Africa’s real estate and construction opportunities cannot be ignored

  

Wal-Mart Stores Inc (through South Africa’s Massmart) has indicated that it will be strengthening its existing operations in Africa.

“Massmart is currently located in 12 markets so that’s our focus. Building our business in the markets that we are currently in is our primary focus,” said Doug McMillon, head of international businesses during an interview with Reuters. “We are excited about the region. We have a long-term view,” he added.

Massmart already has a handful of stores outside South Africa, giving it a foothold in markets such as Ghana, Nigeria and Uganda. According to the Massmart chief executive, Nigeria alone has scope for up to 20 stores.

An interesting highlight is that strategy to grow to the “rest of Africa” is not only being implemented by fast-moving consumer goods companies. This theme has dawned to a number of South African companies in various sectors as sub-Saharan African continues to exhibit exciting growth prospects.

We recently came across an interesting article in the Financial Mail that has it that Resilient Property Income Fund has partnered with Shoprite Holdings in building 10 shopping malls in Nigeria at an estimated cost of about US$ 125 million. Resilient is a South African real-estate investment company.

The malls will be built over the next three years in the political capital, Abuja, and economic hub, Lagos. Shoprite will be the major tenant while Standard Bank Group and construction company Group Five are also partners in the deal.

Speaking of real estate and construction activity, we note South Africa’s Group Five has geared up its strategy of focusing on cross border opportunities with the aim of securing higher margin business. In fact, Group Five continues to prioritise geographical diversification away from South Africa as a strategic imperative having set a target of generating 40% of all group revenues from cross-border markets.

It is very clear that there is an infrastructure backlog in Africa, and therefore the region presents a massive opportunity for construction groups in terms of new public-private partnership (PPP) opportunities. Further, Group Five is focusing on accessing more of the mining capital spending in Africa through the delivery of multi-disciplinary solutions to mining companies operating in remote locations. In this regard, the group has provided mine construction, housing and infrastructure works in the DRC, Zambia and west Africa.

In its recent results publication, the company also indicated that it had successfully secured a $206 million contract financed by the Development Bank of Southern Africa (DBSA) for the master planning, design, construction and operation of the first phase of a new road transport network for the Zimbabwean National Roads Authority (ZINARA).

Feedback from our colleagues who recently attended the 2012 Ethiopia Investment Summit in Addis Ababa is that there is massive construction activity happening in that east African country.

In conclusion, while we are strongly convinced by the fact that sub-Saharan Africa exhibits a compelling consumer story, we believe the opportunities in real estate and construction cannot be overlooked.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.



Related articles:
  • Nigeria’s real estate sector – what to expect in 2011
  • Pam Golding chief shares his thoughts on Africa’s real estate market
  • Five reasons why Lagos’s real estate sector is set to take-off