The multinationals who have moved into Africa in search of fresh markets enjoy many opportunities, true – but there are also risks to overcome. Jonathan Turner, General Manager of Global Occupier Services Africa at Cushman & Wakefield Excellerate, outlines how these may affect occupiers.
The African continent, subject to a number of challenges and turbulence during 2017, seems certain to experience a more prosperous year in 2018. This is due to positive developments in a number of industries, such as fintech; while the moderate improvement in oil and other commodities prices, coupled with growing trade volumes and a fast-emerging gas sector, look certain to facilitate solid economic growth.
But, while multinationals will certainly benefit from these developments, Turner warns that they should be aware of potential obstacles when they seek to establish premises on the continent. “Many of the risks faced by occupiers on the African continent are unheard of in more established markets,” he comments. “These challenges are symptomatic of frontier markets, which are unsophisticated and under-developed in nature; but they are not unique to Africa itself.”
Turner says that occupiers should be aware of a general culture of non-transparency, with limited (or no) information or data available. Access to professional services may be limited or, in some sectors, non-existent. Furthermore, various areas of the continent are involved in war or experiencing post-war conflict and tension, most notably: Somalia, Sudan and parts of Egypt, along with religious fault lines in areas like northern Kenya and northern Nigeria, plus pockets in numerous other countries.
Other obstacles include vulnerable and limited infrastructure. Roads, power and transport are often affected, and this may impact on a company’s ability to operate efficiently, even with back-up generators as power sources and other measures. Added to this, construction costs can be very high, with access to finance often limited and expensive, exorbitant costs associated with importing construction materials, amplified by high land prices. All of these impact on property developers. In addition, development projects themselves can often be instigated without proper investigation, thought and planning in terms of design, positioning and quality by reference to the actual demand and the requirements of the prospective end users. This ultimately results in poor quality developments and a mismatch between the supply and the user demand.
“Local real estate laws, government policy, social challenges and political risk all create their own uncertainties and constraints,” Turner continues in terms of wider issues which all pay their part. “There is also a need to bolster education and skills development, create jobs and enhance wealth distribution. Finally, safety, security, regulatory and local bureaucracy issues impact on the ease of doing business.”
Turner may seem to paint a dark picture, but he’s quick to add that there are many advantages to doing business in Africa, too. “On the plus side, the total cost of occupation for occupiers (including labour and operating costs) tends to be materially lower in African cities than in the high value, established cities of Europe, North America and Asia,” he says. There is also a huge evolving marketplace for companies to do business in Africa, not least as the continent is the fastest growing World region, with more than half of global population growth between now and 2050 expected to occur in Africa.
How can occupiers work African territory to their advantage? What’s important to realise here, says Turner, is that occupiers are looking for premises that will ‘enable’ their business. This means identifying buildings that have the potential to boost productivity, stimulate creativity, encourage teamwork, and boost wellbeing, while meeting the requirements of sustainable architecture. It’s a tough ask, especially in markets where the costs and constraints in construction, as previously mentioned, are often a hindrance in terms of the quality ultimately produced. But that doesn’t mean that occupiers cannot, or indeed should not, expect their workplaces to deliver. “Although workplace practices in Africa are generally still conservative, especially when compared to global trends, there remains a significant opportunity for many companies in Africa to make more of their space for the rents they pay,” Turner comments. “This requires them to see the workplace as a strategic initiative to transform behaviours and act as a catalyst to achieve far wider business goals. These might pertain to enhancing the employee experience and productivity, attracting and retaining the best talent, and increasing collaboration and cross-selling. The achievement of these goals hinges on improved utilisation of space, the provision of activity-based work settings and the introduction of co-working initiatives along with social spaces to further encourage effective interaction. This all needs to be supported by appropriate IT infrastructure to ensure the right experience. An effective workplace strategy can also reduce costs and improve efficiencies by reducing a company’s overall real estate footprint.”
Turner adds that companies can benefit significantly from the advice and insight of professional service providers when seeking to establish operations in a new territory, or in reviewing their existing property commitments relative to the future needs of the business, which will be constantly evolving. “The selection of the right premises can make all the difference to an operation’s success,” he concludes.