"Sub-Saharan Africa: The Missing Piece of Your Investment Puzzle? – Transcript" is locked Sub-Saharan Africa: The Missing Piece of Your Investment Puzzle? – Transcript | Ronald Chagoury | Vice Chairman of South Energyx Nigeria Limited

Sub-Saharan Africa: The Missing Piece of Your Investment Puzzle?

Open Panel Discussion:

10-13 March, Cannes, France

(Akinola Olawore – Executive Director, African Real Estate Society (moderator)

Sub-Saharan Africa is the states south of the Saharan desert, having about 49 countries making up Sub-Saharan Africa. It covers about one-fifth of the whole world of the whole world’s surface, that’s about 34.2 million square kilometers. It’s the second most populous with 936 million people, 37% of urban population and about 1.6 trillion US dollars cumulative GDP. The GNP is 1,657. In perspective, this is the size of Africa, it swallows up the whole of the United States, India, Argentina, Western Europe, China, with room to spare. So that gives us an idea of the size of Africa. On average, they have about sixty percent of the population under 40 and then very sophisticated population. The urbanization is growing and we do not have a lot of non-oil sectors been developed by the various countries. And a lot of reforms and stabilizing quality quite a number of what we do here at the panel. This is just to set the tone. I have on the panel, Mark Renauld, Ruth and John and in that order, they will please introduce themselves.

(Mark Bradford)

My name is Mark Bradford and I’m with JLL. My role is to develop our business and capability across 19 countries in the Sub-Saharan African region.

(Louise Brooks Smith)

Hello, my name is Louise Brooks Smith. I have the honor of being the global president of the Royal Institution of Chartered Surveyors. In my day job, I’m also planning a development practitioner with experience of working across Africa.

(Ronald Chagoury)

Good morning, my name is Ronald Chagoury. I’m based in Lagos, Nigeria. We’re currently building a city right in the heart of the city of Lagos and we’re looking forward to showing you more about the different possibilities in the country.

(Ruth Obith)

Hi, my name is Ruth Obith and I’m the CEO of 3Invest. I’m a real estate advocate.

(John Okonkwo)

Hi, good morning thanks to all of you for being here today. My name is John Okonkwo. I’m the Managing Director of the Project Ducain Forbes. We initiate and develop large projects across Africa.

(Akinola)

Africa had always been this big, it didn’t start today but up until about about a decade and a half ago, there had not been this kind of hype in Africa. So, what has changed John, why do we have this current interest?

(John)

Essentially, there is a broad understanding today that Africa is the last frontier in the world economy. When I was coming here, I saw a sign at the airport that said very soon there won’t be anymore emerging markets, there won’t be any more markets to emerge and to that you can have that very soon there won’t be any more frontiers to conque. There’s a global recognition that Africa is the last place for very large ticket investments, the World Bank investment banks and also a lot of private institutions have done rigorous research to show, to highlight all the opportunities across Africa. So that has created a momentum towards Africa that we are witnessing today.

(Mark)

Let’s have a look at where the money is coming from. You’ve got a growing sector of pension and institution money locally within African countries that are looking for a new investment home. Traditionally, they’ve invested in government bonds and obviously they’re looking for other avenues of investments, so that is where a lot of the real estate funding is coming from. You know obviously there’s Nigeria, which is the big West African economy, Ghana, which is perceived as a safe business-friendly sort of entry port into West Africa, and the new one that’s coming up is Cote d’Ivoire.

(Akinola)

I have for you to share your experience as an investor in Africa.

(Ronald)

In our case, we’ve been in Nigeria, the group, the family business has been operating in Nigeria for the past 40 years, so in those 40 years, we have seen a lot of ups, a lot of downs, and a lot of transformation as well. In my experience, it’s only been getting better year by year. We are still, even though the market is very well-developed, we’re still missing a lot of things. Some basic things such as just starting with the infrastructure. We’re still very far behind, not even Europe, just other African nations, and it’s been improving but we still have a very long way to go. Our generation is another issue that we’ve been facing as a country and it’s been holding us back on some of the sectors such as manufacturing because we currently run on diesel generators, which is very expensive. Recently, the government’s privatized the power sector. It’s a very good first move. We’re not seeing the results just yet, but I think this will start formalizing over the coming years. We are an oil and gas producing country and yet again we don’t have enough gas to power our power plants. A lot of gas is exported out of Nigeria and by the time, for example, some pipelines go all the way to Benin, by the time they come back to Nigeria, there’s not enough gas to power the power plants. The good thing is there’s a lot of movement in the oil and gas industry and in the government to rationalize basically this gas supply. Coming down to retail, Nigeria our Nigerians are among the top spenders in the UK, in the UAE, big spenders in the US, yet we only have two small shopping malls in Lagos and a few other small ones. We don’t have a large-sized shopping mall as an example and a few more are coming online and they’re always filled up. They’re always leased out completely, and we’ve been noticing a lot of interest from foreign retailers who want to come into Nigeria but what’s the main challenge? They can’t find enough space. So, from a real estate point of view, it’s a very positive point. On a retail point of view, it’s not yet matured, we’re not close to being mature yet.

