Property Investment in Africa A Multi Pillar Approach

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Property Investment in AfricaA Multi Pillar
Approach

• The case for Domestic Savings to work with Global
  Finance

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JULIUS NYERERE ex PRESIDENT OF TANZANIA said

• Africas problems are
• Poverty
• Ignorance
• Disease

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AFRICA HAS BEEN PLAGUED BY

• Disease
• Illiteracy
• Conflict
• Segregation
• Bias
• Exploitation
• Hunger
• Poor Governance
• You name it .

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The IMF WORLD BANK wants African states to

• EMBRACE A PROGRAMME
• DIRECTED AT
• Privatisation
• Liberalisation
• Financial Market Development
• Supported by Democracy Good Government

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MY PERSONAL VIEW IS

• African needs a blend of
• Economic Reforms YES
• Labour Reforms YES
• Property Rights - YES

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BUT IT ALSO NEEDS DESPERATELY

• A savings culture
• A deployment of those savings
• If there is to be sustainable growth
• Change has to come from within.

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PROPERTY DEVELOPMENT

• A perspective on the issues in the African
  Continent

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Typical Realities- Property sector in Africa

• Residential
• Rural to urban migration
• Demographic pressure
• Gradual erosion of extended family support
• Volatile demand
• Weak property rights

• Industrial Commercial
• Absence of quality covenants
• Short period leases
• Abnormally high yields
• Periods of over/under supply

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Typical Realities- Property Sector in Africa

• Financing Constraints
• Limited or non existent domestic savings
• Fledgling or absent mortgage markets
• Self- or informal funding
• Absence of long-term finance
• Exacerbated by short term opportunistic thinking

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WHAT THEN DO WE NEED?

• 3 THINGS
• SAVINGS Domestic
• DEPLOYMENT of those savings INTO DOMESTIC
  INVESTMENT
• BRING foreign funding to work in tandem and
• kick start the process

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BREAK THE CAMELs BACK!!!!!!

• The need is to break the Vicious Cycle of

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BREAK THE CAMELs BACK!!!!!!

• And create (through sensible intervention) the
  Virtuous Cycle

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WHERE IS AFRICA

• In terms of Savings and Domestic Investment?

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WHERE IS AFRICAN SAVINGS?

• Facts about Savings
• Individual Discretionary Savings Low or Non
  Existent
• Contractual Savings often state owned
  misallocated
• Government Savings Zero or misused
• Corporate Savings not reinvested but exported
• Investment prudential guidelines restrictive
  anti market forces

• Issues to consider
• History of Low employment or disguised
  Employment
• Real wages have not kept with Inflation
• Faith in financial products ZERO
• Access to Banking Insurance Limited

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CASE STUDY 1 - BOTSWANA

• Facts
• Highly Developed Contractual
• savings but low discretionary savings
• High total savings - 40 of GDP
• Government is a major
• Financier
• Financial (Equity) Markets small - 25 of GDP
• Institutions have generous offshore allowance
  (70)

• Opportunities
• Public Private Partnerships
• Diversification possible into
• Mining, Tourism, Infrastructure
• Regional Finance-Investments

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CASE STUDY 1 BOTSWANA (cont)

• Problems
• No Government urge
• to involve private Sector
• Prudential guidelines
• not encouraging
• High yielding T Bills

• Effect
• Limited availability of long term capital
• Local entrepreneurship limited
• Expensive Bank Debt main
• source
• Economy dependent on
• Government spending
• Preponderance of Government Subsidised
  projects

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CASE STUDY 2 - ZAMBIA

• Opportunities
• Attract FDI
• Attract DFIs
• Invest in local opportunities
• Privatise pension schemes
• Fiscal stimulus to save

• Facts
• Poor legacies long term
• savings
• Discretionary savings low
• Investment opportunities
• abound Tourism,
• Agriculture, Services

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CASE STUDY ZAMBIA (cont)

• Effect
• Much vaunted Privatisation
• ended up in Giant Trust
• No Domestic Capacity
• No economic Multiplier
• Opportunities going away

