Mall developers feel the pull of Africa's consumer boom

Fri Aug 30, 2013 5:21am EDT
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By Matthew Bigg and Tiisetso Motsoeneng

ACCRA/JOHANNESBURG (Reuters) - When Wal-Mart Stores (WMT.N: Quote), the world's top retailer, bought control of major South African discount chain Massmart Holdings (MSMJ.J: Quote) in 2011, American shopping mall developer Irwin Barkan had an epiphany.

An industry veteran of 30 years, Barkan's U.S. home market was "graying", while the youthful, underdeveloped African continent offered a sweet spot, with a rapidly expanding middle class and no competition from online retailers.

"When Wal-Mart announced it was buying 51 percent of Massmart, I knew that if I was going to stay in business, Africa was where I had to go," he said.

He moved last year to Ghana, one of the continent's brightest economic hopes, and his company, BG International (BGI), has broken ground on what will be an 18,400-square-metre (200,000 sq feet) enclosed mall in West Accra. Another mall planned for Ghana's second city of Kumasi is at a similar stage.

Barkan is not alone. Across Africa, commercial real estate developers are responding to the lure of one of the world's fastest-growing consumer markets and rushing to build malls for eager retailers.

Consumer spending accounted for more than 60 percent of sub-Saharan Africa's buoyant economic growth, the World Bank said in its Africa Pulse report in April, adding economic growth would accelerate to more than 5 percent over the next three years, far outpacing the global average.

But for developers, it's still a risky business. Investors estimate it costs between $35 million and $60 million to build a mall in Africa, which limits the number of players.

Other obstacles include the difficulty of acquiring secure land titles - few African countries have unified land registries - and a lack of reliable data on consumption patterns, which means developers are sometimes reduced to guesswork when it comes to choosing where to site a new mall.   Continued...

A shopper pushes a trolley of groceries at the Makro branch of South African retailer Massmart in Johannesburg May 31, 2011. REUTERS/Siphiwe Sibeko