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Shopping Centers Today -> September 2007
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NEW MALLS HERALD A NEW ERA FOR AFRICA
RETAIL DEVELOPMENT IS HELPING TO TRANSFORM ECONOMIES AND LIVES IN A CONTINENT SCARRED BY WAR AND POVERTY
By the time 27 years of ferocious civil war in Angola finally ended in 2002, the southwest African nation was nearly spent. A million and a half people were dead, and the survivors faced homelessness, disease and the dreadful reality of farm fields littered with landmines.
Yet Angola is rich in gold, oil and other natural resources. Once the killing stopped, the country slowly began to rebuild. A middle class and even pockets of affluence emerged. Angola’s 12 million citizens are still a long way from a full recovery, but they finally have hope.
And now there is even a new symbol of normalcy for Angolans: Belas Shopping, the country’s first mall. Built in a southern neighborhood of the capital city of Luanda, the mall opened in March, with 100 stores and eight movie theaters, representing a $35 million bet on the country’s future by Angolan and Brazilian investors.
In the press release announcing the opening of the 160,000-square-foot center, Enashopp, the Brazilian company that manages the property, said Luanda “is experiencing a very special time of growth and expansion” and that the center will contribute “new products and services in large quantities and high quality.”
That kind of transformation is just beginning to happen in Africa. It is unlikely the continent will be considered a hot emerging market anytime soon, at least not until the widespread political uncertainty, corruption and poverty can be reduced. But modern shopping centers are being raised these days in cities where open-air stalls have sufficed in the past — places like Accra, Ghana; Lagos and Abuja, in Nigeria; Kampala, Uganda; and Ngezi, Zimbabwe — and it seems likely there will be many more.
“It’s been a bit of a slow process, but I would guess there are now about half a dozen shopping centers in West Africa and about a dozen in East Africa,” said George Skinner, managing director of The Shopz Group, a retail consulting firm in Sandton, South Africa; and the executive chairman of the South African Council of Shopping Centres.
“There’s a bit happening in West Africa, in Lagos and Accra, but it is really in its infancy because the open-air markets dominate there,” Skinner said. In East Africa “there are probably about a dozen shopping centers in Kenya, mainly owned by Asian developers.”
But most retail growth, he says, has been closer to and within South Africa, whose development boom has spread to the neighboring Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zambia.
“The movement is definitely there,” said Ian Watt, executive director of international operations at Old Mutual Properties, Cape Town, South Africa. “We’re moving from the basic sort of retail that still operates in rural areas around the old marketplaces to the bigger cities, where you have a more High Street kind of retail evolving.”
Generalizing about Africa is hard, for any discussion must take into account the continent’s vastness and diversity. First, Africa is the world’s second-largest and second-most-populous continent, making up more than 20 percent of the world’s landmass and 14 percent of its population. And yet it accounts for just 2 percent of global gross domestic product and only 3 percent of retail sales.
Next, the landmass stretches 5,000 miles from north to south and 4,600 miles from west to east, comprising 53 countries ranging from the relatively wealthy (South Africa and the tiny island of Mauritius) to the grindingly poor (Somalia and many others).
In the same way, its governments run the gamut from the good to the terrible — from stable democracies like Senegal’s and South Africa’s to dictatorships like Zimbabwe’s and Sudan’s. Then there is the great cultural divide between the Arabic countries of North Africa and those of the sub-Saharan region.
But whatever the difficulties of generalizing, there are overarching trends that have affected most if not all of the African nations. One is the world’s insatiable demand for natural resources, a reflection of growing global affluence and the rise of emerging economies like China, which now buys oil from Algeria, Angola, Chad, Equatorial Guinea, Gabon, Nigeria, the Republic of Congo and Sudan. So strong is China’s desire for African energy that it held nearly $12 billion in investments there last year.
Africa’s economies and people are reaping the benefits. The continent’s overall GDP grew 5.5 percent last year, a rate the International Monetary Fund predicts will rise this year to 6.2 percent.
All of this has led to greater prosperity and increased consumer demand for the quality goods taken for granted in much of the rest of the world. Increasingly, shopping center developers are stepping in.
