Catalyst Principal Partners, the Kenyan based private equity firm is surveying the real estate opportunities across East Africa, where consumer demand is growing and the knock-on effect is being felt from recent oil and gas discoveries.
Another force to be reckoned with in East Africa would be the emerging markets focused Actis. The East African Chief of Actis Paul Kavuma left in 2009 to form Catalyst, taking a wealth of experience with him.
Paul Kavuma told the Catalyst Web News Room: “We have a strong pipeline of deals and are at advanced stages of completing a number of new investments which will be announced by the end of the year,”
In Kenya, Catalyst Principal Partners has started making investments from a broad $125 million fund and from a partnership dedicated to real estate.
The World Bank’s International Finance Corporation, accounts for about 70 per cent of cash raised for the first fund, and the rest came from individuals, insurance firms, fund of funds and others. The firm may approach the market to raise a second fund in the next two years.
Catalysts original investments were in Tanzania. It seems that some of the most attractive opportunities were outside Kenya, the region’s biggest economy. So far in 2013 Catalyst plans are focusing 35 per cent of the first fund on industries such as building materials and cement, technology and financial services.
Catalyst has set up a partnership with Acre Solutions, an international property developer. Together they have identified real estate projects. Investors are being sought. The partnership is also working on a mixed commercial, residential and hospitality development in Kenya requiring about $2 billion in investment over 10 years. Real estate investment trusts (REITs) are planned for the future.
Middle income homes, among other housing in east Africa has surpassed supply for nearly twenty years, and the sector has outperformed other asset classes such as fixed income and stocks. Catalyst, among similarly focused entities, expects the region’s already booming consumer demand and growing economies to get a further shot in the arm from oil and gas finds.
Reported in the Catalyst website newsroom: CEO Paul Kavuma says, “capital has been raised from leading international and regional institutions and from credible regional high net worth private investors, with the quality of investors in being reflective of the attractive fundaments of the region and is a positive signal of the growing confidence in the economic prospects for East Africa”.
Ghana’s economy is sending the world mixed signals. Last year it saw growth skyrocketing, influenced largely by the launch of oil production at its Jubilee oil field in November, sending GDP soaring by nearly 15 per cent. But that growth rate is expected to nearly halve to 8.2 per cent this year as oil production has averaged 80,000 bpd as opposed to the 250 000 bpd that was anticipated for 2013. Either way it’s all growth and the spinoff for the rest of the economy is worth taking notice of.
Ernst & Young defines Rapid Growth Markets (RGMs) as countries with economies and populations of a certain size that display strong growth potential and are, or could be, strategically important for business. Ghana will this year be among the three fastest growing economies from a group of 25 global RGMs, according to a new Ernst & Young report. Ghana’s burgeoning oil industry is credited with the recent rapid economic growth.
The sudden slowdown in growth since the beginning of 2012 is expected to be just a phase. “Our analysis suggests that RGMs are likely to weather the on-going Eurozone crisis and remain engines of global growth, though many will see expansion slow this year,” says Alexis Karklins-Marchay, co-leader of the E&Y Emerging Markets Centre. “Their expansion is expected to accelerate once more in 2013, helping stimulate a wider pick-up.”
The report is dependent on Ghana’s oil output rising, be it gradually. Nevertheless, Ghana’s growth is comparable with other African oil producers. Angola’s economy is expected to grow 9.1 per cent this year, surpassing the rate of stalwart Nigeria, seen growing 7.0 per cent this year. Ghana’s Oil exports should also help to sustain the public finances and the balance of payments, which have been affected by higher government spending.
Ernst & Young forecasts GDP growth of approximately 7% for 2013 and an average of 5% annually over the medium term. “While Ghana will only be a small oil producer, production of the commodity has boosted medium-term growth prospects,” says E&Y.
Growth’s knock-on effect on infrastructure is worth noting. Foreign direct investment into Africa in 2010 fell by 9% but rose significantly in Ghana. The promise of an oil boom has attracted the interest of global construction and infrastructure companies.
An example of this interest has been the signing of a $2 billion letter of intent by Hasan International Holding, a Chinese corporation, to develop an advanced industrial facility near the port of Takoradi, which handles 60% of the country’s crops and mineral exports according to a report by Euromonitor International.
The expected on-going effect should be the creation of jobs in the region, attracting local and foreign workers, which could provide a substantial consumer foundation for retailers looking to expand outside of the capital, Accra.
