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Social Grants – How They Influence Rural Retail.

Social grants queues in Vosloorus.photo by Simphiwe Mbokazi

Social grants queues in Vosloorus.photo by Simphiwe Mbokazi

Keillen Ndlovu, head of Property Funds for Stanlib has been widely quoted of late, saying: “When it comes to retail property investment, the lower income market is still the place to be. It is where the population is and where the growth is. There are still opportunities for smaller retail centres with a convenience element.”

For small town and township retail, food and fashion are basic ingredients. Proximity to public transport is a further need. Banking facilities: branches and ATMs also contribute, given low Internet penetration and a preference to transactions in cash.

Shopping centres in this subsector show a monthly shopping cycle. Pronounced spikes in shopping at month ends and early stages match payments of government social grants and salaries for the growing working middle-class, less reliant on discretionary spend, providing more stable trading densities.

Someone else to weigh in on the subject is Marc Wainer, chief executive officer of  Redefine Properties, in an interview with Denise Mhlanga from property 24 said “with interest rates expected to remain low for a while, consumers appear to be spending more than in previous years and rural shopping centres are benefiting from the Government social grants.”

Marietjie Oelofse of the Aida Lichtenburg office says “This is in stark contrast to the situation five years ago, when many retail shops in town centres stood empty. But minimum wage payments and better distribution of social grants have increased disposable income, creating a demand especially for clothes and furniture.

As a result, there is strong demand for space from retailers catering to this growing buying power.

Clearly social grants paid by the state are helping retailers in township shopping centres weather tough economic conditions.

Two Shoprite stores owned by Futuregrowth’s community property fund, Diepsloot Mall and the other in Tembisa, enjoyed the highest turnover per square metre of any Shoprite outlet in SA over the past two years.

Futuregrowth portfolio manager James Howard told Business Day Briefing that the fund’s shopping malls in Diepsloot and Tembisa were consistently rewarding despite “harsh” economic conditions, thanks largely to the social grant money that was being spent by the two communities. The centres improved turnover even during the credit crunch since few community members were in the market to borrow.

Shoprite has a long history of investing in township and rural property even before returns looked promising. Howard said: “Shoprite has backed rural development for the past 15 years, before these areas were seen as investment hotspots. We have seen land in places that are considered ‘no-go areas’ develop into attractive stores.”

The influence of social grants is even more visible when looking at the payout points themselves. But there are pro and cons.

Talking to the Mail&Gaurdian, Andrew Mills, director of Boxer Superstores, part of the Pick n Pay group, said spending on social-grant payout day at the 95 Boxer outlets in South Africa was bigger than it was on payday. He said recipients who lived in remote areas often did all their shopping after collecting their grants at a store to save on transport costs.

The recipients are encouraged to spend 10% of their grants on goods in the store before the remainder is withdrawn as cash from the tills. Mills added that Boxer consumers were “wise” and the stores tried to offer promotions on pension-payout days to discourage people from shopping elsewhere.

Mike Prentice, Spar’s group marketing executive also talking to the M&G, said its supermarkets also experienced “massive spikes” in sales on social-grant day and the days that followed. “It’s definitely the biggest trading day of the month. It changes the entire complexion of the store over that time.”

Spar has 850 stores throughout South Africa and, like Boxer; almost half are located in rural areas. Many Spars are payout points for the grants, although the biggest spikes in spending that Prentice speaks of, are seen in rural areas. Preparation for payout days involves extra staff at certain stores. Shelves are restocked with top-selling items such as rice, maize, long-life milk and airtime. Social-grant payouts totalled close to R100-billion in 2012. More than half was for child support and the remainder was largely for old-age pensions and disability grants.

But not everyone is happy, “Retailers acting as payout points for social grants are problematic” said Social Development Minister Bathabile Dlamini in a public statement. Dlamini said the department was concerned that those drawing their money from retailers were not given the full amount and were obliged to buy a certain amount of goods at these stores.

