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Africa's shopping malls: Where are they?

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Frontier takes a closer look at what is holding back the development of shopping malls in Africa.

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By Lauren van der Westhuizen

One of the challenges for retailers that are looking to expand in Africa is the lack of shopping malls. What is holding back the development of more malls on the continent?

It isn’t a lack of spending power. Africa has the fastest growing middle class in the world. According to statistics from the African Development Bank, the middle class, defined as those with a daily expenditure of between $2 and $20 a day, stood at just over 313 million in 2010, or 34.3% of the population.

At 313 million, the African middle class is roughly the same size as its Indian and Chinese counterparts, yet more than half of all new shopping malls that are being built worldwide today are being built in China, according to a report by commercial real estate firm CBRE. To put that in perspective, 7.8 million square metres of new space came onto the market last year in 142 shopping centres.

In comparison, less than a dozen sizable retail malls were built in Africa over the last decade, excluding South Africa, says Pieter Steyn, head of commercial property finance at Absa.

As few as 10 malls are currently planned across the continent, but none are under construction, says Tim White, managing director at Profica, a construction project management company based in Johannesburg that is currently managing over five retail projects in West Africa.

According to a report from Deloitte entitled, ‘The Rise and Rise of the African Middle Class’, there will be 1.1 billion African middle class consumers, or 42% of the population in 2060. The biggest implication of this emerging middle class is for consumer goods and services and there is a clear need for formal retail infrastructure, the report says.

The report cites Nigeria as an example of the size of this opportunity. Nigeria has a population of 160 million people and has 36 states each with a sizeable population and requiring formal retail infrastructure. However, the country only has two shopping centres in Lagos, one of which is still under development.

‘Once it’s up and running we can get into Nigeria and can start operating there. Once these shopping centres develop, we can increase our footprint dramatically,’ says Ronnie Stein, the chief financial officer at The Foschini Group. ‘We have to rely on the shopping centres to be constructed, and when they are, we will open our stores. We will follow the shopping centres.’

Challenges facing property developers in Africa

Interviews with five experts in the property development industry revealed several common reasons for the lack of shopping malls in Africa. Other than basic infrastructure issues like a lack of roads or electricity, the foremost reason was difficulty in securing finance.

It’s more difficult to raise finance to develop property in Africa because the risk is higher, says John Wilkinson, the retail and consumer industry analyst for PwC South Africa. A large amount of equity funding is required and there are not many who are willing to take the risk, Tim adds.

In order to carry out big projects in Africa, one needs to have at least 30% to 40% of cash equity, says Kevin Teeroovengadum, director of real estate at Actis, a private equity firm focused on investments in emerging markets that has developed malls in Lagos, Accra and Nairobi.

‘This is a requirement as banks will not provide debt unless the promoter or developer puts in significant equity, unlike in South Africa. We’ve seen instances in South Africa where one can buy land and put in minimum equity and raise maximum debt. Unfortunately in the rest of Africa, long term debt is scarce and banks are not prepared to take risk unless the developer has significant skin in the game,’ says Kevin.

A related issue concerns the lack of experience African banks have with property finance, says John. But this has been getting better lately as more players get into the property development market. Banks in Africa are beginning to understand property finance and are getting stronger, he says.

Finding a good plot of land and sorting out who owns it is another challenge facing developers. Often the land is government owned, which creates additional difficulties with regulations and land titles. ‘Land tenure is always a problem and there have been instances of two title deeds being produced for one property,’ says Tim. For this reason you need to identify the right partner who can help navigate the process of permits, advised Kevin.

Another reason we haven’t seen more malls being built is simple lack of interest from retailers up until recently. There hasn’t been significant interest in Africa as an emerging market before 2010, says John. ‘It’s only now that we are seeing South African tenants (besides Shoprite that has been in the rest of Africa for quite a number of years) expanding aggressively in the rest of the continent,’ says Kevin.

Interestingly, when asked whether political instability was putting off developers, John says it is not a significant deterrent. ‘Considering the overall risk in doing business in Africa, political instability is not a big factor. The biggest risk is access to finance, followed by corruption,’ he says.