In Nigeria the Palms Shopping Centre opened a year ago in Lagos and is fully leased. The $40 million, 430,000-square-foot, fully air-conditioned mall is a venture between Actis, U.K. private equity investor; and Snap Blu, a company controlled by Nigerian developer Tayo Amusan.
“There is huge demand for world-class retail facilities in Nigeria,” said Franc Brugman, project director of Bentel Associates International, the Johannesburg, South Africa-based architectural firm that designed the mall. “Previously, very little in the way of retail space could have been described as world class.”
In Abuja, Nigeria’s capital, Scottish development firm Linacre Land has been awarded a contract to design and build the Capital Mall, a 270,000-square-foot center on 27 acres. Construction is slated to start in October and finish in 2010.
Brugman designed both the Lagos mall and the recently opened Accra Mall, the first modern shopping center in Ghana. “In many African countries, open-air markets with stalls and shops have always been the norm,” Brugman said. “We are now at a stage where shopping malls are becoming the norm,” he said.
At the forefront of much of the African development are South African companies. These include, besides Old Mutual Properties, which is one of the continent’s largest development and management companies; Massmart Holdings, whose Game discount chain operates 72 stores across Africa; and Shoprite Holdings, whose 886 stores make it Africa’s largest grocery chain.
“With only a limited number of other retailers entering Africa, namely French internationals setting up shop in Egypt and Morocco and a limited number of domestic retailers in the rest of the continent, South African retailers’ efforts greatly contribute to the development of trade in the region,” observed Oliver Heins, an analyst at the U.K.’s Planet Retail, in a report on retailing in Africa.
“South African retailers have started to move into Africa and have already targeted Mozambique, Angola, Kenya, Ghana and Zambia,” said Brugman.
Indeed, so much South African capital has moved into nearby countries that critics fear the country has the power to “recolonize” the smaller, less affluent nations in its orbit.
Brugman says modern retail can now be found in Kenya, Malawi, Mozambique, Tanzania and Uganda. “Major anchor tenant retailers have also targeted Nigeria and Ghana as fertile retail grounds,” Brugman said. Barring major reversals, many in the retail business believe the trend will continue. “Conditions these last few years in Africa have seen very healthy growth rates in quite a few countries,” said Brugman. “There is also a lot of development capital coming in from Europe, China and Japan in some instances.”
For companies interested in giving Africa a try, he offers words of caution. “Africa is very much a place where you understand that difficulties will arise and that solutions will need to be made at every turn,” Brugman said. “Conditions also need to be understood.” Among these are withholding-tax requirements, restrictions on the importation of construction items, local government rules, a lack of retailing experience and, of course, language barriers.
Even so, the potential “is massive for the retailer who perseveres in understanding a potential market. Development in Africa is not easy.”
Said Watt, “One needs to look at Africa as an opportunity, a place where there are 800 million people on one continent.” Will Africa someday rival the emerging markets of Eastern and Central Europe? “I have no doubt,” Watt said. “In some areas it’s already starting to happen.”
RETAIL GOLD RUSH UNFOLDS ACROSS AFRICA
A map of colonial Africa in the early 20th century shows a crazy quilt of empire building: British interests in the south, west and east, the French in the north, and Belgian, German, Italian, Portuguese and Spanish presence everywhere else.
The colonies are gone, marked only by vestiges of European languages and place names. Still, Europeans remain keenly interested in African commerce. Of the 10 biggest retailers in Africa, four are European hypermarket operators — Auchan, Carrefour, Casino and Metro— according to consulting firm A.T. Kearney. The other chains with a big presence on the continent are all South African, including the Shoprite grocery chain and Massmart Holdings, whose wholesale and retail chains sell everything from groceries to home improvement goods in 13 sub- Saharan countries.
But there are vast tracts of Africa where little modern retailing exists, and one aggressive Kenyan discounter, Nakumatt Holdings, sees that as an opportunity. “Nakumatt is a player to watch,” wrote Planet Retail analyst Oliver Heins in a June study of African retailing. “It holds the leading position in Kenya and has ambitions to open stores throughout East Africa.” The report ranked Nakumatt as the 25th-largest retailer in Africa and the Middle East, just ahead of Germany’s Metro.
