters, Alan Teixeira, senior technical director at the IASB, said his body would consider the issue of Islamic finance. But he declined to say whether, when and how it might get involved in standard-setting."The ideal situation is to have one set of words that everybody can use," Teixeira said. "The biggest challenge will be to see whether or not we can write the right words that don't conflict with sharia law but fundamentally get the same level of transparency and good level of reporting."

Teixeira said the IASB was thinking of setting up a working group to educate its board about sharia law so that it could make informed decisions."It might be that we can address any concerns by having guidance about how to apply or interpret certain aspects without necessarily changing an IFRS," he said. RIVALRY Another potential problem is that any IASB involvement in Islamic finance could bring it into rivalry with other organizations. The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) already sets standards for the industry; Khaled Al Fakih, newly appointed secretary general of AAOIFI, has said it is conducting a strategic review of all its standards to make sure they are fresh, complete and relevant. Results of the review are expected this year. AAOIFI does not carry as much weight with regulators around the world as the IASB does, and many financial firms may prefer to deal with a single organization for both conventional and Islamic accounting, rather than contending with two separate bodies. So the IASB might ultimately win any contest for influence in Islamic finance - but the tussle would not be pleasant, and it could further confuse investors."The challenge AAOIFI has is in persuading various regulators to adopt its standards and that's going to be difficult in the current environment," said Hijazi."There is so much regulatory and governance change in the pipeline, it will be very difficult for the regulators to now call on financial institutions to produce an additional set of accounting or financial statements."

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