As a growing middle class in West Africa drives a boom in consumer demand, Actis, the London-based private equity firm, has earmarked funds of over $500m for commercial property development across the region’s two biggest economies.
“We have easily over half a billion dollars for buildings we are developing in Ghana and Nigeria,” says Michael Chu’di Ejekam, director of real estate in Actis’ Lagos office.
While the group is developing commercial property space across the region, much of its activity focuses on the development of Western-style malls. In Nigeria, which is expected to become Africa’s biggest economy when it re-bases its GDP later this year, Mr Ejekam says the group plans to develop five shopping centres within the next three to five years.
“We are still only at the very beginning of a retail revolution and there’s a second wave of retailers coming now into the market,” he says. “The market is going to grow dramatically and it will not be as dominated by South African retailers as it has been in the past. There will be more international retailers participating.”
Africa is home to the world’s youngest and fastest-growing population, according to McKinsey & Company, which estimates that household expenditure in the continent will expand 63 percent to $1.4trn by 2020. Nigeria is the most populous country in Africa, with an economy that has been growing at around 6 percent for a decade and a rising middle class with a history of high expenditure abroad.
A handful of destination-style shopping centres are already open in the region, but demand far outstrips supply and the lack of quality malls has been a major constraint on the entry of global brands. Property development companies are racing to catch up.
“There is a lack of suitable retail property, but the shopping landscape in Nigeria is changing rapidly,” says Boris Planer, chief economist with Planet Retail. “Finally new shopping centres are developing at a decent pace and that will provide more opportunities.”
South African chains such as Shoprite or Game have used new malls to gain a foothold across their home continent, and international brands are increasingly following suit. Clothing, automotives, food and supermarket companies, including the likes of Porsche, Carrefour and Dominos, have already entered Nigeria. Actis says it is in talks with many more.
“Several years ago people didn’t know if retail could work at all here, but that question has been answered with a resounding yes. There’s a brand grab where business people are looking to bring in the brands that are not here,” Mr Ejekam says. “Major groups like Debenhams have been exploring; and luxury retailers including Salvatore Ferragamo, Burberry, Ralph Lauren are looking at ways of coming into the market.”
Some have highly aggressive roll-out plans, targeting up to 40 stores in the next three years in Nigeria alone, he says. Given the scant supply of formal shopping space, those may be over ambitious.
Planet Retail’s Mr Planer argues that tales of international supermarkets trying to follow in the footsteps of Walmart, which entered Africa in 2011 when it acquired a majority stake in South Africa’s Massmart, may be over-baked. “If you look at how difficult it can be in Africa to move goods across a border, the fees and expenditure involved, the red tape, and the lack of suppliers for supermarkets, it’s discouraging,” he says.
With its poor power supply, severe infrastructural constraints, and high rental costs, Nigeria is still a tough market even for groups who are used to operating on the continent. Late last year, Woolworths, the upmarket South African clothing brand, announced its withdrawal from the country, less than two years after it first entered.
The group pointed to a “highly challenging” environment, but analysts said its failure in the market was as much related to Woolworths’ offering as the difficult environment. Many young consumers prefer Western brands over South African labels. “Woolworths is a pretty high price brand by African standards so it’s favoured by the upper middle class,” Mr Planer argues. “But Woolworths is not a brand for the young and fashionable people – those people prefer European or American brands.”
To succeed in the tough market, Actis says that retail groups must be willing to adapt their offerings. That is something which Massmart is focusing on. “Adaptability is very important in developing markets,” says Brian Leroni, Massmart’s corporate affairs executive. “In Nigeria this has led to our developing a completely new format.” The group opened its first ‘Value Mart’, which targets less wealthy shoppers, in January.
Massmart says that Nigeria’s power privatisation process will improve the country’s business climate and “in our opinion, lead to a consumer boom”.
Eleanor Whitehead
Courtesy; Financial Times