• Problems
• State Schemes still state
• held
• Private Schemes small
• No incentive to save
• Poor Banking Life
• Insurance Access
• Limited DFI play

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Case Study- Nigeria

• Facts
• Poised for exponential growth
• Underdeveloped Contractual
• savings-15 of GDP but expected to be a multiple
  of GDP by 2010
• Discretionary saving low
• Financial Markets small-
• lt 25 of GDP

• Opportunities
• Infrastructure opportunities abound
• Pension funds can provide long term finance

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Case Study-Nigeria

• Problems
• Underdeveloped Mortgage markets
• Directed largely to affluent section
• Short period-high rates
• Confusion- Land rights Bureaucracy
• Rigid Investment Guidelines

• Effect
• Short tenancies
• No quality developments
• Lack of Developers and Construction Companies

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Case Study-Kenya

• Facts
• Poor legacies long term
• savings
• Discretionary savings low
• Investment opportunities
• in Tourism,
• Agriculture, Services

• Opportunities
• Attract DFIs
• Invest in local opportunities
• Privatise state pension schemes
• Fiscal stimulus to save

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Case Study-Kenya

• Problems
• State Schemes still state
• held
• Private Schemes small
• Limited incentive to save

• Effect
• Limited Domestic Capital Capacity
• No economic multiplier
• Opportunities going away

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WHAT DO THEY HIGHLIGHT?

• Savings limited domestically
• Where available -not utilised well
• Sequenced approach to Forex, Tax, Asset
  allocation, etc missing
• Investment Opportunities available but not
  harvested
• Regional cooperation non existent at this stage
• Reliance Presumption on AID- Bail Outs
  continues

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CAN THIS BE RESOLVED??

• YES - THROUGH
• Global DFIs
• Global Funds
• AID
• Foreign Governments
• In order to
• Act as a CATALYST
• Facilitate the PARADIGM shift
• Make it a VIRTUOUS cycle

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But needs to be underpinned by

• Generate Domestic Savings
• Encourage Active asset allocations
• Deploy Domestic Savings into Domestic Capital

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GENERATE DOMESTIC SAVINGS HOW?

• Access to Banking and Insurance products
• Tax other Fiscal Incentives
• Privatise State Schemes
• Corporate Profit retention and reinvestment
  incentives
• Redirect Government spending

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ACTIVE ASSET ALLOCATION WHAT?

• Encourage Pension Life schemes to go beyond
  immediately-available low risk assets (quoted
  equities, T-Bills)
• To invest in Private Equity, Property and
  Infrastructure funds
• Shareholder Activism as necessary

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DEPLOYMENT OF SAVINGS INTO CAPITAL INVESTMENT

• Adopt Long term horizons
• Local focus including into SMMEs
• Co-invest with Global agencies
• Mobilise Bank (debt) markets
• Provide Technical Mentoring Support

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The SOLUTION

• Focus on Community Issues
• Develop communities
• Tourism, Infrastructure development -all
  inclusive
• Lobby for Policy Changes
• Active Investing by Life pension funds
• Modernise Land Tenure Ownership Rights
• Banking Industry- Mortgage Products Retail
  Reach-MUST
• Stimulus to save invest
• Create a Partnership Culture
• Involve Global agencies and provide UMBRELLA
  Finance
• Tie in with domestic institutions funds
• Assist with technical Implementation Capacity
• Mentoring- not dabbling
• Develop Real Estate Bodies, Laws, Regulations

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THE MULTI PILLAR APPROACH- A COMPELLING STORY

• Involve Global DFIs, NGOs
• Work with Domestic Private Sector Domestic
  Funds
• Empowerment of local people through ownership ,
  skills transfer, employment local content
  criteria
• Take Policy makers along- use the Clout

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CONCLUSION

• Remember Nothing is as Powerful as an Idea
  whose
• time has come
• Let us as a continent stop meddling and trying
  out the
• same things and wait for different results
  That is
• INSANITY

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t h a n k y u