In view of shrinking world markets and a lack of prospects in the West, Africa is increasingly becoming a business location.
Africa, with all its fear and chaotic history and its struggle against social upheaval, shows a resilience and a sense of survival that we can marvel at.
The International Monetary Fund expects emerging markets in general, and Africa in particular, to grow 4.5% this year and 4.8% in 2013. An interesting indicator was home values, which rose by an average of 8% in 2011. (AFDB Statistics) Despite recessionary tendencies in some parts of the world, continued economic growth is expected.
Despite income disparities across Africa, a true middle class is developing. It is estimated that sixty million African households have an annual income of more than US$3,000 at market exchange rates. By 2015, this number is set to increase to 100 million.
Urbanization is driving demand for all types of real estate: office space, retail complexes and, of course, apartments. The growth and potential for infrastructure projects abounds. This also has positive side effects for work.
One could say that the South African business is faltering. Recently, Resilient, known for its successful serial development of out-of-metropolitan shopping malls outside of major urban hubs, expressed dissatisfaction with local bureaucracy and announced that it would spend more than R1 billion to build 10 shopping malls in Nigeria. The 10,000-square-meter and 15,000-square-meter shopping malls will be built in the capital city of Abuja and the city of Lagos, the main commercial hubs, in the next three years. The main tenant will be Shoprite, Africa’s largest food retailer.
Wal-Mart-owned Massmart said last month it will invest in African growth and hopes to grow its grocery retail business from about R7 billion to about R20 billion over the next five years. But it’s South African food retailers Shoprite and Pick n’ Pay whose locations are firmly anchored in Africa. Pick n Pay has increased its growth in Africa using R1.4 billion from the sale of Franklins in Australia.
Shoprite, which only has about 123 stores in Africa compared to about 1,730 locally, says it will add another 174 stores in Africa over the next year. Pick n’ Pay, on the other hand, aims to expand into Malawi and the Democratic Republic of the Congo within the year. The food retailer has over 93 branches in Africa north of South Africa. Zambia and Zimbabwe are expanding. Woolworth, not to be outdone, has opened 14 stores in Nigeria, Uganda, Zambia, Kenya, Mauritius, Tanzania and Mozambique as part of its business development program. Woolworths is currently present in 12 countries with nearly 60 stores across Africa, excluding South Africa.
Further investment in the African playing field could come in the form of takeovers of South African food retailers by the likes of Tesco, Carrefour and Metro. Wal-Mart’s consumption of Massmart has already been well publicized.
Taking a slightly different approach, Don’t Waste Services (DWS), the largest local waste management company in South Africa, has announced its intention to open offices in Botswana, Kenya, Zambia, Mauritius and Swaziland. The Company – operates in the mining, retail, hospitality, healthcare and heavy industrial markets and currently provides waste minimization services to 300 corporate clients across their portfolios of locations. Having recently expanded into Mauritius, the company wants to duplicate its successful model in other African countries.
On the property front, JHI Properties Zimbabwe has added an additional 15 properties to its portfolio of over 50 as it is set to manage the unlisted real estate investment trust Ascendant Property Fund (APF). JHI has already expanded from its South African home base into Zambia, Ghana, Namibia, Botswana, Lesotho and Nigeria. This further expansion comes as Zimbabwe is experiencing exceptional growth in the retail market at a rate of around nine percent plus year on year. Kura Chihota, CEO of APF, expects to actively drive growth in Zimbabwe. “With Zimbabwe’s expected economic growth rate of nine percent per year, the prospects look promising.” said Chihota recently.
JHI Properties has also been appointed as the leasing agent for Joina City, a new upscale ‘urban city’ in Harare, comprising four floors of retail stores and 18 floors of offices. Anchor tenants include the big South African names Spar and Edgars.
Take us to Bigan. Bigan, who brought us Mombela Stadium in Nelspruit, Olievehotbosch Ministerial Housing Projects, Oliver Tambo International Pier Project and ESKOM Coal Hauleage Road Repair, is negotiating a partnership with Ghanaian real estate companies to build affordable homes for the poor and middle-income .
