Nigeria is definitely moving forward, although it remains a challenging country in which to do business, said Derrick Roper, CEO of Novare Equity Partners.
“There has been a lot of development, and a lot of positive things happening … But it is still a challenging environment, the whole of Africa. It will remain like that for a very, very long time, compared to South Africa or other developed markets. But that often creates the opportunity. If it was easy, everyone would be there,” Roper told How we made it in Africa during an interview at the private equity firm’s head office outside Cape Town, South Africa.
Towards the end of June 2012, Novare opened its first shopping centre – the Grand Towers Abuja Mall in Nigeria’s capital. The development is funded by the Novare Africa Property Fund 1, which was listed on the Stock Exchange of Mauritius in 2010 with a mandate to invest in commercial property development in sub-Saharan Africa, excluding South Africa.
The mall is anchored by South African supermarket chain Shoprite, and a diverse range of Nigerian retailers as well as international brands such as Adidas and KFC, South African restaurant Spur, banks, pharmacies and mobile phone companies such as MTN and Etisalat.
The past few years have seen the rise of modern shopping malls in Nigeria, especially in the country’s commercial hub Lagos. So why did Novare opt for a mall in Abuja? “It is one of the fastest growing cities in Africa. It is a fairly wealthy city … because there is a lot of government employees, ministers and that. And in Abuja there are not really any shopping centres at this stage. It was a big drive for Shoprite to open there, and it was their first shop in Abuja,” said Roper.
He added the Novare’s Nigerian partners, Grand Towers, owned the land on which the shopping centre currently stands, and was eager to develop it. “In Africa the biggest problem is finding land. If you can find a piece of land in a good area, you would move quickly to develop it.”
Securing the right tenant mix
Shopping malls need a good balance between anchor tenants (such as Shoprite), sub-anchors and smaller retailers. Roper notes that while there is no shortage of smaller retailers in Nigeria looking for a space in a modern facility such as the Grand Towers Abuja Mall, it was more challenging to find sub-anchors, especially clothing chains.
The reason for this is because Nigeria only relatively recently lifted a ban on imported textiles, which discouraged the entry of foreign fashion chains. Since the ban has been lifted a number of clothing retailers, especially South African companies such as Woolworths and Mr Price, have entered the Nigerian market. However, according to Roper, many of these chains are first testing the market and taking their expansion slowly.
Bigger is not always better
A major challenge for private equity players in Africa has been their exit strategies, a euphemism for how they expect to realise returns on their investments.
This is one of the reasons why Novare prefers developing “smaller” shopping centres, which are easier to sell later on. The company focuses on malls of around 10,000 m2.
Roper added that it is also easier to find enough tenants for smaller malls and that the construction process is quicker.
According to Roper there were many challenges with the development of the Grand Towers Abuja Mall. One of these was securing financing from local banks. “The banks are prepared to fund, but they don’t really understand property because it is a new development for them as well. So having to negotiate it with the banks initially was not easy. Now that the banks see the mall standing, they all want to do other developments with us, and they are also starting to understand it better.”
Roper said that the construction process also posed difficulties. He says that most Nigerian construction firms don’t have the experience to build large modern malls. For this reason, many of the skilled technical people were brought in from South Africa.
Many of the materials used in the mall had to be imported, which brought the added challenges of dealing with delays at ports and getting the products through customs. “If you build a modern shopping mall for someone like a Shoprite, they’ve got strict guidelines and requirements from a quality [perspective] and what their fit-out must look like. And you don’t have those things in [Nigeria], and a lot of the things got imported – the air conditioners, the roof, the tiles,” noted Roper.
Despite these difficulties, Novare sees potential for many more malls in Nigeria and the rest of the continent. According to a recent statement by the company, it is looking at five other mall developments in sub-Saharan Africa. Building on these should commence at the end of 2012.
Derrick Roper will be one of the speakers at this year’s Africa Property Investment Summit. The two-day event, taking place in Johannesburg from 4-5 September, will be held at the beautiful Sandton Sun Hotel. The conference package (R6,750/US$845) includes all lunches and refreshments, an invitation to the gala dinner, parking and full access to all research, presentations and documentations. For booking information visit www.apisummit.co.za. Special offer for How we made it in Africa readers: 10% discount for the first 20 readers to register. To take advantage of this special offer email Marie Coetsee on [email protected] or +27 11 408 5695.