“The retailers are only interested in money, not the quality of food our people eat. We don’t mind communities coming to this kind of agreement, but not when they are forced into it.”

Back to Mills, who says customers were encouraged, not obligated, to spend 10% in the store at the month’s end. “They do their shopping at the same time, because it is more cost-effective for the customer and saves in transport costs.”

Mike Prentice, Spar’s group marketing executive, said its customers were not expected to buy in the store. “It is not even implied,” he said. “People just tend to do their shopping there anyway.” The fees cost each store 0.25% of the total payout, he said, but the resulting revenue surge more than made up for it.

Social grants are an important source of cash income for households with eligible members. While these are important for poor and vulnerable households and individuals, there is a disturbing trend – the number of people (households and individuals) dependent on social grants as major or only source of income is increasing.

According to Booysen and Van der Berg (2005) HSRC paper, the number of beneficiaries increased between 1998 and 2003 from 2.8 to 5.8 million, which represented an annual growth of 15% or an increase from 67 to 125 grants per 1 000 of the South African population. However, the increase in 2003 could be attributed mainly to the introduction of the CSG (Child Social Grant) and the increase in public awareness of eligibility for grants. Nonetheless by 2009, the number of beneficiaries was estimated to be 13 million (22% of the population) and, rightly so, the government has started to get concerned about this high dependence on social grants. The social grant system transferred about R78 billion in cash grants (DBSA 2009) and has continued to grow, putting enormous pressure on the fiscus.

Depending on what measures government chooses to take, to reign in the growth of social grants, will determine the level of reliability dependence those social grant will be on influencing secondary market spend trends. An entire commercial and retail industry may be dependent on the outcome.

Opportunity Knocks in SAn Rural Areas

ShopRite2Shopping Centres in rural areas are becoming more sophisticated and formalised; it’s the place to do business rurally.

Some towns have up to 600 000 people, and consumer demand for convenience as well as steady population growth offers major prospects for retailers.  In South Africa, people living in rural areas and townships (or second economy locations) spend more than R 308 Billion annually, representing 41 per cent of total consumer spending. [The Retail Lab]

The similar research shows that South African Shopping centre development trends are moving towards an oversupply situation in urban areas, yet retailers are still cautious when it comes to considering the opportunities within township and rural areas.

Some of South Africa’s most successful retailing operations have ploughed this field for some time. Shoprite is a prime example.   Shoprite had the foresight well ahead of their competitors. Shoprite has over 1500 stores, making it Africa’s largest grocery chain and in a prime strategic position not only in South Africa but on the African continent.

Other retailers active in this arena include cell-phone retailers, some of the banks and clothing outlets who trade in areas where there is currently little competition.   Opportunities abound for retailers, especially franchises and stores in fast food, groceries, fashion, mobile, electronics, financial services, furniture and hardware.

Secondary Market shoppers are brand conscious, no-name knock-offs don’t impress. Those in the market encourage interaction with the community, becoming involved in community life is essential. One must find ways to of make goods and services relevant and be seen to be socially active and responsible.

Retail in South Africa’s rural areas or “emerging economic areas” is growing and this success is evident in the retail sales and trading densities in these centres. Statistics show that the last decade has seen a significant increase in the number of retail centres being developed in townships and rural areas in South Africa.

“Townships and rural areas in SA have emerged as a new market for national retailers as we see an upward movement amongst township communities in terms of expendable income. This progressive movement has resulted in a considerable increase in shopping mall development in these previously untapped areas.” Said Marc Edwards of Spire to Cyberprop recently.

Edwards goes on to advise partnering with experts in the field; to appoint strong community based centre managers; to stay close to the community and to ensure the centre is valued; to ensure public transport is available to shoppers; to sponsor community events; to cater for bulk buying and above all carefully research what the needs of the community are.

“Rural areas offer a real cash economy and well marketed tenants who have done their homework will be successful,” concludes Edwards.

