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AGAINST ALL ODDS

Developers of Nigerian center battle corruption, bureaucracy

BY ED McKINLEY

Building a world-class shopping center in a third-world nation is never easy. But the developers of The Palms, a 215,000-square-foot center in Lagos, Nigeria, face a particularly daunting set of challenges as they work to complete the project by the end of November.

Not only has Nigeria suffered from a corrupt government and a culture of violence, but its infrastructure is crumbling, too. The country has nothing even vaguely resembling a modern shopping center, let alone any kind of modern shopping center tradition. Consequently, there is a lot riding on the Palms, which its developers say will set the country’s standard of retail development.

“The Palms will serve to lift the whole retail market in Nigeria and serve as the benchmark for retail in the future,” said Dale Ramsden, who is the center’s development manager for CDC Capital Partners, one of the project’s equity partners.

The hurdles are considerable. Development team members say they have put up with government bans on such imports as furnishings for the shops and carpeting for the movie theater, as well as delays on the shipment of building materials because they refused to bribe local officials. All of that, together with the time it has taken to persuade South African anchor tenants to sign on, has already pushed the opening back by a year, Ramsden says.

The problems particular to the West African country of 137 million people and this sprawling megalopolis of 15 million are even reflected in the design of the two-level, enclosed center. A concrete block wall 9 inches thick and nearly 8 feet high, with massive steel gates at the entrances, will encircle the Palms to protect it from the riots and mobs that have rocked the city in the past.

One of the unusual capital outlays here that builders in the developed world never encounter is an electric generator to supply power during Lagos’ chronic outages. Further, the center will treat its own sewage and also purify and store water for drinking and fighting fires, rather than rely on hard-pressed municipal services.

Such problems touch many aspects of Nigerian life, sources say. Heroin traffickers use the country as a transit point for their drug shipments. Nigeria is also a haven for money launderers and a hot spot for Internet fraud, according to the CIA’s World Factbook. It also suffers a markedly high incidence of AIDS and recently led the world in polio cases, say international health agencies.

It never needed to have been so in this oil-rich country. But though Nigeria is fifth among the nations in crude-oil production, it ranks dead last among OPEC countries in per capita gross domestic product, according to reports from OPEC (Organization of Petroleum Exporting Countries). The country’s GDP per person comes to $448 annually, not even half the $960 per capita of Indonesia, which ranks second to last.

Nigerian woes notwithstanding, the developers say they are creating an “A-grade” retail venue, complete with a cinema, two anchor stores, 63 in-line shops and high-grade finishes equal to those in the United States and Europe.

The center will cater to wealthy and middle-class Nigerians as well as a large expatriate community, says Ramsden. The 10-acre site will include about 700 parking spaces, with chauffeured cars getting their own designated area. Lagos doesn’t have municipal transportation, but private minibuses and taxis will stop nearby.

All together now
The Palms has been a truly international effort, with companies from several countries cooperating. London-based Actis Capital, a private equity group specializing in emerging countries, provided the $40 million funding, says Adam Quarry, an Actis spokesman. Actis, in turn, is a spin-off of CDC Capital Partners, a London-based project finance institution owned by the British government that also is a partner in the project. The developer, Persianas Properties, is a venture Actis formed with Lagos-based development firm Snap Blu.

The multinational consort does not end there, though. Most of the design and technical work was done in South Africa, but the engineers are Nigeria-based, says Franc Brugman, director in charge of the project for Bentel Associates International, an architectural firm with headquarters in Johannesburg, South Africa.

The Nigerian structural engineering firm is Morgan Omonitan & Abe. The electrical consultation is the work of a joint venture of CA Consultants, a Nigerian firm; and Plantech Associates, a South African firm. The main contractor is Cappa and D’Alberto, a 75-year-old Nigerian company managed by Italians, and the mechanical-electrical contractor, Etco, is an Israeli company well established in Nigeria.

Coordinating the construction has been a struggle, given that these firms have done so by e-mail and file-sharing over the Internet, says Vaughan Davies, a freelance project manager on the development. “It is important to get people around a table, eye-to-eye, with drawings,” he said, “for communication to be really successful.”

Monthly meetings in Lagos have had to suffice, says Brugman. To head off questions from the contractors, he spends a lot of time with the technical documentation before beginning work at the site, making sure the drawings are advanced and accurate enough, he says. The drawings are a collaboration of Bentel Associates and Design Group Nigeria.

Part of the challenge is that this is the biggest project of its type in Nigeria. “The largest centers which can be seen as competition are a tenth of the size and do not come close to the finishes or architecture designed in the new center,” Brugman said. Consequently, finding contractors qualified to do the work took some effort. Despite the dearth of skills, 600 local laborers were working on the center at press time, and Davies says the number could peak at about 1,000 just before completion.

Except for sand and cement, the building materials have to be imported, Davies says. “Very little is produced locally, and what is available is often not to international standards,” he said.

The storefronts are by a local company, but the team is importing glass, tile, roofing, steelwork, aluminum frames, security systems, lighting and electrical products, air-conditioning components, and water- and sewage-treatment equipment, says Brugman.

The government bans imported furniture, including store fixtures and carpets. “That means buying from local manufacturers, often at a premium, or paying costly dispensation to the government [to allow imports],” Davies said.

Obtaining planning approval takes time and money. Furthermore, value-added and government withholding taxes tie up cash and increase costs, Davies says.

Endemic corruption has diverted sorely needed funds from infrastructure investment, whether for water and sewage or road improvement, and this neglect is evident even in such prosperous areas as the Lekki residential section of Lagos where the center is located. Shopping centers there are limited to “plazas” — two- or three-level buildings with limited parking and poorly designed shops, says Davies; there are no one-stop centers for shopping and entertainment.

Consequently, the Palms is something entirely new for Nigerians, says Brugman. He points out that Actis must assemble a management team that will not only maintain the center, but also help the locals get used to the environment.

Davies says he cannot discuss income profiles of the consumer base, because demographic information, though abundant in South Africa, remains scarce in Nigeria.

Even so, two anchor stores and a cinema company, all from South Africa, will lease space in the center, says Brugman. The cinema company, Nu Metro, has a large presence in its home country, he says. The Game Store, another powerhouse in South Africa, sells appliances, electronics and sporting goods, and Shoprite Holdings, Africa’s largest food retailer, will operate a supermarket.

Of the approximately 60 small stores planned for the Palms, most will be Nigerian, though some will be international. Nando’s, for example, a Portuguese-style, spicy chicken restaurant that was founded in South Africa but now has a presence in the United Kingdom, has expressed interest in leasing space, Davies says. Any South African center with three anchors would probably have more than 60 in-line tenants, but Nigeria has fewer retail chains, says Brugman.

In any case, this all promises a new era for retail in Nigeria. “It will raise the standard of retail here,” said Davies. “I expect once the Palms has opened, shopping centers will become the flavor of the day.”