Cairo’s loss is big boost for Nairobi
Kenya’s relative stability is attractive
WHILE the Arab Spring was intended to improve the lot of citizens, an unintended consequence of political upheaval has been the loss of Cairo as a regional business capital.
Nairobi in Kenya has been the beneficiary, according to Peter Welborn, chairman of Knight Frank Africa.
Knight Frank is a global property advisory and broking company with operations in 43 African countries, helping governments and major multinationals find, lease, finance and acquire office, warehouse and residential accommodation.
Through its partnership with Galetti, the company also assists South African retailers to move into other parts of Africa.
“Governments may require accommodation for diplomats, they may need to relocate their embassies, and in the private sector multinationals will all to a greater or lesser degree require accommodation in major cities or ports,” he said.
“They need a particular quality of accommodation and warehouse accommodation located strategically to feed the supply line. I would say 40% of our business is for residential while 45% is for office space.
“Especially for warehousing, companies don’t want to own buildings and tie up their capital, so they prefer to lease.”
In locating and financing such property, Welborn said he had noted significant recent trends.
“Cairo used to be a strategic location for businesses, but it’s no longer acceptable. Regionally, Johannesburg is a key capital city, and Nairobi is now the capital of East Africa, so to speak.
“From Southern Africa and up the east coast there are no other cities regarded by business as being key capitals until you cross the Mediterranean. We’ve lost Cairo.”
Welborn said that in Nairobi four years’ worth of office supply had been taken up in the past 18 months.
“We’ve seen regional headquarter occupiers take strategic buildings in conjunction with their existing op- erations in Johannesburg.
“Nairobi is a key area to invest in — good tenant demand, good occupiers, an English legal system and a land registry which is really well organised so you can understand tenure. It is also stable.”
Outside of Nairobi, he said Kampala, in Uganda, offered good strategic opportunities in retail and office space on the back of oil and gas, while in Tanzania, Dar es Salaam looks set to prosper from the largest gas field discovered in the world to date.
Mozambique, too, is beginning to attract attention. “Maputo is based at the southern end of the country but there are plans to undertake big strategic developments in the north, again related to oil and gas.
“Tenure is an issue, but like anything, when you have the right local joint venture partner, those issues can be overcome. When you have minerals and dollars, that often is the driving factor in ensuring development takes place,” said Welborn.
In West Africa, Nigeria was first choice for many global companies, but Welborn said the operating environment made some companies blanch.
“For them, the second port of call is Accra in Ghana, where again a number of strategic occupiers are looking to establish a West African regional presence in an environment they find more acceptable than Lagos.”
The common thread is minerals and investment. Welborn was quick to accentuate the positives, for governments, citizens and real estate.
“The mineral reserves are eyewatering. If the political situation in the majority of African countries could be organised, the local people could enjoy the fruits of the global values of those minerals.
“But political instability is a key issue in many African countries, and the minerals are not being extracted to the benefit of the people.
“Chinese investment is a real positive. They are working with governments, helping them extract the minerals, paying for the minerals but also being asked to build infrastructure — roads, hospitals, schools — in return for the privilege.
“They’re looking to come into Africa to invest in real estate and build buildings for investment. Up till now we’ve seen $3-billion to $5-billion a year for infrastructure projects, but the first phase of opportunities for investment in residential or offices is just starting,” said Welborn. “This is the time for Africa.”
Some economies were coming out of recession, and the minerals sitting in Africa ought to be a key driver in those countries to take the capital cities into the next millennium.
As an example, Welborn said the United Arab Emirates (UAE) signed a deal with Conakry, Guinea, to buy more than five billion tons of bauxite to ship back to the UAE and refine in its second aluminium smelter.
Welborn said the deal was to last nine years, and could be worth up to $7-billion in total.
“If you think of what that amount of money can do to an economy of that size, it’s mind-boggling. That’s just one mineral in one country. I think that’s a real positive, but in Africa, unfortunately, history doesn’t bode well.
“When you invest in infrastructure for hundreds of millions of dollars, you need political stability. You don’t need a change of government, or a change in rules and ownership. These are huge risks.”
To mitigate the higher risk, Welborn said the most important element for multinationals was having a trusted local joint-venture partner to work with.