Nakumatt was established in 1987 and now has 18 stores across Kenya. Its model is the typical big-box store found in the West: well lit, spacious and overflowing with merchandise and food. In addition to plans for continued expansion in Kenya, the chain hopes to build big-box stores in retail-starved cities in Rwanda, Tanzania and Uganda, making it the only non-South African retailer to emerge as a regional leader. Aside from the South Africans, “there is little to report on movements by other chains across sub-Saharan Africa,” wrote Heins.
As is true elsewhere, critics contend that hypermarkets can have a destructive influence on local communities by driving traditional retailers out of business. Nakumatt is trying to blunt such criticism through a campaign to buy and sell more local products.
Only time will tell if African consumers will be able to sustain big-box growth. But for Nakumatt, the news so far has been good. Last year the company posted some $300 million in sales, up 150 percent from the year before.
BRINGING SHOPS TO SENEGAL
Winick Realty Group knows the ins and outs of retail real estate in New York, where it has been in the brokerage business for a quarter century. These days, though, the firm is tackling a far less familiar market. Winick says a Middle Eastern developer it will not name has hired it as part of a team to study the feasibility of building a mixed-use project on 10,000 acres in Dakar, the capital of Senegal.
Residents of the West African country “are starting to see discretionary income and build a middle class,” said Richard Kave, Winick’s director of international retail, who visited Dakar in May. “They are doing all the right things. We think the timing is good for this.” Senegal, a former French colony, is one of the most stable democracies in Africa. Economic reforms the country established in the early 1990s led to an average 5 percent increase in gross domestic product between 1996 and 2006. A mix of agriculture, fishing, mining and natural resources has produced an economy that is stable, though far from affluent.
Winick is joining other architects and engineers to find the best ways to develop a sprawling former industrial area. According to the local press, the project would create a new “administrative city” on the edge of Dakar. Although he declined to talk specifically, Kave says Winick’s role “is to first look at the overall economy to determine if there is a need for what they want to build, then determine how feasible it is to make money doing so.” The firm did a similar study last year for the same developer on a proposed Saudi project.
The Senegalese plan has the strong backing of President Abdoulaye Wade, who “wants to create a financial and business center in the area that includes residential and museum components, and certainly retail and commercial,” Kave said. Wade, he says, is trying hard to promote investment by starting small-business incubators, restructuring tariffs and pushing tourism. If the plan gets the green light, construction could begin in two or three years. The project might include a high-rise office building and a lifestyle center that would create a downtown shopping district, though it is too early to know the size of any retail component, Kave says. Whatever its size, though, the new retail will find little in the way of modern competition, given that Dakar has a mix of open-air markets and storefronts but no shopping centers. “There’s really a shortage of retail, and existing retail is quite expensive,” Kave said. “There is virtually no Western influence there now at all.”
So if they build it, will shoppers come? “I think the place is definitely ready for it,” said Kave. “The economy is doing quite well, and the government is stable. They really have their eye on the ball and are doing the things necessary for sustained development. I see a real opportunity here for this to grow very quickly.”
SONG OF THE SOUTH
On a continent where retail development is still in its infancy, South Africa is a striking exception.
Retailing in South Africa has blossomed to the point where development is nearly as extensive as in Britain or France. Some 50 malls dot the country, most of them in the Cape Town and Johannesburg metropolitan areas. Shoppers have greeted these with open wallets. The growth of the country’s middle class has generated a 9.5 percent increase in consumer spending in the first quarter. Consumer confidence remains at a record level.
According to MarketResearch.com, the strongest growth in South African retail over the next five years will be seen among convenience and grocery stores, although furniture and clothing retailers will also benefit from rising disposable incomes.
Much of South Africa’s prosperity can be traced to the end of apartheid in 1994, which fueled the rapid growth of the black middle class. A study released this year by the University of Cape Town found that the “black diamonds,” as the black middle class is widely known, grew 30 percent in just one year, making that group the most economically important in the country. In fact, the study found that 12 percent of the black population accounts for some 54 percent of all black buying power. (South Africa’s population of 44 million is 79 percent black.)
