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Ignore Africa at your own peril

Director of real estate at Actis, the pan-emerging markets private-equity firm, Louis Deppe, says South African investors who ignore the potential in African markets do so at their own peril.

“You have no choice not to care about Africa. It’s on your doorstep. Some significant economies are going to overtake South Africa in a very short space of time. They’re growing faster and have far more potential to grow,” Deppe told Moneyweb at an Africa Property Investment Summit in Sandton.

Predictions are that Nigeria with a growth rate of 7% could overtake South Africa, which is Africa’s biggest economy, by 2015.

Deppe warns that up until now, South Africa, being the most democratic and stable country on the continent, has been able to attract foreign direct investment (FDI), often getting the lion’s share compared to other African countries. Once other countries also start ticking the right boxes, this will no longer be the case.

“South Africa used to be the gateway to the rest of Africa. If they [foreign investors] wanted to set up and go into Africa, the FDI would come to SA first”, before moving up north. This is no longer happening and foreign investors are now moving directly into Africa from China, Europe and the United States.

“How can you not be aware of what your neighbours are doing, because if your market is shrinking or getting smaller or stagnating even, and the world around you is getting bigger, you become less relevant in the grand scheme of things,” Deppe said.

He added: “As an investor, if you want to grow and become part of the global community, you have to know what’s going on in China, Europe, the States and across your border.”

Deppe said investors must begin to realise that the South African economy is sliding backwards. “We’ve put our economy into reverse in SA and the rest of the continent is in first gear. Most of the markets (in Africa) that we invest in are sitting at 7% GDP growth. Despite claims of corruption, a lot of that money still filters down into the economy, there’s a lot of economic drive and growth.”

He added that on the development side, Actis was getting returns of between 13% and 14%, in US dollars.

What’s in it for the SA investor to go north?

Deppe says the watershed year for property investments in South Africa was 2010, after the World Cup. “We had all these infrastructural projects, the economy had withstood the 2008 global recession. Then suddenly: what’s next in SA? There’s not much left in South Africa, we are a saturated market.”

Deppe said by way of illustration that vacancy rates had increased in many shopping centres across the country. As a result, investors’ returns at 7% or 8%, which were not great to begin with, are shrinking and are likely to be impacted further.

He said with GDP in South Africa being below 3% “you’re not even going to get out of the starting blocks. You’re actually going backwards in real terms.” Deppe said Actis’ shopping centres in countries like Ghana are 100% let with some of the larger tenants having paid five year rentals in advance. Rent in Accra has also doubled in the past five years. In some instances in South Africa, tenants are able to negotiate more favourable rentals due to the occupancy rate in the office sector, for example.

Asked why South African investors seemed reluctant to even consider putting their money into the rest of the continent, Deppe said most investors did not like change and South Africans were particularly set in their ways. He added though: “With the South African base not as strong as it was, it’s forcing people into a mind-set to look abroad. I don’t think they have a choice.”

(Moneyweb)


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