Focus on West Africa’s retail sector
Leonard Michau, Director and Head of Africa Operations for Broll Property Group shared these insights on the retail sector in Ghana and Nigeria during the West Africa Retail Power Panel discussion – part of the West Africa Property Investment Summit held in Accra, Ghana in November, at which Broll was the Platinum Sponsor.
Some economies in West Africa are experiencing a number of challenges including slow economic growth, shrinking private sector investments, devaluing currencies, forex shortages and uncertainty about country financial risks.
Once Africa’s sought-after economy, Nigeria is losing its attractiveness as an investment destination due to its dismal economic growth outlook triggered by the low oil prices and reduced output which has led to its first recession in 20 years.
Amid these challenges, we have seen the emergence of new formal retail developments in West Africa that started more than a decade ago, yet the development of new modern first world malls has been relatively slow during the past 10 years, especially within the context of the narrative “Africa rising” which positioned Africa as the next frontier for investment opportunities.
Retail penetration in West Africa is said to be less than 5 percent compared to East Africa which is estimated to be around 30 percent (South Africa 60 percent), so considering the lack of formal retail developments and the potential of consumerism, one would have expected development to be more progressive.
Investors and developers still face challenges such as the inability to find suitable land, high interest rates, poor infrastructure, land prices, land claims and red tape.
In Ghana and Nigeria, retailers are now faced with a further challenge – the erosion of household disposable income since early-2015. This is reflected in the lower 2016 GDP growth rates for Ghana and Nigeria, brought about by lower commodity prices, macro-economic imbalances, foreign exchange devaluation, erratic supply and high cost of power and the general slowdown in the global economy.
In Nigeria, the retail market is likely to experience further pain due to the uncertainty and volatility around the official exchange rate and Government’s policy to restrict the availability of foreign exchange on certain imports.
The majority of planned retail developments in Nigeria have been put on hold or downsized, as trying to achieve the required pre-let percentage remains a challenge under current market conditions.
Although the retail sector is currently facing some headwinds due to the economic downturn, the long-term prospects remain compelling. The high rate of urbanisation and the expanding upper and middle class are two fundamental reasons why this sector cannot be ignored.
However, new entrants to the market need to critically review the feasibility of each project by ensuring that the mall is built in the right location, is right sized, includes sustainable rentals as well as a tenant mix that matches the primary demographics. In terms of new opportunities, while there is still a place for the so-called regional mall, there is a gap for the development of neighbourhood shopping centres of 6 000 m2 or less.
“Ghana’s modern retail potential is no longer a secret as Accra alone now boasts six malls excluding retail space in mixed-use developments with more projects in the pipeline approximating 60 000 m²”
Existing malls tend to target high and middle income Ghanaians (a minority of the population), and expatriates which represent less than 20 percent of the population and in Accra middle income earners account for 32 percent of the population.
While foreign exchange, inflation and competition remain risk factors, Ghana’s low-penetration of the modern retail market remains an opportunity for new entrants into the market.
Major investors in the supply side of the formal retail sector include Atterbury, Actis, RMB Westport, Mobus, BGI and some private investors with retail brand such as Shoprite and Game having presence in almost every existing mall. Other SA retailers include Woolworths, Truworths, Identity, Edgars, Jet and Mr. Price, as well as TFG trading with American Swiss, Markham, Sportscene and Foschini brands.
International brands in Ghana include Springfield, Bata, Lego and the Azadea Group trading with five different brands – Mango, Mango kids, Payless, Violeta and Sunglass Hut.
Opportunities in Africa
“Although Ghana’s economy is showing limited growth, we remain positive about Nigeria, Africa’s largest economy,” says Michau. “And opportunities exist for investment sales with many funds and investment firms looking to buy quality dollar based assets in the commercial, industrial and retail sectors.”
Michau points out that Broll is still dominant in the retail sector in Nigeria which makes up the bulk of the Broll Nigeria business. Furthermore, he explains that growth in East Africa is of significant value to the Group as plans are in place to expand service lines in countries in the east region of the continent.