A brand new shopping centre, the Ikeja City Mall, is currently under construction in Lagos, Nigeria. We interviewed Michael Chu’di Ejekam, director of Actis West Africa’s real estate division, about the project and the business of developing shopping malls in Africa’s most populous nation.
What is the current status of the Ikeja City Mall?
A groundbreaking ceremony for Ikeja City Mall took place in June 2010 and construction is expected to complete during the beginning of 2012.
The mall is receiving strong interest from local and international retailers seeking to occupy space. The project has received support from the local government who appreciate the potential contribution of the mall – direct job creation during and post construction, formalisation of employment which will boost the taxable base, the increased availability of products to local consumers, a ripple effect through the local supplier network, and the provision of a safe environment for consumers to enjoy shopping and entertainment options.
The recent lifting of the textile importation ban in Nigeria has sharply expanded the scope of international retailers that are able to trade in Nigeria, thereby improving leasing efforts for the Ikeja City Mall. The era of 40,000-plus m2 shopping malls has dawned upon Nigeria.
We are excited about the demographics. The Johannesburg area with a population of about 4 million people has 69 shopping malls, whereas the entire city of Lagos with about 17 million people has one international grade shopping mall – Ikeja City Mall will be the second. Within an eight kilometre radius of the Ikeja City Mall there are an estimated 3.9 million people with monthly household incomes of US$1,500 per month or $18,000 per annum – certainly material spending power.
Explain some of the major challenges in getting this project off the ground?
There is a dearth of local development expertise because of the limited number of retail developments that have been constructed in the region to date. This has created a need to match up local professionals with international teams (architects, engineers, etc).
We went out to secure debt financing for this project in the midst of the global credit crunch in 2008/2009. The fact that we were able to secure the necessary funding is testament to Actis’ position in the marketplace and our reputation as a pioneering investor with two similar retail projects already concluded in West Africa.
Who is financing the development? How accessible is finance for retail developments in Nigeria?
Actis is the primary equity investor in the project, holding a 60% equity stake. The other partners are Paragon Holdings and RMB Investments and Advisory, each with a 20% equity interest. Stanbic IBTC Bank Plc and Standard Bank of South Africa are providing debt financing for the project.
World-class formal retail developments remain relatively new to Nigeria with just a few exceptions. There are only a couple of well capitalised, patient equity investors in Nigeria who have a complete understanding of large-scale real estate project financing.
There remains a challenge in securing reasonably priced debt financing for retail projects in the local marketplace. Local currency funding is at unattractive interest rates, while lower cost US$ funding is relatively scarce for large projects.
How would you describe the demand from retailers in Nigeria to have a presence in a modern facility such as the Ikeja City Mall?
It is clear that there is a supply-demand imbalance. Nigeria is in the midst of a retail revolution; as the middle class grows and consumer tastes evolve, so the demand for a clean, safe, orderly formal retail experience increases. While Ikeja City Mall is under construction, The Palms mall, in which Actis was the lead equity investor, remains the only world class formal retail centre; there is a weak pipeline of competing projects.
The Palms is fully let, with a backlog of tenants waiting to occupy any vacancies. We have seen similarly strong demand for space in another Actis-led mall, the Accra Mall in Ghana, which is also fully let with a backlog of identified tenant demand sufficient to fill the mall one and half times over. There is very strong demand from the retail community to expand their footprint across Nigeria. Potential and existing mall tenants talk about wanting to roll out 70-plus stores in Nigeria within the next seven to ten years.
The Palms shopping centre was Actis’ first mall in Nigeria. What were the major lessons you’ve learned from that development?
The Palms was pioneering and the Actis investment thesis was challenged by observers at the time: Could such a development work in Nigeria? Was there sufficient demand? Is there sufficient buying power? Is there really a desire for non-traditional/formal shopping? We have answered all of these questions with a firm ‘yes’ and have demonstrated the growing appetite for other similar, and even more ambitious developments across West Africa. Our experience at The Palms also showed us that demand from non-anchor tenants was so strong that we could afford to reduce the anchor ratio, leading to greater shopping variety and improved project economics.
Outside of Nigeria, Actis has also developed the Accra Mall in Ghana; are you looking at projects in other West African countries?
We are seeking to leverage our pioneering successes in Nigeria and Ghana to develop additional retail and leisure centres in both countries. We believe that the strength of the formal retail proposition applies to other West African countries too, and we would certainly consider backing similar pioneering projects in other parts of the region.