On your marks, get set…Africa!
In the face of declining world markets and the lack of prospects in the West, Africa is looking more and more like a place to do business.
Africa, with all its angst and chaotic history and struggle with social upheaval is showing a resilience and sense of survival at which we can marvel.
The International Monetary Fund anticipates emerging economies in general and Africa in particular will expand by 4.5% this year and 4.8% in 2013. An interesting indicator has been residential property values, which, on average, rose by 8% in 2011. (AFDB Statistics) Economic growth is expected to continue despite recessionary trends in some parts of the world.
Although income disparities exist across Africa an authentic middle class is evolving. It is estimated that sixty million African households have annual incomes greater than $3,000 at market exchange rates. By 2015, that number is expected to reach a hundred million.
Urbanisation is pushing up demand for all kinds of real estate: office space, retail complexes and of course, housing. The growth of, and potential for, infrastructure projects abounds. This has the positive spins off for labour too.
South African business, it could be said, is scrambling. Recently Resilient, known for its successful serial development of non-metropolitan shopping malls outside of the major urban nodes, expressed dissatisfaction with local red tape and revealed it would spend more than 1 billion rand building 10 shopping malls in Nigeria. The malls, 10,000 square meters and 15,000 square meters in size, will be built over the next three years in the capital, Abuja, and the city of Lagos respectively, the main commercial hubs. Shoprite, Africa’s largest food retailer, will be the major tenant.
Wal-Mart-owned Massmart last month said it would invest in African growth and hoped to grow its food retail business from about R7bn to about R20bn over the next five years. But it’s South African food retailers Shoprite and Pick n’ Pay’s whose sites are firmly set on Africa. Pick n Pay has increased its African growth, using R1,4bn from the sale of Franklins in Australia.
Shoprite, which has only about 123 stores in Africa compared to about 1730 locally, says another 174 stores will be added in Africa next year. Pick n’ Pay on the other hand is aiming to expand into Malawi and the DRC within the year. The food retailer has over 93 stores in Africa North of South Africa. Zambia and Zimbabwe are on the cards for expansion. Woolworth, not to be outdone has opened 14 stores through its Enterprise Development Programme in Nigeria, Uganda, Zambia, Kenya, Mauritius, Tanzania and Mozambique. Woolworths currently has a presence in 12 countries with nearly 60 stores across Africa, excluding South Africa.
Further investment in the African playing field could come in the form of buy-outs of South African food retailers by the likes of Tesco, Carrefour and Metro. Wal-Mart’s consumption of Massmart has already been well publicised.
On a slightly different tack, Don’t Waste Services (DWS), the largest on-site waste management company in South Africa, has publicized their intention to open affiliates in Botswana, Kenya, Zambia, Mauritius and Swaziland. The company – is active in the mining, retail, hospitality, healthcare and large industry markets and currently provides waste minimisation services to 300 corporate clients across their portfolios of sites. Having recently expanded into Mauritius, the company is keen to duplicate their successful model in other African countries.
On the real estate front JHI Properties Zimbabwe has added another 15 properties to its portfolio of over 50 since it is to manage unlisted property investment fund, Ascendant Property Fund (APF). JHI has already expanded from its South African home base into Zambia, Ghana, Namibia, Botswana, Lesotho and Nigeria. This further expansion comes as Zimbabwe is experiencing exceptional growth in the retail market at a rate of some nine per cent plus year on year. APF CEO Kura Chihota anticipates actively pursuing growth in Zimbabwe. “With Zimbabwe’s anticipated economic growth rate of nine per cent per annum, prospects look promising.” said Chihota recently.
JHI Properties was also appointed as the leasing agents for Joina City, a new upmarket ‘urban city’ in Harare incorporating four floors of retail with 18 floors of offices. Anchor tenants include big South Africa names Spar and Edgars.
Bringing us to Bigan. Bigan, that brought us Mombela Stadium in Nelspruit, Olievehotbosch Ministerial housing projects, the Oliver Tambo International Pier Project and ESKOM Coal Hauleage Road Repair, is negotiating partnering with Ghanaian real estate companies to build affordable houses for the poor and middle income earners.
Ghana’s housing deficit stands at about 1.5 million units. Bigan believes it has the capacity to deliver and help reduce Ghana’s housing deficit. Based on their experience in South Africa, Bigan’s Emmanuel Kere believes that the company can “support not only the (housing) sector in Ghana but infrastructure development in general.”
Bigan claims to build 30 000 houses in South Africa annually and has a lot to offer Ghanaian companies. Chairman of Bigen Africa, Dr Iraj Abedian said that the company was attracted to Ghana because of the country’s stable political environment and friendly business atmosphere. Bigan makes no apology that it intends to use Ghana as a springboard to launch operations into Senegal, Liberia, Nigeria and Sierra Leone.
