Top property markets in Africa

Andrew Golding, the chief executive of Pam Golding Properties, tells Frontier why he is optimistic about the property sector in Africa.

Which African countries have the best opportunity for property investors?

Each African country has its own specific dynamics and opportunities. Pam Golding operates in all the SADC countries, and in Kenya and Uganda in East Africa. 

Mozambique is 'the flavour of the month' at the moment, due to its booming resources sector. There is a lot of activity across all the segments of the property sector, with cranes dominating the skyline of Maputo. One can find upmarket leisure developments just south of Maputo that cost US$10-million a unit. Two years ago this would have been unthinkable. Mozambique has a shortage of A grade residential accommodation, but this area is developing rapidly. We are very optimistic about the extent that this is going to happen.

The same thing is happening in Nairobi (Kenya) where the market is really doing well, and has similar characteristics as South Africa's. There is shortage of stock and yet there are many buyers with purchasing power.

We are seeing more investment in residential and commercial market segments across the board. There is a culture in many countries of investing in residential property - the buy-to-let market. Nairobi has strong buy-to-let developments. There is definitely a strong but small residential market in Lusaka (Zambia). Namibia, Zimbabwe and Swaziland are enjoying quite a strong residential market characterised by shortage of stock, moderate to good price growth (depending on the focus market), and a strong buy-to-let market.

The two countries with massive growth opportunities that we are now targeting are Angola and Nigeria. The Nigerian market is huge (150 million people) and potentially an enormous opportunity, but with a lot of potential pitfalls.

Uganda is an interesting market. We have just been appointed to do a project there - a residential golf estate located between Entebbe and Kampala, a beautiful site on Lake Victoria. The developer who is associated with a hotel which is already operating is now launching 100 residential units at an average cost of US$1-million per unit. All indications are that the project will be finished successfully. In Uganda and several other countries, there is a lot of demand for upmarket property.

Other notable markets are the Indian Ocean Islands of Mauritius and Seychelles. They continue to tag along remarkably well. The Marina development in Seychelles that we are involved in is almost complete. We have sold 450 out of 550 properties, to the value of more than US$500-million. The country continues to attract buyers looking for that sort of lifestyle, whether it is leisure or permanent. There is a big cross-section of nationalities that have bought property here. 

We are about to launch a new big development in the north of Mauritius. We have been involved in this project for the last 10 years. There is also potential of at least 500 units in the form of an integrated resort scheme in the south. The scheme will allow owners to buy in at an entry level of between US$1 -1.5m.

What is your strategy for entering new markets?

We have a few models. In Zambia we have a franchise in which we are shareholders. In Kenya, it is a 100% franchise. It depends on the individual operator that we find in a specific country. The key to success is finding somebody who fits into our corporate culture and who we believe we can have a long-term relationship with. In Nigeria, we are an equity participant in a business. Our entry strategy is guided by various factors such as the appetite of the investors - whether they want us there or not, or whether they would benefit from our participation as shareholders as opposed to being an operator.

What are the trends in South Africa’s property market?

Two years ago and 18 months ago someone turned on the lights, and suddenly the stock started to dry out in one or two pockets. Now most of the metros are characterised by the same phenomenon - a critical shortage of stock, buyers competing with each other, and property starting to sell at asking prices or even above asking price...

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Top 5 infrastructure investment opportunities in Africa

By Kurt Davis

The 'Top 5 public private partnership opportunities in Africa' highlighted the best countries for PPPs in Africa. This article examines the best countries for infrastructure investment, if we assume all things to be equal in each country’s PPP system. 

Only one country - Nigeria - makes both top 5 lists, largely because it's government has made great strides in recent years to match its enthusiasm to develop infrastructure with the demand for infrastructure investment in the country. Over time, all political indicators point to a greater PPP environment in the other four countries on this list, and greater growth in PPPs across the continent. Still, in the short term, private investors should not be deterred by the challenges in the PPP markets, as officials in these countries have indicated that they are keen to bolster the PPP market, especially from a legal perspective, and participate with investors.

Angola

More than ten years after a 27-year civil war that left nearly 1.5 million people dead, Angola is taking off like no other country. Situated on the western cost of southern Africa, the country is home to a wealth of natural resources, most notably oil (making Angola the second largest oil producer in sub-Saharan Africa). A boom in real estate construction (including hotels) and financial services unsurprisingly accompanies the oil boom, making Luanda unrecognisable from 10 years ago.