 

 

On your marks, get set…Africa! SA Business moves into Africa.

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.

Resilient Goes Fishing – Africa’s gain is South Africa’s loss.

If not in South Africa, where does future expansion lie for the Johannesburg-based real-estate investment company Resilient, which has a local market capitalization of 11 billion Rand?

Des de Beer. Resilient Property Income Fund MD (courtesy FM)

 

Despite the World Economic Downturn South Africa has continued to successfully build and fill new shopping centres with both tenants and shoppers. Resilient has been at the forefront zeroing in on non-metropolitan shopping malls outside of the major urban nodes. Towns like Tzaneen, Rustenburg and Klerksdorp come to mind.

 

Resilient also holds strategic interest in Jabulani Mall in Soweto (55%), Highveld Mall in Emalahleni (60%), 70% of the I’langa Mall in Nelspruit and 60% of the Mall of the North in Polokwane . The firm also owns the Diamond Pavilion in Kimberley and the Tzaneng Mall in Tzaneen. Resilient holds 12.9% of the Capital Property Fund, 22.0% of the Fortress Income Fund – B and 18.6% of New Europe Property Investments plc. It also owns Property Index Tracker Managers, the company that manages the Proptrax exchange traded funds.

 

Now Resilient is looking to Nigeria for its future. This may have some people worried to see a big player like Resilient apparently ‘abandoning’ the local market. But looking offshore is nothing new to Resilient. Back in 2007 it was involved in the establishment of New European Property Investments, seeing shopping malls being built all over central Europe. The fund was initially listed on the London Stock Exchange, but went on to acquire a secondary listing on the JSE in 2009.

 

But looking locally, Patrick Cairns for Moneyweb writes: “Resilient’s strategy of managing shopping centres outside of the major centres in South Africa has been a very successful one. By focusing on under-serviced areas, the group has tapped into a growth story that has delivered excellent returns.”

 

Some would say this is due to a variety of reasons: for one, the reduced competitive playing field in small town retail nodes. Secondly shoppers in these towns are less likely to be debt-laden in comparison to their counterparts in urban areas. Increased levels of government social spending have also given more buying power to rural dwellers. This translates into a consumer group with high levels of disposable income available to use at Resilient’s shopping centres.

 

So what’s changed? According to The Citizen’s Micel Schnehage, Resilient’s Director Des de Beer explained that it’s the firm’s struggle with local government. “(Resilient) is hampered by extensive bureaucracy and red tape, resulting in expensive delays.” He went on to state that the era for Resilient to develop non-metro malls was over.

 

What seems to have been the last straw was the loss of documents pertaining to the Mafikeng Mall by local authorities 17 times. “They’re not accountable to anyone so they don’t really care,’’ said de Beer to the Citizen.

 

Apparently a partnership with the Sasol pension fund will result in the continuation of the development of malls in Secunda and Bergersfort.

 

But why Nigeria? Better yields is the short answer. De Beer is expecting returns of greater than 10%, and in dollars too. Resilient believes there is a sincere intention in Nigeria to see the country raised up and that officials are largely positive facilitators of that process. One may wonder if the company is being naive but recent reports of land being donated to developers to ensure development takes place certainly shows intent.

The Financial Mail reports that Resilient Property Income Fund Ltd plans to 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.

 

Bloomberg reports that Standard Bank Group Ltd, Africa’s biggest lender, and construction company Group Five Ltd. (GRF) are also partners in the deal.

 

The FM reports that De Beer would like to list the shopping centre fund in Nigeria once it reaches the right critical mass. This would be a similar approach to Resilient’s entry into Romania back in 2007 through New Europe Property.

 

One can’t help being a little concerned that if a big local player has chosen to go fishing elsewhere what are South Africa’s prospects as far as foreign investment goes? Time will tell.

 

It seems Africa’s gain is South Africa’s loss.