Another example of infrastructure growth is Helios Towers Africa, a company that leases space on telecom towers to mobile network operators. By owning and managing the towers, Helios allows the network operators to focus on their core business. Helios Towers Africa (HTA) was founded in 2009 and is the leading independent, telecoms tower company in Africa with operations currently in Ghana, Tanzania and the Democratic Republic of Congo (DRC).
Pioneers of the sale-leaseback model in Africa, the Helios model of shared telecoms infrastructure, is helping to deliver improved operating and capital efficiency for mobile network operators, reducing costs, increasing accessibility and improving network quality of service for users. Together with subsidiary HTN they own and manage 3,500 telecom towers, the largest number held by an independent company focused exclusively on Africa.
Due to the infrastructure investment deficit in most sub-Saharan African markets, the timing is perfect. Unless telecoms infrastructure investment in Africa increases, it will be impossible to serve the burgeoning levels of consumer demand for 2G voice, let alone the site densification required for 3G coverage, improved capacity and the rapid growth in data traffic.
More than 60% of Ghana’s population are mobile phone subscribers. Mirroring a trend common throughout Africa, mobiles are increasingly used as a means for cashless payments/transfers, and target the large unbanked population. An example is MTN’s Mobile Money, a service that allows users to send cash and purchase goods from participating retailers.
Retail space has not gone untouched by Ghana’s growth. Accra, Ghana’s capital is a microcosm. The majority of modern retail space has been developed in Accra, due to better infrastructure and access to a large population. An Euromonitor report notes that Ghana’s retail industry achieved 14% value growth between 2006 and 2011, which reflects the strength of fast-moving consumer goods (FMCG) companies in the country.
An example is Danish-based dairy firm Fan Milk Group. It is reporting 10 times the turnover per capita in Ghana than in Nigeria. In 2010, Ghana was the largest market for the company and, with a turnover of US$67 million, accounted for 48% of the group’s revenue and 64% of its operating profit. Other cases include Unilever and PZ Cussons “The presence of such manufacturers provides a good opportunity for retailers as they can source these manufacturers’ products cheaper locally rather than importing them,” says Euromonitor.
On the retail front, according to Howwemadeitinafrica.com: RMB Westport, a South African property firm, is also working on two mixed-use developments in Accra. The first is West Ridge Head Office where the ground floor will offer retail space while offices will occupy the rest of the building. The second location is Icon House, close to the airport and Accra Mall, which will also offer retail space.
One place which is a microcosm of the effects of growth in Ghana is the port city of Takoradi. It is expected to see significant growth because of its proximity to the country’s offshore oil fields. Before Ghana began with hard-core commercial oil production in 2011, Takoradi was designated as a backwater town. Nevertheless, it has since risen to prominence due to being the nearest commercial port to Ghana’s offshore oil industry.
In a recent development investment firm Renaissance Group announced a new mixed-use urban development, called King City, to be located 10km from the Takoradi harbour.
King City will be developed on 1,000 ha of land and is designed around a live-work-play concept. It will accommodate residential and commercial growth associated with the region’s mining and energy sector boom. According to Renaissance, the development will feature shopping facilities as well as residential and commercial components. King City will be built in phases over 10 years and is expected to eventually be home to over 90,000 residents.
Other news is that the International Finance Corporation (IFC) has provided a loan of US$5.45 million to Alliance Estates Limited, to build the first Protea Hotel in Takoradi. The 132-room, three-star hotel will help meet demand for business infrastructure as more investors are venturing into the oil producing region of Takoradi. The Protea Hotel will be amongst the first to provide international-standard rooms, rates and conference facilities.
Potential boom towns in Ghana like Takoradi offer attractive opportunities from a property development perspective – especially for hotel and retail developments.
Ghana moved up the World Bank’s Ease of Doing Business rankings from 102nd in 2005 to 60th in 2011. Also internal tariffs are being abolished, allowing for a greater level of intra-regional trade. All good news. Yet analysts remain concerned about a weakening cedi currency due to rising imports for the oil industry.
Inflation has trended upwards, making life difficult for locals, even though economic growth is on the rise from the oil production. A Reuters poll forecasts inflation averaging 9.6 per cent this year and 9.3 for 2013. The inflation rate rose for a fourth straight month in June to 9.4 per cent from 9.3 per cent previously. The cedi has lost over a third of its value since it began producing oil in November 2010, trading now at around 1.95 per dollar.
So it is mixed signals for the investor. Ghana’s growth is coming in ebbs and flows. The development of Ghana’s infrastructure, catalysed in part by the discovery of off-shore oil reserves, and the country’s movement to political stability, has paved the way to sustainable economic growth. With this has come retail potential and prospects that could see Ghana emerge as the next retail hub in the region.