Investments and the future of retail in East Africa
Category General News
Nairobi, 15 April 2015 – East Africa continues to be a sought after investment destination, however, it is important to note that the region offers different opportunities which vary from one country to another.
While Kenya has been described as one of the fastest growing economy in Africa, it is important to recognise that Tanzania and Rwanda are growing at an equal pace, explains Broll Kenya CEO and Head of East Africa Operations, Jonathan Yach.
Yach says they anticipate that these three countries will remain stable due to existing government interventions. Furthermore, while Nigeria, followed by South Africa are the largest economies in Africa, Kenya was recently rebased and is now classified as the ninth largest African economy (previously ranked 12th) mainly due to agriculture, Information and Communication Technology (ICT) and the burgeoning real estate sector. However, one must acknowledge that the region still has a number of challenges affecting its member country’s economic growth. These include - high unemployment rate (around 40%), sluggish demand for exports as well as declining manufacturing and production resulting in the widening of the country’s current account deficit.
Investments in the region
Yach points out that Kenya remains the economic powerhouse in East Africa when compared to Uganda, Rwanda and Tanzania. A report by the World Bank earlier this year ranked Kenya as one of the fastest growing economies in Africa with GDP growth expected to rise from 5.4% in 2014 to 6% to 7% over the next three years due to increased public investment in infrastructure and energy.
Although Uganda’s GDP is stable, its real estate sector lacks stability due to the current oversupply of office space. Yach says in Tanzania, land ownership remains restrictive with ownership vested in the government which impacts on investments as foreign investors do not have full reign to grow their businesses.
The upgrading of the rail infrastructure in Kenya will increase the importance of Kenya as the regional leader. The construction of the standard gauge railway will service landlocked countries such as South Sudan, Congo, Uganda and Rwanda, linking them with the Port of Mombasa. We anticipate improved and faster delivery of goods as the current road networks remain a great challenge to transporters in the country and cross border.
With the discovery of oil and gas in Kenya, Tanzania and Uganda, we foresee more international investors in the oil and gas sectors investing in the region which bodes well for the economy and for the real estate sector.
Retail in East Africa
Group CEO of the Broll Property Group, Malcolm Horne explains that future retail prospects look positive. It is estimated that around 1.9 million sqf of retail space are currently under construction and due for opening in 2015 through to the second quarter of 2016 in Kenya.
In Tanzania, we anticipate over 650,000 sqf of retail space in Dar es Salaam alone and in Rwanda we anticipate a further 380,000 sqf of retail space in 2015/2016.
Furthermore, there is increasing demand by non-real estate companies such as Safaricom, Britam, Centum Investment Group and UAP Holdings (60.66% owned by Old Mutual Limited) to increase their real estate investments in years to come. Currently, Centum is developing the biggest retail centre in East Africa – Two Rivers situated off Limuru Road with a total GLA of 650,000sqf.
Challenges and opportunities
However, notes Horne, finding retailers who understand the East African market and the peculiar consumer buying habits is a challenge. Further to that, formalising the informal sector of retail is still a challenge as “Mutumba”, which refers to second-hand clothing, remains a key hindrance in the formal retail sector, particularly for fashion retailers.
“There is a great demand for variety of retailers in the East African community - the region requires not only high-end retailers but there is also huge demand for more affordable retailers.”
Asked about the impact of the so-called growing middle class on the retail sector, he says looking only at basic income is not sufficient as the rising middle class have a high spending power for entertainment, lifestyle, technology and fashion.
“These individuals who earn between KSh100,000 – KSh350, 000 ($1,000 – $3,800) also may have more than one job and/or are enrolled in various investment clubs that enable them to diversify their investments and increase their spending power. “This class is now more receptive to formal fashion, entertainment and purchasing of luxurious goods,” says Horne.
International retailers such as Carrefour, The Foschini Group, LC Waikiki among others are entering the East Africa market, however, their greatest challenge will be finding the right local suppliers and service providers while still maintaining their international standards and practises.
Horne says Kenya has the most developed retail market in East Africa with about 40% of retail shopping being done in formal outlets dominated by Nakumatt, Tusky’s, Uchumi and Naivas. Growth is seen in Uganda, Tanzania and Rwanda, albeit slow with supermarket chains such as Nakumatt operating in these markets.
“We anticipate increased investments into retail in the region as consumers become more sophisticated and demand a wider variety of new products, brands and technology,” adds Horne.
Horne and Yach will speak at the East Africa Property Investment (EAPI) Summit – a forum which provides delegates with an opportunity to discuss real estate investment opportunities in the East African region. Broll has been a sponsor of this event since its inception in 2014 and believes in the value that an event of this nature provides not only to investors but also to real estate professionals.
Author: Broll