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Rapid growth for retail sector in Africa

Published on 3/11/2016

Sub-Saharan Africa is one of the world’s most rapidly developing economic regions, in part due to the speed of its population growth, which is expected to hit 2 billion by 2040, with more than half of its population residing in urban areas.

Not only is the continent growing, but it is increasingly urban, young and middle class with a growing consumer culture, making it prime for retail development. A new report from Knight Frank, Shop Africa 2016, details the wave of modern mall development in Sub-Saharan Africa, underpinned by its long-term demographic and economic growth. As a result, Africa retail sector is attracting increased interest from regional and international investors.

One major source if investors is the GCC countries, in part, due to its proximity. According to a recent study by the Dubai Chamber of Commerce and Industry, Nigeria, Kenya, South Africa and Uganda have attracted the largest number of Gulf investors in Sub-Saharan Africa.

Modern shopping centers are a relatively new phenomenon in much of Africa, most appearing in the last decade. The first modern mall in Accra, Ghana’s largest and capital city, opened in 2008. Since then, Accra has welcomed eight thriving malls, offering a combination of mass merchant, fashion-oriented specialty stores, cinemas, grocery centers and more – serving as a one-stop and social destination for consumers. Developers are now eyeing Kumasi, Ghana’s second largest city, where three modern malls are under construction, which will propel Kumasi city to the same modern moment that Accra is currently experiencing.

“Shopping centers are an indispensable part of modern urbanization,” says Vicky Sampah, managing broker with Abri Ghana and L’Abri Realty US. “Traditional local markets and shops are being replaced by modern shopping centers in Africa, which have become a preferred shopping trend due to their modern atmosphere, product diversity, and convenience. The African retail sector offers great potential return and cash flow for investors, and also creates steady jobs and a welcoming environment for consumers.”

While South Africa leads continent’s retails sector at an estimated 60% of overall activity, other countries are catching up. Kenya’s formal retail penetration rate is estimated at 30 – 40%, making it the second highest in Africa and, according to the Oxford Business Group (OBG), the fastest-growing retail market. OBG reports that over the past five years, the average value of consumer spending in Kenya has risen by as much as 67%.

The opportunities in Africa, like all emerging markets, are accompanied by risks. The economic, political and social instabilities in many parts of the continent must be considered by investors, along with the recognition that Africa has more than 50 countries with low connectivity between them. A 2015 report from PwC, Real Estate – Building the Future of Africa, explores how global megatrends will impact Africa.