There are many reasons to consider property investment in Africa and these reasons combine both 'push' and 'pull' factors. Perceived saturation of local retail markets, subdued economic indicators and high levels of competition have acted as an incentive to look elsewhere, while the opportunities offered by untapped markets, dollar-based rentals and greenfields projects are attractive.

This brief report examines some of the critical questions for South African business considering the African market, highlights some potential pitfalls and offers some insight into lessons learned by property professionals who have already crossed the border.

WHY AFRICA?

The first question to ask is whether or not Africa, in principle, is the right end-destination for expansion? And the answer to this question is competitive advantage. South African investors are well placed to outperform other foreign investors:

• The first competitive advantage is physical proximity, especially in southern Africa. South African investors are arguably in a position to spend less time, incur less cost and therefore face less risk than many other foreign investors. This proximity furthermore facilitates the management of investments in African countries, and the transfer of skills and systems to local partners.
• The second competitive advantage is psychological proximity. The African Renaissance, or the need to stimulate regeneration from within the continent, provides a vehicle for South African investors that other foreign investors lack.
• An additional consideration is that as diverse as the continent may be, there are key elements of the African business environment that are consistent and familiar.

This brings us to the crucial requirement of being able to compete with local investors in African countries. South African investors have two advantages with which to take on local presence and knowledge.

The first is technology and skills. The second is access to finance.

Skills in the fields of research, planning and design, development management, property management and other property-related disciplines are key advantages that South African investors can transfer to other African nations, while the existence of South African property or asset management systems are potentially applicable to other markets.

Access to finance is an important consideration on a continent where certain countries do not have mortgage financing available. Projects are in some cases conducted on a piecemeal basis - or shelved completely - because of the lack of available finance, and this is one area where South African investors have an advantage over local players.

AND THEN... WHERE IN AFRICA?

Once the decision has been made to look across the border, the question of where not to go is as important as the one of where to go. Africa is sometimes seen as a homogeneous marketplace, but this is an inaccurate and hazardous perception.

The 'where not to go' decision is a process of elimination on the one hand and prioritization on the other. Although certainly somewhat inaccurate, desk research provides a scanning mechanism at this preliminary stage. The countries on the continent should be assessed with regard to adherence to broad core requirements defined for a particular venture: broad retail indicators for the retail property market, or tourism statistics for hotel development.

The 'where to go' decision implies detailed investigation of the countries at the top of the priority list in order to re-evaluate prioritization. Various make-or-break factors should be assessed for each of these countries, while a carefully conducted environmental scan is crucial to establish risk factors in the political, economic, business and financial sectors of the local market.

There are undeniably certain pitfalls to entry into the African sub-continent and these should be borne in mind when reviewing different country options. A dearth of reliable, accurate market information is one constraint, while prohibitive red tape, corruption and bureaucracy are other factors.

To provide some idea of the diversity of country markets in sub-Saharan Africa, the following table highlights key, comparative retail and spending indicators, of interest to the retail property sector in particular:

African retail-related economic indicators
	GNP per capita In 1997 US$	PCE growth rate 1980-1996	Urban population % of total 1997	Private consumption as a % of GDP 1997
Cote d'Ivoire	$690	-1.6%	45%	66%
Ghana	$370	0.1%	37%	82%
Kenya	$330	0.4%	30%	70%
Lesotho	$670	-1.2%	26%	85%
Namibia	$2,220	-	38%	59%
Nigeria	$260	-1.7%	41%	65%
South Africa	$3,400	0.0%	50%	62%
Tanzania	$210	-	26%	83%
Uganda	$320	1.0%	13%	82%
Zambia	$380	-2.1%	44%	81%
World	$5,130	2.0%	46%	63%

Finally, JHI Research has pinpointed the following criteria as crucial considerations for property investors or developers entering the African market:

• Establish a credible and professional business relationship with a local partner;
• learn to communicate in the local language or include an interpreter on your team;
• retain the services of a professional, reputable and local attorney and accountant;
• establish what project finance routes are available, especially in countries where bond financing is not an option;
• be willing to part with intellectual property and engage in skills transfers;
• focus on working with local partners and communities; and
• ensure that a clear exit strategy exists.

Property In Maputo, MOZAMBIQUE

Investors need to ask the right questions before getting involved in African property markets. The following bullet points highlight some key characteristics of the Maputo property market.

• While the Maputo market seems to offer good commercial and industrial development opportunities, there is little depth in the market. Estimates suggest that the take-up of office space in the next five years will not exceed 20,000m2. Timing is paramount to avoid the possibility of saturation.
• The legacy of the civil war is in evidence. In some cases, office buildings have been used for residential purposes, without conversion. Few, if any, new developments have occurred in the past two decades.
• Consistency lacks in the deeds registry, causing uncertainty about the transfer and ownership of land.
• Development is largely market-driven, along the major arterials towards Costa do Sol. Infrastructure conditions have improved and the N4 corridor is expected to heighten access to and from South Africa.
• There is a significant amount of new, upmarket residential development in Maputo, especially in the Polana Canico area and along the Av de Marginal. Upmarket residential homes are being sold for between US$250,000 and US$300,000.
• Office rentals for A-grade space range from US$18/sqm/month to US$20/sqm/month while retail rentals are 15% - 20% higher. Rentals are often paid three to six months in advance, with gross leases being the norm.

Typical land prices per square metre per month are tabulated below:
INDUSTRIAL	US$10 - US$15
RETAIL	US$40 - US$80
OFFICE	US$60 - US$100