Share this Twitter Digg Del.icio.us Yahoo Technorati Googlize this Facebook Hear this text Print E-mail Tags developers opportunities property

Providing services in association with a local partner is critical when extending your retail business on the continent

South African shopping centre developers are expanding into the rest of Africa and their inspirational performances have contributed to the runaway success of the retail sector beyond the borders of the Rainbow Nation.

According to a recent article in Rapport, South Africa already boasts 17 million square metres of retail space, therefore it makes sense for developers to explore Africa and pioneer growth in the Indian Ocean as well. Atterbury Developments, in association with ENL Property – a Mauritius-based company – has embarked on a massive project to develop the first regional shopping centre on this island.

Asked to comment about this development, Cobus van Heerden, director of retail at Atterbury Developments, said Africa is a fairly underdeveloped continent with huge opportunities. Development is a high-risk venture and in Africa, the risk is considerable. But if you are successful, the reward is worth your while.

Rory Roriston, director of real estate investments for Standard Bank, endorsed the views expressed by Van Heerden, particularly with regard to Nigeria, but he warns that there are massive challenges.

The Nigerian hurdle

Roriston says institutions looking to invest in property in Nigeria face numerous hurdles, but perseverance, diligence and an intimate knowledge of the idiosyncrasies of the property environment can lead to a measure of success.

He says property in Lagos is among the most expensive in the world, along with Moscow and Luanda. “This refers specifically to property on Victoria Island (Lagos’s business centre) and Ikoyi Island. Extensive land reclamation projects are undertaken from these islands to satisfy demand at high prices,” he says. “These projects encompass large tracts of reclaimed land of hundreds of hectares.”

Land acquisition is difficult in Lagos. Most sites are small and range from 600m2. This is particularly the case on the islands, which were previously residential enclaves.

Daily, in the order of three million people make their way from the main land to the islands. The population of the entire Lagos is estimated at 17 million people. The total infrastructure was designed to accommodate three million.

Roriston says investment fundamentals relating to land ownership, as South Africans understand them, do not apply in Nigeria. “Land is owned from the heart and not the head. Yields and returns on equity are seldom considered. Most Nigerian developers build for cash due to the prohibitively high interest rates,” he explains.

The process of finding land is complex and tough, and requires strict due diligence. This is exacerbated by the fact that Nigeria only began a land registry in the 1960s and many people were reluctant to register their land. “There are still properties held under traditional title that are not incorporated in the land registry,”
adds Roriston.

There are major shortages of retail space, too.

“In Nigeria, most products can be purchased on the side of the road or at informal markets. It may seem disorganised, but there is a rationale and control behind it,” he says.

There is only one modern shopping centre, The Palms, in Lagos. It has proved highly successful, particularly with the expansion of Checkers and Game retail stores.

This success has opened up the market for a more formalised retail structure and several new retail developments are on the cards, including a Standard Bank shopping mall in Kaduna, about two hours’ drive from the capital Abuja, which has a population of six million.

“We expect to be involved in more development activity off the back of the success of The Palms and the ambitions of South African retailers in Nigeria,” says Roriston.

The development has been made possible following Standard Bank’s merger with IBTC Bank in 2007 to form Stanbic IBTC Bank Plc. With 65 branches currently operating in Nigeria, Roriston says the intention is to grow the Stanbic IBTC network in the country.

In summing up the situation, he advises interested parties to ensure development in Nigeria is carried out in conjunction with a joint venture partner that has a deep knowledge of the environment.

“While property fundamentals are difficult to peg and rentals demanded up front, I believe there is opportunity to develop a product to stagger leases and raise the property game in Nigeria,” says Roriston.

“There is an opportunity to establish property management and asset management principles that will attract the tenancies of international companies and valued Nigerian companies.”

“Tenants want to know they have some rights relating to their premises and herein, Standard Bank Real Estate Investments believes it can play a meaningful role,” he adds.

The vital attributes

Hilton Dukes, director of retail at Broll, a company that provides extensive leasing services into property developments, has placed the company’s footprints in African cities such as Lagos, Nigeria, Accra, Ghana as well as in Windhoek, Namibia.

Dukes told BBQ it was important to provide services in association with a local partner. That right partner is vital.

“Africa is not always the friendliest continent, and in some countries there is corruption. It is important that the fundamentals are correct. That includes an appreciation of the local culture, that you and your local partner are on the same page in terms of providing an excellent service that will add value to the African state in which you are investing,” he said.“

We have experienced a great reception. Generally, people welcome us and appreciate the advice and service that we bring into their environment.”

Dukes told BBQ that, generally, their African operations have recorded double-digit growth. The essential contributing factors towards this growth were good property management, developing and fine-tuning healthy systems over time, flexibility as well as excellent service to clients.

Overcoming red tape, and the right attitude

Brian Davidson, sales and marketing director of the Legacy Hotel & Resorts International group, says establishing current and future footprints in Africa depends partly on the ability to deal successfully with red tape, and having the right mindset and attitude are vital factors.

He said in some parts of Africa, bureaucracy and red tape is receding, while in others it is growing at an alarming rate e.g. taxation, visa restrictions. The sooner Africa becomes like the European Economic Community, the better it will be for everyone.

To register a company can be a lengthy process in some countries. It also takes time to put together finance. Have a strategy to form local partnerships, as it is often easier for a local to sort out the red tape than it is for a foreigner.

