Middle Classes Spark Commercial Property Interest
The African consumer story has attracted the attention of private equity firm Actis LLP , which will lead investment of as much as US$1.5bn in commerc ial property on the continent. With a particular focus on the fast-growing economies of Nigeria, Zambia, Ghana, Ethiopia and Kenya, Actis hopes to facilitate the increasing number of European firms trying to enter African markets. Actis will use proceeds from its second African real estate fund, which raised US$280m in October, while the rest of the investment will come from commercial partners and loans.
Actis has raised about US$1.4bn across seven Africa funds since 2003, according to data compiled by Bloomberg. The company is also pursuing deals in South America and Southeast Asia in sectors including energy and technology. In Africa, where there has traditionally been a focus on providing commercial property for South African firms, Actis now hopes to attract those companies eyeing Africa as a growth market, among them - according to reports - Spanish fashion chain Zara, owned by Inditex SA, and Arcadia Group's Topshop.
|Capitalising On African Middle Class Growth|
|Africa - Middle Class By Daily Expenditure, US$mn|
We believe that Actis' plan to invest in projects including shopping centres, office towers and industrial parks is a prudent one. BMI's Country Risk team is currently forecasting an average 5.9% year-on-year (y-o-y) real growth in sub-Saharan Africa's private consumption between 2013 and 2022. Nigeria's GDP is forecasted to grow in real terms by 6.7% y-o-y in 2013, with Zambia managing 7.3%, Ghana 8.2%, Ethiopia 6.8% and Kenya 5.7% - all of which points to strong demand for commercial and industrial infrastructure.
Actis also plans to look towards investing in new industrial and logistics parks, which is a potentially lucrative investment opportunity as countries which have traditionally relied upon resource extraction move to diversify their economies. With few existing assets and often a target of government support when attempt ing to attract foreign investment, industrial and logistics infrastructure is likely to see increasing demand in the future. In the meantime however, w e note a distinct lack of such existing projects in our Key Projects Database; the planned US$4bn Sekondi Industrial Freezone complex in Ghana is one of the exceptions, although this project has been massively delayed.
|Construction Growth Rates To Match|
|Construction industry, real growth (% y-o-y)|
With economic growth and private consumption presenting an attractive market for European retailers, and construction growth rates in all of Actis' target markets achieving above 5% y-o-y growth over our forecast period from 2013 to 2022 , it is likely that there will be opportunities for all players in this move. BMI has been following the trend for European firms entering African markets, noting France's Carrefour - the world's second largest food retail company by annual sales - entering the African market in May after reaching an agreement to enter into a joint venture with the diversified Africa-based multinational company CFAO. As such, we believe that other private equity and pension funds will increasingly look to the African infrastructure sector to search for opportunities - particularly in the commercial property sector where demand often comes from private parties, often reduces the risk of bureaucratic and financial delays, as opposed to government funded projects.