Why investors love Africa real estate? Economic growth has been singled out as being the key driver of change in Africa. Some of Actis projects include The Exchange, a 17 000 square metre office building in Accra Ghana; Waterfalls, which consists of a 120 room hotel and a 27 500 square metre shopping centre in the sub-urban area of Lusaka in Zambia; Garden City, a mixed-use development to be anchored by the biggest regional shopping mall (almost 50 000 square metres) in East Africa and Heritage Place, an 18 000 square metre office building in Lagos Nigeria. Shown here is Amani Place located in Dar es Salaam, Tanzania. With increasing stability in the region and growing appetite from offshore investors for real estate asset exposure in the African market, the attraction of real estate across Africa lies in its fast-approaching development potential, says Stewart Shaw-Taylor, head corporate and investment banking real estate at Standard Bank. He says the continued support of resources growth on the continent, given Africa’s increasing share of world commodities, will continue to drive the resulting logistics sector expansion. “Subsequently, we can expect continued growth of the formal retail sector in Sub-Saharan Africa (SSA) as a whole, given the changing investment landscape.” A case for investing in Africa According to the World Bank report entitled: “Global Economic Prospects”, growth in SSA remained robust at 4.6 percent in 2012. Excluding South Africa, the region’s largest economy, GDP output expanded 5.8 percent in 2012, with a third of countries in the region growing by at least 6 percent. Robust domestic demand, still high commodity prices, increased export volumes (due to new capacity in the natural resource sector) and steady remittance flows supported growth in 2012. However, the expansion was curtailed by domestic factors, including earlier monetary policy tightening (Kenya and Uganda), protracted labour disputes (South Africa), and political unrest (Mali and Guinea Bissau). Furthermore, the report notes that net private capital flows to the region increased by 3.3 percent to a record high $54.5 billion in 2012. Much of the increase in net capital flows came in the form of increased foreign direct investment flows to the region, which increased to $37.7 billion in 2012 from $35.7 billion in 2011, notwithstanding the 6.6 percent decline in foreign direct investment flows to developing countries in 2012. Tourism, an important driver of growth in the region, remained robust, with strong tourist arrivals in many of the popular destinations, including South Africa, Mauritius, Sierra Leone, Madagascar and Cape Verde. Medium-term growth prospects remain strong and should be supported by a pick-up in the global economy, still high commodity prices, and increased investment. Since 2000, investment in the region has increased steadily from 15.9 percent of GDP to over 22 percent of GDP in 2012. The World Bank projects foreign direct investments to the region to increase to new record levels each year reaching $55.6 billion in 2015. This is expected to continue, particularly so as an increasing number of the region’s economies are able to tap into international capital markets to help address binding infrastructural constraints (in 2012 Zambia issued its debut international bond, a $750 million Euro bond, which was oversubscribed by 15 times). Overall, the region is projected to grow at its pre-crisis average rate of 5 percent over the 2013 to 2015 period (4.9 percent in 2013, gradually strengthening to 5.2 percent in 2015). Excluding, South Africa, the region’s growth will average 6 percent over the 2013 to 2015 period, according to the World Bank. Private equity investments in Africa According to the Emerging Markets Private Equity Association (EMPEA), private equity is the only way to capture greater diversity of sectors and capture the sectors standing to benefit the most from the growing middle class and thus, the consumption story in these markets. Emerging markets private equity fundraising continues to take a greater share of global private equity commitments, accounting for 20 percent of all capital raised in 2012, up from 12 percent in 2007 and 5 percent in 2003, says EMPEA. On private equity investments in Africa, EMPEA reveals that fundraising and investment totals in Sub-Saharan Africa (SSA) ended the year with a modest increase, closing at US$1.4 billion raised and US$1.2 billion invested in 2012 compared to US$1.3 billion raised and US$1.1 billion invested in 2011. Kevin Teeroovengadum director for real estate at Actis, a pan-emerging market private equity firm with US$5 billion managed by 105 investment professionals explains that they started with their first Private Equity Real Estate (PERE) Fund in 2006 with approximately US$155 million. The funds focus has been SSA Africa and investment in Greenfield developments, mostly Grade A shopping centres and office buildings. Out of this first fund, they have pioneered the retail sector in markets such as Lagos, Accra, Nairobi, having successfully developed the first Grade A retail malls such as the Palms, Accra Mall, The Junction and Ikeja Mall. Furthermore, they have invested in Tanzania and Mauritius. Following the success of our the first fund, Actis has set up a second PERE Fund for SSA with US$280 million of equity under management which gives us sufficient fire-power to undertake more than US$1Billion of property projects, he says. This fund will cover markets such as Ghana (Accra), Nigeria (Lagos/Abuja), Kenya (Nairobi), Zambia (Lusaka), Mozambique (Maputo) and Uganda (Kampala). Standard Banks key focus countries for real estate Africa include resource rich economies, such as Ghana, specifically Accra, Mozambique and Nigeria. “The objective of the second fund will be again to invest in retail and commercial developments and in addition we will also invest in industrial/logistics parks.” Teeroovengadum says the latter is something where they feel there are interesting opportunities in key African markets. “To date out of our second fund, we have one site under construction in Accra and during the course of 2013 and we will have another four sites under construction, with another two projects for 2014.” Real estate projects in Africa Teeroovengadum explains that they are investing a lot in real estate in key markets such as Accra, Lagos, Nairobi, and Lusaka. The growth in GDP and rise of the middle class leads to demand for Grade A shopping centres and office developments. “We’ve successfully fully committed our first Real Estate African Fund and developed a number of key assets across those markets mentioned and we are now in