The South African government is not exempt from taking an active role in the scramble for Africa either. The Public Investment Corporation (PIC), which manages over a trillion rand on behalf of civil servants, which accounts for 10% of SA’s JSE market capitalisation, is looking for potential private equity partners. 10% of the portfolio is to be invested outside South Africa, R50 billion is reserved for African investment. 60% of that, about R30 billion, will go to private equity according to PIC CEO Elias Masilela in an interview with Reuters. The PIC is likely to be a player in infrastructure investments as countries on the continent build and revamp their roads, dams, hospitals and power stations, he said.
Public Investment Corporation which has a presence in 18 African countries weighs in on infrastructure. In an interview with Goldman Sachs’s Hugo Scott-Gall, Sim Tshabalala deputy CEO of the Standard Bank Group said: “in most of sub-Saharan Africa infrastructure has all but collapsed, or is limited. It has to be rebuilt, so there are massive opportunities in project finance. A lot of infrastructure will be refurbished, mainly with support from the Brazilians and the Chinese. The link we have with ICBC (Industrial and Commercial Bank of China) also helps us identify opportunities and execute on them. In our case, ICBC is a 20% shareholder.”
Standard Bank, as a South African player in the African market has positioned itself well as a go between or conduit for other BRICs partners wanting to interface with the continent. Standard Bank has a cooperation agreement for example, to identify Chinese corporates and SOE (State owned enterprises) that are looking for opportunities on the continent.
Standard Bank has its work cut out for it as Intermediaries for foreign capital since it is estimated that Africa needs about US$90 billion a year to deal with its infrastructure backlog and currently is raising about US$70 billion. This is coming from a combination of sources: taxes, the banking system, and a large amounts coming from outside – risk capital. The banking system in individual African countries does not have the capacity to fund all of the necessary infrastructure activities, so there will be a lot of reliance on international capital markets and the international banking system.
Standard Bank is not alone in its growing presence in Africa, ABSA has received regulatory approval to start a greenfield insurance business in Zambia, bringing to four the number of sub-Saharan countries where the Barclays-owned bank will have insurance operations. First National Bank (FNB) has revealed plans to invest nearly R2bn over the next 12 months as SA’s third-largest bank by customer numbers, to expand its footprint in SA and Africa. It is believed to be considering an acquisition in Nigeria and has sent scouting missions to Ghana. The bank, which operates in eight countries in Africa including SA, has about 7 -million customers in SA and 1,1-million in Africa. FNB Tanzania was its most recent addition, while its Zambian unit has already announced plans to have a nationwide branch network by 2016.
There’s no doubt that some South African companies are viewing Africa with a greater sense of urgency. The European Union’s financial troubles have revealed South Africa’s vulnerability to European troubles. More than 25% of South Africa’s bilateral trade is from the EU. If GDP in Europe declines that indicates fewer goods being shipped from Africa. This does not bode well for South Africa. Expansion and investment into Africa can broaden South Africa’s horizons not to mention its vulnerability.
But in the words of Standard Bank’s Sim Tshabalala: “As a South African I would love to believe in the sustainability of the country’s national competitive advantage as an entry point to the African continent. Increasingly, people are able to go directly to Kenya and Nigeria, for example, without going through South Africa, because these countries are building the necessary hard infrastructure and the required financial and legal infrastructure.”
So it seems that South Africa’s competitive advantage is diminishing as the rest of the continent develops. In the meantime many companies are seeing the gap and heading into the fray. It seems that the future really is now.
Urban Decay in Pretoria
JHI Properties leasing and sales broker Jan Oelofse penned a thought provoking piece on the subject of urban decay in Pretoria recently. But urban decay is of course not unique to Pretoria, people have gone down this road before.
The regeneration of the inner city has been one of the City of Johannesburg’s most successful ventures. The public sector and the private sector have come together to help the inner city get back on its feet. Major investments have been made, including the businesses that have chosen to return to the CBD. Is there something for Pretoria to learn?
It’s common knowledge that Johannesburg has had to fight this battle for some time. Initially the Better Building Programme was set up to restore derelict buildings and take back parts of the city in severe decay but the process proved laborious, taking as long as two years to get one building through litigation and judgment. Now transitional housing, BBP’s biggest stumbling block, will be provided to current residents of buildings that will be refurbished by the specially formed Transitional Housing Trust (THT) which will manage the process.
Now BBP has evolved into the Inner City Property Scheme (ICPS). The City of Johannesburg has created a restoration solution, though driven by the private sector. A large portion of the City’s property portfolio will be transferred to the ICPS through a series of structured sale transactions. Participants in the Broad Based Black Economic Empowerment (BBBEE) transactions were selected through a Request for Proposal process, and are required to provide a minimum equity contribution of R 5 million. The city would ensure that the option to buy was exercised only once the dilapidated property had been refurbished. Time will tell of course how effective this is.
