Risks of investing in Africa
One of the key predictions made for 2020 relates to the emergence of new risks, together with the rewards attributed to the new risks. Africa has 54 very different countries with low connectivity between them, and there is no single answer to ‘which countries to invest in’. Some of the additional risks of real estate investment in Africa include:
- The impact of political stability and changing government policy; a lack of economic diversity, with an overdependence on natural resources.
- Complex legal considerations, such as property ownership rights and investment restrictions. • The volatility of local currencies against the US dollar.
- The time frame of investments and restrictions on possible exit strategy (e.g. limited institutional investors as compared to more developed markets). It is important that investors give consideration to these risks when investing in Africa.
Despite these risks, real estate investors and developers continue to see the African market as a huge opportunity. Investment returns from real estate in Africa’s rapidly expanding economies significantly exceed those achievable in almost all developed markets. Forecasts of 20% net annual returns from investing in shopping malls, office blocks or industrial complexes in countries across Africa continue to draw in new investors.
The opportunities across Africa are significant and span every sector. In almost all markets, demand for high-quality retail, office and industrial space continues to outstrip supply as international and local occupiers respond to new economic opportunities. Huge shortfalls in residential property across the continent give rise to opportunities for private development on a grand scale, while a lack of local funding for infrastructure projects provides a platform for new public private partnerships. Demographic shifts and changes in consumer behaviour create demand for different types of real estate, allowing for the entry of more specialist investors into the market. Economic growth, improving political stability and ongoing investments in infrastructure are opening previously inaccessible markets, while increased transparency and availability of local partners is helping to improve the ease of doing business. Barriers to local market entry may be high, but by entering the market early, investors may be able to reap rewards in the form of high returns and exploit new opportunities as they arise. African opportunities can be exploited best by combining the competitive advantage of individual countries into a coordinated business model. Risk appetite remains an important consideration for any investor in Africa, but for estate companies that can accept and manage these risks, there are significant rewards on offer from the right investment.