(Akinola)

Thank you.

(Ronald)

Just one more point that I wanted to bring up is education as an interesting point. Seven percent of the student population in the UK is Nigerian, which is a very high number. We lack, even though we have very good schools in the country and universities, we still lack a lot of that. So really we are missing everything in the country today.

(Akinola)

Thank you very much. We’re not talking about people development now. We need people, process, and technology. Louise, our ICS, which you had, as a professional about your global presence you’re all over the world so how do you plan to address the skills gap?

(Louise)

Okay, it’s not an easy answer to this and you’ve mentioned skills gap. The skills gap isn’t just Africa, the skills gap is international. I think MIPIM is a very good example of people coming together from all over the world. Wherever you come from you will know that there is a skills gap where you come from. We don’t have enough professionals to deal with infrastructure, burgeoning populations, and the like, anywhere. And particularly now in Africa, we have a very big push in Africa through our Sub-Saharan African strategy, which we initiated about two and a half years ago and we’re now rolling out, and that is looking at working closely with academia, with established professional groups and institutions, and regulatory bodies across Africa. We’re concentrating in three hubs at the moment as centers, as spheres of influence if you like, but it’s very much a collaborative approach and it’s all to do with increasing the number of professionals working in the built environment but particularly in the construction and infrastructure world so we can address the needs of Africa.

(Ruth)

Let’s start with their retail, which everyone is talking about because of growing middle class. I believe that we don’t have enough retail spaces, especially in West Africa with Nigeria as a case study here today, because that’s where I operate. Having to exist in a catcher and the palms. Yes, a few upcoming about six. We have about 85,000 square meters of retail space coming up in Nigeria, which is good, at least by the end of 2015. And I think that’s only been driven by the growing middle class and a huge population of over a hundred and seventy million people in Nigeria. We also look at another axis classes and the hospitality sector. When you look at what’s driving that it’s the increase of, you know, foreign investors. You look at the likes of Hilton, Marriott, and Starwood brands, they are all existing right now in Nigeria. And you also look at the reach asset costs. Nigeria has got only four existing reach. UPDC has got 50% of that. I think last quarter of 2014 the HMK tried to launch it reach which they are still either in the market also, which would have contributors about 25 percent with the other two which a sky read and the Union Homes which have been existing. But the most active one is the UPTC and what we need from investors, we need the quality access to invest in because for you to set up a reach, you need to have the right return for that. You know a lot of efforts in the housing finance sector by establishing the Nigerian Mortgage Refinance Company, which is meant to refinance existing mortgages and also secretaries the mortgages in order already about to come so it is more like liquidating the industry.

(Akinola)

If an international investor is coming into a host country, what would you advise that they should be looking for, what are the actual challenges we’ve had? We’ve heard a lot about the perception of Africa, what are the outright challenges and how do you advise people through it?

(Ronald)

Yesterday we were having a quick discussion of the perception of Nigeria, and usually the first question I get asked when I’m talking about Nigeria overseas is, “What about political risks?”It’s always the same question, political risk. When we are Nigeria, we see it as business as usual. For example, we had a two week or three week delay, a month delay in our elections-happens. It slows down the business, it will happen eventually and life will go on. And actually we’re looking forward to the boom market right after the elections and we’ve seen this over and over again. And coming back to political risk, when I look at Europe today, in my opinion, I do see a lot of political risk in Europe. There’s a lot of elections going on in different countries. We don’t know what sort of policies will be coming in the next governments and with all this talk of defaults, I do see that also as political risk. So, it’s a question of perception, as well on our side, different things. Another question I get asked also about Nigeria, it’s too related to oil and gas. Oil and gas actually only represents 14 percent of the country’s GDP. Now on the flip side, it does represent a very high percentage of exports, but we are seeing different actions from the government and the private industry of the private sector developing the agricultural markets, building a few major refineries. There’s now, I think we started assembling of cars early on this year. So all these things basically will help reduce the impact of oil exports in the future and we will also limit our imports as well of finished goods. And that, I think, will basically diversify the economy even more.