On the surface, it is a perfect turnaround. But, as it goes in any other country, every boom has its challenges. The all-encompassing challenge in Angola’s growth story is infrastructure. New buildings, more people, and a deficit in power sums it up, says a major Lusophone private investor. Hydropower is an obvious solution and the government is making great strides in restoring its capabilities. Still the hydropower facilities and greater distribution systems for power remain a shell of themselves after their decimation in the civil war.

Fundo Soberano de Angola, the US$5-billion sovereign wealth fund for Angola, is targeting infrastructure investments across the country. Yet, despite the government’s pledge to transfer annual surpluses from the oil reserves account (with annual receipts as high as US$3.5-billion), greater investment will be required from foreign investors. The quality of the transport network, including airports and ports, is sub-par to support the country’s growth. Private investors will find an interested government partner and a lucrative return in connecting the resource-rich Democratic Republic of Congo with the Atlantic Ocean and partners in the transport-capable country of Namibia.

Mozambique

As the other big Lusophone country in southern Africa, Mozambique shares a similar story of civil war and decimation. Booming with gas reserves and the accompanying real estate sector, the country is in great need of a transport upgrade. Recent estimates by professional services firm, PwC, values transport projects in the pipeline at US$17-billion, including increased rail links to the ports and expanding port capacities. Yet, by all accounts and estimates, more money will be required to ensure that major ports, including Nacala, Beira and Macuse, reach full potential. Equally, transport networks from those ports to neighboring Zimbabwe, Malawi and Zambia require financing currently not available in the market.

A recent announcement by the Minister of Public Works Cadmiel Muthemba indicates an openness on the government’s side to erect more toll roads. The country currently has only one toll road - the N4 toll road connecting Maputo to South Africa - which is operated by South Africa’s Trans Africa Concessions (TRAC). Private operators see enormous return potential in several routes, including highways between Manica and Tete, between Nampula and the port of Nacala, and between Marracuene and Inhambane.

Speaking at the ‘Africa Rising’ conference back in May, hosted by the International Monetary Fund (IMF) in Mozambique, the Minister of Planning and Development Aiuba Cuereneia stated the country’s notable gains in paved roads and the projects in the pipelines. Equally, during Q&A, he conceded that more financing was required, specifically from foreign investors, to match the plans envisioned by the government.

A power deficit is also quite noticeable in the country. A changing environment for public private partnerships should breathe life into this sector in the near term.

Cote D’Ivoire

Talk of a country booming under the public radar. Cote d’Ivoire has made amazing strides since the assumption of power by President Alassane Ouattara in 2011. The economy expanded 9.8% in 2012 and 8.7%  in 2013, with an estimated 8.0% predicted in 2014, according to the IMF. Yet it remains a fragile state, especially with elections around the corner in 2015.

The country is the largest producer of cocoa as well a global player in the palm oil and cashew nuts markets. Cargill, Cadbury and Hershey’s among many others call the country an agriculture hub - yet the country is nowhere near its potential. Infrastructural upgrades in the transport sector, specifically ports and road infrastructure, will greatly boost the country’s capacity for moving agricultural products and growing its position as a food basket and trading partner to neighboring Sierra Leone, Liberia, and Ghana.

The arrival of energy companies, following the discovery of oil reserves, will help fill government coffers for spending on infrastructure. But the boost in cash, particularly in the short term, is not sufficient to jump the infrastructural hurdle left by years of civil war. The power necessary to buoy the energy, agriculture (including agri-processing) and manufacturing sectors going forward is simply not there, creating big opportunities for investors. But it cannot be ignored that Cote d’Ivoire did not make our list for public partnerships in sub-Saharan Africa, as the government will have to do more to appease investor concerns and mediate risk. More details around regulation should appear after next year’s election.

Nigeria

As mentioned before, Nigeria is the only country to appear on both the top five list for public private partnerships and top five list for greatest infrastructural opportunity. Nigeria has one of the greatest infrastructural needs on the continent, particularly due to its size and population, and its politicians recognize this grave infrastructural challenge, consequently enacting laws to promote public private partnerships across the country.

The estimated cost of infrastructure investment required over next 10 years hovers between $8-billion and $10-billion. The newly-established sovereign wealth fund for the country cannot pay the bill for everything. Thus private investors will have a wealth of opportunities to keep picking from in the near future, especially in Nigeria’s power and accompanying transport sectors. Recent laws and change in government approach has numerous private operators waiting at the gates to make a deal. Some parties do complain that the due diligence process is absurdly arduous but this should gradually change over time.

Ethiopia

Ethiopia has the highest spending on infrastructure as a percentage of GDP in Africa. The government is dedicated to delivering high quality infrastructure to the country as the impetus for investment in the country’s other business sectors, particularly manufacturing/industrial and agriculture. For a country with 90 million people and relatively un-urbanized compared to its peers, improved transport - specifically roads and rails - is critical to moving goods to disperse populations.

