Investors in Nigeria must learn how to navigate the potholes
A SOUTH African-developed mall opened in Lagos last week, attracting shoppers in droves, who took time off from their economic woes to visit more than 100 shops in the new centre.
First-day trading at the centre was reported to be good, particularly at Shoprite and Game. Shoprite had to restrict access during the day because of the number of people in the store.
Shoprite’s queues for freshly baked bread have become a phenomenon in Nigeria. Other tenants include Adidas, MTN, Spur, Nike, Stanbic IBTC bank, Pep and local chain HealthPlus.
The mall, on the Lekki Peninsula, serves a large catchment area that lacks shopping facilities, despite the fact that hundreds of middle class Nigerians are moving into new residential estates in the area.
Developed by Cape Town-based Novare Real Estate Africa at a cost of R1.2bn, the Novare Lekki Mall, which covers 22,000m², is one of the two biggest malls in sub-Saharan Africa’s biggest city.
It doesn’t begin to compare with the regional malls South Africans have become used to, such as the 130,000m² Mall of Africa.
But it is still early days for Nigeria’s mall culture. Since 2005, when the first such mall opened in Lagos, there are still fewer than 10 malls in the city of 20-million people, and less than 20 countrywide.
It is not easy to build a shopping mall in Nigeria.
Everything is a challenge, from the availability of land to cost of construction, lack of municipal services and congested ports. There is also the competition from traditional shopping outlets, smuggling, as well as low levels of domestic industry and skills and a dearth of local tenants. South African retailers, used to consumers with easy access to credit, have struggled with Nigeria’s cash-driven retail model.
Analysts estimate that just 2% of Nigerians shop in formal shopping centres, compared to 60% of South Africans and 30% of Kenyans.
Now the market is even more challenging as the country battles serious liquidity problems, foreign exchange shortages, restrictions on imports, currency depreciation and other macroeconomic issues that are undermining consumer spending.
Landlords and tenants with long leases negotiated in easier times are finding new ways to work together to ensure the malls are able to ride out the challenging economic environment. There is little room for manoeuvre.
Most malls are funded in dollars and investors require their returns in hard currency.
With the local currency, the naira, having lost 30% of its value in 2016, this is not an insignificant issue. Nigeria is not alone in this regard. At the API property investment summit in Johannesburg, speakers discussed similar problems in markets such as Zambia and Mozambique, which are also grappling with currency depreciation.
Nigeria’s challenging market has also affected the ability to attract international retailers from outside the continent. Despite the fact that three South African chains — Woolworths, Truworths and Foschini — have left Nigeria in the past few years, South African-based companies still dominate the funding of malls and trading.
Developers say they will continue to invest in the market.
Novare, for example, has two more property developments in the pipeline in Nigeria.
Investing in the country is a strategy that requires not only nerves of steel but a long-term vision and patient capital. And the interest is there. Earlier in 2016, for example, Actis announced it had raised commitments of more than $500m for its third real estate fund.
One property investor likens operating in Africa’s most populous country to driving down a potholed road: when you hit the first pothole, you are scared and vulnerable; but once you are out, you quickly learn how to deal with the other potholes, knowing that if you don’t, you will not reach your destination.
Nigeria, for all the pain investors are feeling right now, he says, is still a market you cannot ignore.
• Games is CEO of business advisory Africa @ Work