So what about Pretoria? Oelofse doesn’t really get as far as dealing with derelict buildings but draws attention to the lack of development in the CBD over the past 20 years with the exception of the new national library and the basic education department buildings, the revamp of the central government offices in Church Street, the upgrade of the old Home Affairs and South African Agricultural Union buildings and central government offices on the corner of Church and Bosman streets. However council buildings have not been repaired.
Who could forget the Munitoria fire of 1987 where 50% of council’s operating space was lost? In April 2011, it was announced that development of the new head office would commence before the end of the year, however to date this has not been implemented.
Oelofse says that “the absence of new developments has resulted in the stagnation of this very important national landmark, with a gradual migration away from the precinct resulting in vacant buildings with little demand for the space. In an effort to prevent buildings from going to ruin and to protect their investments, property owners have converted a number of office buildings into residential units, to cater for the demand for such accommodation. Although this has reduced the over-supply of office space to some extent, it has not created any new developments.”
However there is no shortage of demand for retail space so spending on maintenance of buildings is neglected and as a result the deterioration of buildings continues. Oelofse challenges the SAPOA office vacancy survey for the third quarter of 2010 that revealed that A, B and C grade office space was at 5.1% vacancy. Oelofse cites another survey done of 34 major buildings comprising B and C grade space having a 20.8% vacancy. That’s 110 794sqm of 532 604sqm!
Oelofse goes on to point out that: ”Significant amounts of money will need to be spent on these B and C grade buildings in order to bring them into an acceptable state for letting. Of note is that what is considered B grade space in the CBD is materially different from B grade buildings in the decentralised nodes, where the quality and economic use of space is of a higher standard, due to the age difference of the buildings.”
In fact the contrast is marked between the decentralised nodes and the CBD with 185 000sqm of growth over the past five years, not including Menlyn. Oelofse asks the question: “why is there a reluctance to redevelop the buildings in the CBD to create a capital city worthy of South Africa and a leader in Africa?” The answer to that is uncertain since one may argue that the nature of modern cities is as much decentralisation as it is to maintain and even restore CBDs. Since Tax concessions have been approved for development in the CBD one may suggest that there is some will.
In fact Oelofse himself points out that Tshwane town planning officials published an “excellent document”, ‘The Inner City Development Strategy’, as a development guideline for the CBD, which was adopted for implementation by the council around 2005. He does make the point though that all the planning has been done, strategic studies were done in 2000 by the Department of Public Works determining future office space requirements for the next 20 years. It launched the Re Kgabisa initiative in 2005 involving 40 government departments, 1,2 million sqm of office space with an estimated 10-14 years to implement.
But Oelofse’s beef seems to be with the use old buildings and the lack of new ones. His concern is focused specifically on old government /municipal buildings. ”The efficiency of the old buildings is to be questioned.” He says. “Old buildings are simply becoming older and more inefficient, just postponing the inevitable move, while new buildings will extend the usefulness and efficiencies of the CBD for a further 20-40 years.”
Which brings us back to contemplating Jo’burg’s BBB programme mentioned above or to consider the Cape’s response to derelict buildings. Cape Town faces having to create what’s being termed a “Problematic Building’s Unit.” The unit was formed last December to focus on and to deal with, derelict buildings, which were contravening regulations, including those relating to fire and health. This move is a partnership with the city’s Human Settlements Department. A bylaw was passed last year initially identifying 280 problem buildings. By half way through the year there remained 160 buildings under investigation throughout Cape Town – in the city centre, Mitchells Plain, Durbanville, Salt River and Camps Bay.
That’s just by-the-way since Oelofse doesn’t really touch on the seedier end of the old buildings scale in Pretoria CBD. This despite the Tshwane Metro Council passing of a by-law to deal with derelict building last year. DA councillor Professor Duncan Baker said in October that the by-law was overdue. Baker was exposing the unscrupulous habit of some developers to be buying up property in anticipation of development, leaving it to fall into disrepair in the interim.
Oelofse believes that a useful exercise would be to ascertain the cost of current fragmentation of the municipal council functions and government departments, located in various buildings across Pretoria and compare that to the cost of consolidating those functions/departments by location.
“Rentals are the most obvious costs, however the costs related to fragmented departments are about duplication of services, functions, rental charges, security and inefficiencies in systems, as opposed to new, well-planned accommodation providing efficient, modern working conditions.” Say Oelofse.
We have to take Oelofse’s point about decentralisation of departments. But many cities around the world and in South Africa – Johannesburg and Cape Town for example are seeing fruit in the restoration of old buildings. Oelofse implies that shiny new buildings should be built and that government departments and the Tshwane municipality be centralised.
It sounds neat and orderly but it may not be sustainable, post the completion of new buildings, since not every eventuality can be catered for, government departments grow, split, change and even multiply. On the other hand perhaps it is the duty of government to ensure that the Pretoria CBD remains alive to the sound of rubberstamps whilst leaving the private sector to continue to explore the decentralised nodes of Tshwane.