(Akinoso)

Thank you, thank you so much. John, very briefly what are the opportunities available now and there perhaps you quickly look at low-hanging fruits.

(John)

I think there’s an ideal focus on political risk across Africa, and I must stress that Africa is not one homogenous body, you have so many different countries with different dynamics. But some of the key trend lines are that we have to remember is that there has been a political realignment across Africa. They are old-style, political parties, which were based on tribes or ethnic lines that don’t exist anymore. So you find political parties not getting across ethnic lines and that means that policies are based on national interest rather than parochial regional interests, and what that does it’s allowed the rule of law to become supreme, and we’ve seen this a few examples. I think yesterday or two days ago the former first lady of the Ivory Coast was sentenced to twenty years jail time for election malpractices or something similar to that. The single message from all of this is that the law is supreme across Africa now so regardless of what the political undertones might be, ultimately, the right thing will be done and the law will be supreme. So we have to focus on that element.

(Akinoso)

So Matt, what should be the entry do’s and don’ts of the market entry?You want to enter the African market, what should you do what should you not do?

(Matt)

Look I guess it depends on which side of the property spectrum you are. I think the important thing, and we have heard from the panel and John has alluded to it, but African governments need to do more to create environments which are investor friendly. That’s absolutely paramount in terms of transparency, in terms of ensuring that things that you take so for granted like the title of land are guaranteed, are certain. That when a tenant signs the lease that, you know, there are certain rights and the landlord can’t decide overnight that they, you know, have other intentions of the building. So, I think that framework is that there is a long way to go. In terms of coming into the African continent for the first time whether as an investor or developer or a service provider, again has been alluded to by my colleagues, it’s not one place, it is 54 very, very distinct countries. To spend time there within countries like everywhere else in the world, there are different cities, the cities have different dynamics. There are different powers at play, different requirements. Spend time in Africa and probably the most important thing is just be very, very careful of the company that you keep. There is incredible intellectual capital on the continent. There are a number of very, very highly regarded professionals you know that belong to RICSand other similar organizations. You’re not going into uncharted territories and into the wild. A lot of these markets are sophisticated and as I say provided you surround yourselves with the right people, you should havea n opportunity to go in physically to listen, to identify where you think the gap is, and then to execute on that. And the last thing, it’s a long-term play. If you think you can come into the continent and you know put up a residential scheme and you know disappear with the money and clap your hands and call that a quick project, I’m afraid that’s not going to happen.

(Akinoso)

Ruth, just how qualitatively, how big is this middle class and what’s the impact on these opportunities we’re talking about?

(Ruth)

Coming down to Nigeria, again as a case study here, I think it’s about seventy to thirty with on the 40s which constitutes to the growing middle class. And obviously, that’s why their building the commercial space, especially retail and the e-commerce. It’s actually very, very interesting right now. But what needs to be done is this middle class needs quality education. We need good education reforms. They need to be trained properly; that’s why I’m looking, I was discussing with Louise yesterday, and I was like, we need rigs to be present in Nigeria, especially because I mean it’s large, it’s a very, very large population. And a lot of people want to play in the real estate space but you see a lot of quackery. You see a lot of people because they don’t understand what to do. University systems don’t take real estate as a course, you know the easiest you can do is estate management. As a lawyer, I started landlord and thus knew about the legal aspect of land. But, I mean, in training, we have the NESV but we are looking at global standards and most of the time if you do the measurements or valuations with the the standards that we have in Nigeria, they don’t approve that internationally. You still have to do the go through. So if Riggs is present in Nigeria, in Africa or however they want to play in West Africa. I need them to be very, very, very, very active. A mentoring is also something that is also needed in this industry, which I believe my good friend Mark is going to be very, very interested in doingin Nigeria very soon.

(Mark)

Those investors and developers and interested corporates etc who are not present in Africa or don’t maybe have too much to do with it on a daily basis, as to what those operating environments are like because I think, unfortunately, there’s the sort of global perspective that every time you hear of Africa, you know there’s an AK-47 involved or famine or disease. And these things are true and they are very sad and that’s part of the plight of Africa, but when it comes to the economy in the real estate sector, you know, the fact that Ebola broke out in West Africa doesn’t really have any direct impact on real estate investments in Nairobi and other parts. I think it’s a two-way education process. Internally we need to educate ourselves to achieve the standards to which we all aspire and those international standards. Similarly, we also need to have a real drive portraying and painting a realistic picture of economies and the environments in which we work so that you actually have a better understanding of where we’re coming from.

(21:30)

Sub-Saharan Africa: The Missing Piece of Your Investment Puzzle? Video and Transcript