Ghana’s housing deficit is around 1.5 million units. Bigan believes it has the ability to reduce and deliver on Ghana’s housing deficit. Based on his experience in South Africa, Bigan’s Emmanuel Kere believes that the company “can support not only the (housing) sector in Ghana, but also infrastructure development in general”.
According to Bigan, he builds 30,000 houses in South Africa every year and has a lot to offer Ghanaian companies. Bigen Africa Chairman Dr. Iraj Abedian said the company was attracted to Ghana because of the country’s stable political environment and friendly business atmosphere. Bigan makes no apologies for using Ghana as a springboard to launch operations in Senegal, Liberia, Nigeria and Sierra Leone.
The South African government is not exempt from taking an active role in the fight for Africa. The Public Investment Corporation (PIC), which manages over R1 trillion, or 10% of SA’s JSE market cap, on behalf of officials, is seeking potential private equity partners. 10% of the portfolio is to be invested outside of South Africa, with R50 billion reserved for African investments. 60% of that, about R30 billion, will go to private equity, according to PIC CEO Elias Masilela in an interview with Reuters. The PIC is likely to be a player in infrastructure investments as countries on the continent build and upgrade their roads, dams, hospitals and power plants, he said.
The standard bank, which is present in 18 African countries, puts a strain on the infrastructure. In an interview with Goldman Sachs’ Hugo Scott-Gall, Sim Tshabalala, deputy CEO of Standard Bank Group, said: “In most parts of sub-Saharan Africa, infrastructure is all but collapsed or limited. It needs to be rebuilt, so there are massive opportunities in project finance. Many infrastructures are being renovated, mainly with the support of the Brazilians and Chinese. The connection we have with ICBC (Industrial and Commercial Bank of China) also helps us to identify and implement opportunities. In our case, ICBC is a 20% shareholder.”
Standard Bank, as a South African player, has positioned itself well in the African market as an intermediary or channel for other BRIC partners looking to interface with the continent. For example, Standard Bank has entered into a cooperation agreement to identify Chinese companies and SOE (state-owned enterprises) looking for opportunities on the continent.
Standard Bank has been busy as a facilitator for foreign capital as Africa needs an estimated $90 billion a year to manage its infrastructure backlog and is currently raising about $70 billion. This comes from a combination of sources: taxes, the banking system and large amounts of money coming from outside – venture capital. The banking system in individual African countries does not have the capacity to finance all necessary infrastructure activities, so there will be heavy reliance on international capital markets and the international banking system.
Standard Bank is not alone in its growing presence in Africa, ABSA has received regulatory approval to launch a greenfield insurance business in Zambia, bringing the number of sub-Saharan countries where the Barclays-owned bank will operate insurance operations to four grows. First National Bank (FNB) has announced plans to invest almost R2 billion over the next 12 months as South Africa’s third largest bank by customer base to expand its presence in South Africa and Africa. It is believed to be considering a takeover in Nigeria and has sent scouting missions to Ghana. The bank, which operates in eight African countries including South Africa, has approximately 7 million customers in South Africa and 1.1 million in Africa. FNB Tanzania was the latest addition, while its Zambian unit has already announced plans for a nationwide branch network by 2016.
There is no doubt that some South African companies are looking at Africa with greater urgency. The European Union’s financial problems have shown how vulnerable South Africa is to European problems. More than 25% of South Africa’s bilateral trade comes from the EU. When GDP falls in Europe, it means fewer goods are shipped from Africa. That doesn’t bode well for South Africa. Expansion and investment in Africa can broaden South Africa’s horizons, not to mention its vulnerabilities.
But in the words of Standard Bank’s Sim Tshabalala: “As a South African, I would like to believe in the sustainability of the country’s national competitive advantage as a gateway to the African continent. More and more people can go directly to Kenya and Nigeria without going through South Africa, for example, because these countries are building the necessary hard infrastructure and the necessary financial and legal infrastructure.”
So it appears that South Africa’s competitive advantage is diminishing as the rest of the continent develops. Many companies now see the gap and jump into the fray. It seems that the future really is now.