a position of exiting a number of the assets over the next 2 to 3 years.” For example, Actis sold its 85 percent shareholding in Accra Mall in Accra, Ghana to a consortium of South African property developer, Atterbury and financial services group, Sanlam. Read the article here. “We are finding an increasing appetite by South African asset managers looking for African property yields and at the end of 2012, we successfully raised a second Real Estate Fund again for SSA to the tune of approx US$280 million,” he says. Atterbury will develop Namibia’s largest single commercial property development, the 54 000 square metre Mall of Namibia - The Grove in Windhoek, with Demashuwa Properties and Safland Property Group at a cost of R1.3 billion set to open in September 2014. Teeroovengadum points out that this will give them the necessary firepower to unlock at least US$1 billion in projects over the next three years. Some of Actis projects include The Exchange, a 17 000 square metre office building in Accra Ghana; Waterfalls, which consist of a 120 room hotel and a 27 500 square metre shopping centre in the sub-urban area of Lusaka in Zambia; Garden City, a mixed-use development to be anchored by the biggest regional shopping mall (almost 50 000 square metres) in East Africa and Heritage Place, an 18 000 square metre office building in Lagos Nigeria. In Nigeria, Standard Bank and Stanbic IBTC Bank were involved in the Ijeka Mall project, a retail offering anchored by Shoprite. This was the first debt funded real estate transaction in Nigeria, with a development value of US$48.6 million, according to Shaw-Taylor. Standard Bank has a global footprint in 18 African countries, including South Africa. “Our key focus countries for real estate Africa include resource rich economies, such as Ghana, specifically Accra, Mozambique and Nigeria. He says the projected consumption growth and the relative ease of doing business in Ghana is driving increased appetite for real estate investment. “We have also experienced increasing appetite for real estate finance in East African geographies such as Uganda and Tanzania,” he says. With increasing stability in the region and growing appetite from offshore investors for real estate asset exposure in the African market, the attraction of real estate across Africa lies in its fast-approaching development potential, says Stewart Shaw-Taylor, head corporate and investment banking real estate at Standard Bank. He explains that with the recent coal and gas discoveries, Mozambique is a favoured destination for foreign investment in mining and resources. “As multi-nationals are entering the country and developing the various regions, for example Tete, we are seeing increasing requirements for logistics, warehousing space, office space and living arrangements materialising,” according to Shaw-Taylor. “An estimated population in excess of 150 million people coupled with projections that Nigeria will be Africa’s largest economy before 2020 bodes well for projected consumption demand, which will in turn drive investment in the real estate sector (primarily retail and commercial projects),” says Shaw-Taylor. Atterbury will develop Namibia’s largest single commercial property development, the 54 000 square metre Mall of Namibia - The Grove in Windhoek, with Demashuwa Properties and Safland Property Group at a cost of R1.3 billion set to open in September 2014. Amid the growth projections and capital inflows into the region, as with any investment, the report points to some risks. Risks and vulnerabilities Risks to the outlook remain tilted to the downside, as weaker growth in China, ongoing fiscal consolidation in the Euro Area and the United States could potentially derail the region’s growth prospects. Further, a number of domestic concerns could be a drag on growth in the region. Euro Area debt crisis Although the worst appears to be over, should a credit crunch hit some of the larger troubled Euro Area economies, GDP growth in the region could decline by one percentage point, reveals the report. Weak US economy Fiscal policy paralysis in the US could curtail growth in the region by at least 0.9 percentage points in the 2013. China investment According to the World Bank, with Chinese demand accounting for some 50 percent of many industrial metals exported from Africa, a disorderly unwinding of China’s high investment rate could lead to deteriorating current account and fiscal balances, and cut into the region’s growth prospects. According to the World Bank, with Chinese demand accounting for some 50 percent of many industrial metals exported from Africa, a disorderly unwinding of China’s high investment rate could lead to deteriorating current account and fiscal balances, and cut into the region’s growth prospects. Domestic factors Political instability, protracted industrial disputes and adverse weather conditions could also undermine growth in a few countries in the region. Future investments According to the World Bank, increased investment will be a main driving force in the region. In addition to growing foreign sources of investment finance, domestic investment is also expected to benefit from the on-going financial sector deepening in the region, albeit from a very weak base. Over the past decade, bank deposits as a share of GDP have increased by some eight percentage points, supporting a ten percentage point increase in the private sector credit to GDP ratio during this period, reveals the report. With the lag in monetary policy transmission, the widespread cuts in policy rates in 2012, is expected to provide some stimulus to economic activity through 2014. The World Bank projects foreign direct investments to the region to increase to new record levels each year reaching $55.6 billion in 2015. In Southern Africa, Mozambique expects to attract some $50 billion in foreign investment over the next decade thanks to its huge coal deposits and offshore gas discoveries. Interestingly, the World Bank points out that 60 percent of firms not currently present in the region, indicated in a recent survey their intention to expand into the region over the next three to five years. As an example, the Carlyle group and two other partners recently announced plans to invest some $210 million in a Tanzanian agribusiness entity (the private-equity group’s first foray into SSA). Continued investment in infrastructure will be critical to maintaining and strengthening growth over the medium term – potentially boosting growth rates in the region by 2 percentage points, according to the World Bank.
Posted on: Fri, 22 Nov 2013 00:38:26 +0000
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