Despite the difficulties, Davidson’s company has experienced a willingness to do business and most people recognise that it offers a win-win situation. The company does not want to come across as a ‘big brother’, preferring instead to establish long-term local partnerships.

Mauritian economy as a factor in attracting South African business

Van Heerden agrees with Davidson that a healthy relationship with a strong local partner is a first step in establishing a footprint for a retailer in other African countries.

But expert knowledge of economic successes of a country and openness for economic trade is another vital condition if South African retailers are to venture into another African country.

With regards to Mauritius, he told BBQ that the Mauritian government positioned itself over recent years as a prominent offshore financial centre.

Since opening up the economy by the formulation of a very successful 10-year economic reform programme in 2006, the number of new businesses, including 2 500 new global companies, had increased significantly.

Mauritius was recently rated among the top 25 global offshore platforms. The country also ranked 24th in the world and first in Africa in the World Bank’s Doing Business 2009 report.

The country is thus in a new development phase and undergoing a complete re-engineering of its economy and society.

It has a well-developed road network and the Mauritian government has implemented an integrated plan for infrastructure improvement.

This also opens up new growth zones linking Port Louis and the proposed development and airport.

Mauritius has a stable, independent judiciary and is internationally regarded as a safe investment location. The country was recently rated as one of the “best countries to do business” in TIME magazine’s Country Awards, with taxes at a uniform flat personal and corporate tax rate of 15% and no capital gains tax.

Communication facilities are excellent, with oceanic broadband optic cable linking Mauritius to the South Africa Far East (SAFE) cable system.

The country boasts a very strong banking sector, with many international banks such as Investec, Standard Bank and HSBC being very active on the island.

Mauritius also has very good international air access, with several flights a day to major European capitals and 17 flights a week to and from South Africa.

Growth in central and East Africa

Spintelligent – an integrated media company producing niche events such as conferences and exhibitions globally in Central, North and South America, India and Africa – has seen its Africa operations ‘explode’ since commencing work in eastern Africa 11 years ago.

Zelda Weitz, director of business development at Spintelligent, says it recorded strong growth and one of its conferences – the East African Power Industry Convention – was a top performer in terms of year-on-year increase in interest.

The company regularly produces three niche publications in metering (Metering International), mining (Mining Review Africa) and power (ESI Africa) as well as web portals.

Through its publications and the in-country distribution at its African events, Spintelligent’s advertisers can select regional events where they want their adverts to attract exposure.

Many South African companies have been keen to explore new markets and opportunities and the potential to sell their goods to utilities and mines in Africa.

The importance of trust, and building relationships

“Competitive advantage is important. No one wanted to do what we did in the DRC and thought it was impossible. However, we can guarantee success based on relations we have built over five years,” said Weitz.

“We are willing to go anywhere in Africa. Our Africa Business Unit shows a similarity to the United Nations if you look at the cultural diversity and language mix that we have.

“We are considering opportunities in Liberia and Burkina Faso and we will probably be in Nigeria soon again because of popular demand,” she added.

“South Africans are keen to get into DRC, Angola, Zimbabwe and Nigeria, but these are some of the toughest markets to penetrate. Not everyone has the capital to invest, so for the small and medium enterprises it is not so easy.

“We have had an event in East Africa for 11 years and those relations contribute to 60% of your success. Like with many cultures across the globe, you do not build trust in Africa overnight,” Weitz told BBQ.

Venturing into Zambia

In October 2008, Liberty Properties, the property arm of Liberty Group, announced it would start work on its first development project outside South Africa. The $200-million mixed-use development in Lusaka, Zambia is being developed by Liberty Properties on behalf of Zambia’s National Pension Scheme Authority, the owner of the project.

The development has retail, office, apartment and hotel components and will be completed by the end of 2010. It will consist of a 30 000m2 retail component, which will be housed in Zambia’s first fully enclosed shopping mall. The retail element includes a cinema complex and restaurant facilities.

A 150-room hotel is planned as a key feature and it will contain a 400-seat convention centre.

The office component is 20 000m2 and includes penthouse suites. The total development will cover about 94 000m2.

Caswell Rampheri, managing director of property development at Liberty Properties, was reported on www.allafrica.com as saying that he saw huge potential in African markets outside South Africa, particularly in Zambia.

Samuel Ogbu, chief executive officer of Liberty Properties, said the company’s expansion plans would reach beyond Zambia and into South Africa’s neighbouring countries as well as East and West African regions. Ogbu said he hoped that by next year, Liberty Properties would have signed two more deals in Africa.

Fanie Heyns

Additional sources:

“Business Day”; www.eProp.co.za

Write comment

Your Contact Details:

Name:

Email: do not notifynotify

Comment:

Title:

Message:

Security

Please input the anti-spam code that you can read in the image.

---

• 23/01/2012 09:19 - Skills for Life
• 19/01/2012 12:55 - Tourism jobs a panacea

• 08/04/2010 07:19 - Shortage of engineers for service delivery
• 07/04/2010 09:22 - Nationalisation of mines
• 11/01/2010 10:43 - Combining aptitudes

• 30/09/2009 10:03 - Employment equity revisited
• 01/07/2009 10:59 - Human Capital
• 01/07/2009 10:08 - Making a difference and loving it

---