‘There are many challenges in doing business in Africa, which include overcoming planning problems, finding appropriate local partners, accessing capital, local governance requirements, just to site a few. All these challenges cannot be taken lightly,’ says Pieter.

The future of shopping malls in Africa

Overall the consensus seems to be that things are changing, especially over the past five years in countries like Nigeria, Kenya and Ghana. With the recession in Europe and after the World Cup in South Africa in 2010, we are seeing more experienced professionals willing to work in Africa, says Kevin.

There is significant growth projected for African economies. Seven out of the top 10 growing economies are in Africa, and an average of 5.9% GDP growth is projected in Africa until 2016. What’s more, about 13 countries in Africa already have a higher GDP per capita than China.

South African retailers view the rest of Africa as ready for expansion with stores like Woolworths, Pick n Pay, and the Foschini Group looking for new markets outside of the country. There is limited growth for these big retailers in South Africa because the economy in South Africa is not growing at the same rate. In comparison to the African average, South Africa’s economy only grew 2.8% this year. South African retailer expansion into Africa is happening in tandem with property development as these companies become anchor tenants for new malls, says John.

‘I wouldn’t go as far to say that there’s a trend towards building more malls on the continent, but there are certainly opportunities, with some of the larger retailers very interested in expanding North, like Pick n Pay and Checkers,’ says Graham Smith, a director at Bentel Associates International, a Johannesburg-based architect’s office that specializes in designing shopping centres, including several in Africa.

Absa is more positive about prospects for growth. ‘The opportunity in Africa cannot be ignored, with widespread social and physical development into Africa, consumer spending of around $1-trillion next year as per the McKinsey Global Institute, the poverty index substantially improving, and the population doubling from 1 billion within the next 30 years,’ says Pieter.

The sense is that the growth of malls is happening in a few countries though, and is not a continent-wide trend. ‘The focus is in Nigeria where Shoprite have committed to rolling out hundreds of stores in the coming years,’ says Tim. However he believes that the best opportunities are in the so called secondary countries such as Cameroon and Togo, while the focus is elsewhere in Nigeria, Ghana and Angola.

To give you more of an idea of where we are going to see new developments, Actis said it has  recently closed a second African real estate fund totalling $278-million, which is to focus on Lagos, and other emerging African cities such Kampala, Maputo, and Lusaka.

According to Absa, Africa has reached the ‘tipping point’ from a retail investment point of view. The bank calculates that $150-million equity has been invested into retail developments in Africa. Going forward the confirmed equity for developments seems to exceed $750-million.

‘From less than a dozen developments over the last decade we are aware of more than 50 opportunities being explored.  In Nigeria alone South Africa’s Shoprite has been indicating appetite of some 700 outlets, with Nigerians eagerly anticipating the entrance of three global giants Wal-mart, Carrefour (the second largest retail group in the world in terms of revenue) and Tesco’s,’ says Pieter.

Some noteworthy developments over the past five years include the 21 000sqm Accra Mall developed by Actis, the 38 000sqm Airport Shopping Mall in Botswana developed by Eris Property Group, Atterbury’s 40 000sqm Mall of Mauritius and two malls in Nigeria of 20 000sqm also developed by Actis, says Pieter.

In terms of big, new malls under development - West property, Augur Investments and McCormick Property Development are planning to build a 68 000sqm shopping mall in Zimbabwe in Harare’s up market Borrowdale suburb at a cost of US$100-million. Actis is investing in East Africa’s largest retail mall to be situated in Nairobi. In 2011 South Africa’s Manto Investment Group announced they would construct a US$30 million shopping centre in Ndola, Zambia.

‘The average size of the malls being developed in Africa is about 20 000 square metres, which isn’t all that big considering that Canal Walk in Cape Town is about 140 000 square metres in comparison,’ says Graham.

Some of the big companies involved in property development in Africa include Resilient Africa, Atterbury, Capital Alliance, Jonah Capital, Standard Bank, Group Five Properties, McCormick Property Development, Actis, Profica, RMB, Westbrook, DTZ Leadenhall, Eris, Moolman Group, Heriott Properties and the Crowie Group to name a few.

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