Retail developers have risen to meet the demand by building shopping centers in South Africa’s townships, the urban centers where black South Africans were forced to live during apartheid.
In Johannesburg’s once-infamous Soweto township, where 566 people were killed in anti-apartheid protests in 1976, four malls have opened or are scheduled to by the end of the year. The largest is the 750,000-square-foot Maponya Mall, which is set to open in September. Developed by South Africa’s Zenprop Property Holdings and financed by Investec, of Johannesburg, the mall will be anchored by a Pick ’n Pay hypermarket, which, at 130,000 square feet, will be the South African grocery chain’s largest store.
As is the case whenever modern retailing is introduced, there have been critics, especially those who believe that the arrival of shopping centers will doom the townships’ traditional, mom-and-pop retailers. Some have cited a University of South Africa study done in February, which found that the opening of a mall in Pretoria’s Soshanguve township reduced profits at three-quarters of the traditional retail shops within a kilometer of the mall. But proponents counter that retail developers are finally bringing quality shopping alternatives to residents long deprived of choices.
“For a long time, I think people were aware that Soweto had the capacity to cater for more retail space, but businesses were skeptical about investing,” David Pooe, manager of the new Jabulani Mall, in Soweto, told the South African press in April. “Those billions of rand generated outside Soweto by Sowetans,” he said, “can now be spent in the township.”
ADAPTING TO AFRICAN TASTES
The design process for Nigeria’s first modern shopping center, the Palms Shopping Centre, in Lagos, was under way. But before architect Franc Brugman could proceed very far he needed to settle the issue of the open-and-shut doors.
Local retailers, he found, had no experience with the Western concept of open store access. “They essentially wanted a door into their store that opens and closes,” said Brugman, the project director for Johannesburg, South Africa-based Bentel Associates International. “We had to go back to the basics and educate them about the benefits of having wide-open entrances so that shoppers passing by can see all the way into the store.”
Africa is a reminder that not everyone in this rapidly shrinking world does things the same way. Bentel Associates has plenty of experience in Africa, so its staff members understood that they needed to take local customer preferences and business practices into account. That was all the more true in Lagos, because theirs would be the first modern center many residents had ever seen. “Retail knowledge is limited, because many Nigerians have never experienced a first-class, world-standard retail concept,” said Brugman, who also designed the Accra Mall, which opened in Ghana in April.
Brugman wanted the Lagos mall, which opened last year, to compare favorably to those in other countries, but he needed to face some realities. Among these: the limited abilities of the local construction companies, which compelled the designers to adopt a simple design.
There were other obstacles. The electricity in Lagos is undependable, the water is of poor quality, and there was no sewer with which to connect. To solve those problems, the mall was designed with a backup generator, a water purification plant and its own sewage-treatment facility.
Ghana presented plenty of challenges too. Because design changes would have been too costly for the local economy, the designs had to be carefully thought out with cost control in mind, Brugman says.
To compensate for the local construction companies’ unfamiliarity with shopping center construction, Bentel assembled a team mostly from South Africa to oversee the projects. The construction drawings had to offer more information than usual. “Interestingly, the contractors in West Africa are by and large Italians who are used to procuring foremen, managers and material from Europe,” Brugman said. “Their experience, however, does not extend to shopping centers.”
Construction materials were a special problem. Except for sand and cement, building materials for the Lagos mall had to be imported, in some cases from as far away as Italy. “Very little is produced locally, and what is available is often not to international standards,” he said. “Our center in Ghana, for instance, has steel from Egypt, tiles from Italy and shop fronts from Switzerland. You can imagine the fun we have on-site handling the array of languages present.”
Bentel Associates says it hopes Accra and Lagos represent only the beginning of an African development boom. The firm already has plans for a center in Maputo, Mozambique, and is weighing projects in Botswana and elsewhere in Nigeria and Ghana. Brugman harbors no illusions that the work will get easier, though. He expects to find the same challenges wherever he goes in Africa, and he says he hopes each new project will be as successful as the first two. “We find we need to include in our architectural and leasing programs a lot of training and control,” he said. “There is, however, no lack of local line-shop tenants willing to move into the centers being developed.”
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