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ABIDJAN (Capital Markets in Africa) – Africa and its potential have been on every investor’s lips for some time now. This interest is especially relevant when strong trends are emerging across cities of Africa, whether French, English or Portuguese-speaking, including an emerging middle class and rapid urbanization.
Early 2000, commodities-driven economies with impressive growth rates such as Nigeria and Angola were the first targets of international investors. However, with the recent fall in commodities price, French-speaking African real estate markets which have been overlooked are starting over the last couple of years to get attention. Economies like Côte d’Ivoire have grown at a faster pace over the last years than most of the other countries in Africa; the IMF has confirmed in February 2017 that economic growth of the Francophone West Africa region should average in the medium-term about 6 percent with higher returns on investments than other, more advanced, African markets. As a result, investor and operator perception of these markets are now evolving rapidly.
Supporting this interest is also the realization by new investors and operators that integration mechanisms across a number of Francophone countries provide stability for businesses as well as access to larger markets. Integration is political and economic, as is the case for the West Africa Economic and Monetary Union (a subset of ECOWAS, better known by its French acronym UEMOA), or the Economic and Monetary Community of Central Africa (CEMAC, its French acronym): both have a CFA franc as common currency (XOF for West Africa, XAF in Central Africa), pegged to the Euro with the same fixed conversion ratio. This creates very significant investment and trade zones with fairly harmonized regulation, and facilitates financing to some extent, in comparison with other African markets plagued by high currency volatility. Another aspect of this integration is legal, as 18 African countries, most of which are French-speaking, now apply a harmonized set of business laws, including as concerns security interests: again, this facilitates financing with many international and regional institutions relying on streamlined structures and transactions.
Only a few international investors are already active in these countries. Most real estate investment to date is completed by local private or institutional investors, including insurance companies or pension funds. We expect this to change in the short to medium term as many international players are currently analysing Francophone African markets and often have a clear mandate to invest and develop their activities in the most promising ones such as Senegal, Côte d’Ivoire, and Cameroon. Although most of these are currently European or South African firms, we are noting growing interest from regional investors such as Ghanaian and Nigerian firms, crossing into Francophone African countries where they had previously shown little interest. Chinese and Moroccan firms, often with strong political and economic government backing, are also entering the market for large projects such as the development of the new city near Dianmiadio in Senegal or the redevelopment of the Cocody Bay, in Abidjan, Côte d’Ivoire.
Major challenges, however, remain, as anywhere else in Africa: lack of transparency, insufficient financing and low levels of local expertise are key among those. Such challenges can be overcome through appropriate structuring and in-depth knowledge of local markets and the investment environment, either through the effective local presence or a strong relationship with a trusted local player. Due diligence is as always a key part of any investment decision: it is paramount in these cases to seek a real understanding of local realities, rather than the reassurance of a desktop overview, and to compare and contrast information from all aspects of the sector, including developers, owners/operators, investors, consultants, lawyers, and bankers. Information is rare, non-transparent and often inconsistent, and despite their apparent similarities, each country and even each city present specificities which cannot be ignored.
Local services focusing specifically on real estate are emerging, in a bid to address the requirements of international and increasingly sophisticated local or regional investors. This is a case for example for local commercial banks, which are putting together specialised real estate teams with a better understanding of real estate development and investment structures. New asset and property management firms are also being established; the first RICS regulated company in Francophone Africa has been set up in Côte d’Ivoire in 2016. The availability of skills is a factor in this growth, and certain hubs are already attracting high-quality professionals, depending on the ease of establishing and running services firms and the envisaged growth in the sector over the coming years.
In Francophone Africa, Abidjan, the economic capital of Côte d’Ivoire and a leading regional hub, is probably the city with the highest potential. This is due to its geographic location, its history as the financial and economic center for Francophone West Africa and a clear drive by Government, benefiting from renewed political stability, to make Côte d’Ivoire a growth and excellence center in Africa. The Ivorian growth story is based on strong fundamentals: a liberal economy, developed infrastructure, including in the energy sector, and a well-educated workforce. The recent development of PPP’s is also a powerful lever of growth in the real estate market, as is evidenced by the current redevelopment of State-owned high-rise towers, landmarks in the central business district of Abidjan, Plateau.
With the urbnisation of African cities and the growth of the middle class, shopping centers are attracting attention from many international investors. Many such development projects are already ongoing, in particular in Abidjan with the recent entry and strong development strategy of retail giant Carrefour.
Other asset classes should not go unnoticed: even if these are more the focus of local developers to date, with high demand and low supply, residential real estate, whether luxury or economic, can provide significant returns. Social housing is an area of focus for most African governments, which offer significant tax breaks and incentives to develop this sector. Similarly, with high economic growth attracting many international companies, the dearth of grade-A office space should attract investment in the short-term, as is already the case in English-speaking Africa. With its strong correlation with economic growth, the hospitality sector is already booming in many Francophone countries with the entry or the strong development of regional and international brands.
This article is featured in the March 2017 edition of INTO AFRICA Magazine, Africa’s Lions: Trust in Fundamentals.
Ivan Cornet is the managing partner of Latitude Five, a West African investment and advisory firm where he is in charge of real estate. With twenty years of experience in Europe and Africa as a lawyer, an investor, and a financier, Ivan assists international and local investors and operators active in West Africa, providing market intelligence and identifying off markets opportunities, as well as structuring commercial and financial transactions.
Ivan Cornet holds a business law degree and a Master in European Business law (LL.M) from the University of Brussels as well as an INSEAD Master in Business Administration (MBA) and an Islamic Finance Qualification issued by CISI (London) and Ecole Supérieure des Affaires (Beirut).
Ivan is a Chartered Surveyor (MRICS) registered with the Royal Institution of Chartered Surveyors.
Ivan is also the Executive Chairman of Eburny Property Solutions, a property management firm in Côte d’Ivoire and a director of Sanctuary Student Accommodation Development, a student accommodation development and management firm in Nigeria.