The country’s leadership currently envisions an energy surplus following the completion of its latest dam project. But this should not lead investors to think the investment opportunities are limited for the power sector. Power purchased at the borders with Djibouti and Somalia can go north of US$0.75 per kWh depending on the time of the year. Thus, Ethiopia's vast land mass - ripe with energy opportunities from geothermal to gas to wind - offers boundless potential for growth.

Power generation could solely justify Ethiopia’s ranking in the top five. But, it would be a failure to ignore the demand for increased investment in power distribution. Any opening to foreign investment in the telecommunication sector will offer investors access to a country desperate for improved telecom infrastructure. Creative operators are already considering opportunities in water and sewage treatment which will become a graver concern to the country’s population as it approaches and surpasses 100 million persons.

It is not about the potential return with Ethiopia, in the eyes of those investors currently looking at the country, but rather all about timing (as to when a sector is more liberalized or the project gets approved). Whether today or in a year, the country will remain very attractive for infrastructure investment.

This article is re-published with permission from Frontier's content partner, Ventures Africa.

Key dynamics in Kenya's upstream oil industry

Learn why the next 18 months could determine country's ambition of being a major oil exporter.

East Africa is poised to become the world’s next oil and gas export hub, with three countries – Kenya, Mozambique and Tanzania – harbouring big ambitions to make this a reality. 

In Kenya, further exploration is underway, and so is a US$25.5-billion infrastructure project focused on exporting oil and gas. The country hopes to be the first oil exporter in the region by 2017, going by the efforts of Tullow Oil and Africa Oil Corporation to submit a field development plan for their blocs in Turkana County by next year.

As investors rush in to claim stakes in the fast-emerging oil and gas frontier, a new report by Ecobank Research titled 'Key dynamics in Kenya's upstream sector' says the next 18 months are going to be important and could impact how Kenya’s upstream sector develops.

Click on this link to access the 'Key dynamics in Kenya's emerging oil industry' report

This report is brought to you in partnership with Ecobank Research. 

Follow Ecobank Research on twitter.

Outlook for mining sector in Africa

2013 was a tough year for the mining sector in Africa. This was principally due to lower commodity prices, a drop in investor confidence due to lower returns over the last commodity super-cycle, and continued increases in operating costs. This was evidenced by a reduction in transaction deals and project and exploration funding.

So what does this mean for 2014 and where are we likely to see investment in Africa’s mining sector?

It is forecast that from 2010 to 2050, annual steel, iron ore and coal consumption will increase by 59.4%, 47.1% and 129.9%, respectively. With the continued expected growth in China’s demand for urbanisation, Africa with its abundance of natural resources will be at the top of most Asian investor wish lists.

African countries that will most likely benefit from investment in 2014 are: 

Country                            Resource

Namibia/South Africa	Uranium
Burkina Faso, Ghana, Guinea, South Africa	Gold
DRC, Zambia	Copper / Cobalt
Iron Ore / Magnetite	Cameroon, Guinea, Mauritania, Mozambique, Sierra Leone
Coal (Thermal and Coking)	Botswana (Thermal), Mozambique (Coking), South Africa (Thermal)

Steel and construction sector: Demand for acquisition opportunities in iron ore, copper, cobalt, hard coking coal and manganese is primarily determined by China’s urbanisation and steel industry. In addition, Africa’s infrastructure development will also drive steel demand.

Power generation sector: A key developmental constraint for Africa is the lack of power security. Thermal coal could present significant potential investment opportunities for Independent Power Producers (IPP’s). South Africa’s coal industry is expected to experience large growth in the near future motivated by Eskom’s demand for regional electricity generation and thermal coal potentially being declared as a strategic resource. On a global level, uranium demand is also expected to increase due to a requirement for cleaner energy.

Investment sector: With gold currently trading at around US$1200 per ounce and uncertainty around the US fiscal crisis, gold mines in Africa could represent an attractive investment opportunity. However, gold producers in Africa do have some of the highest costs of production, which could represent excellent value where costs can be significantly reduced.

Despite a tough 2013, a number of opportunities may present themselves in 2014 as major producers look to divest out of non-core and / or high cost assets. However, finding a possible suitor for these assets will be directly linked to the attractiveness of future returns of these assets. A number of African countries, such as the Democratic Republic of Congo (DRC), have high yielding deposits, but investors need to recognise that these potential high return investments come with significant risks.

Author: Werner Jacobs, senior manager, corporate finance and metals & mining at KPMG