As investors in the developing world, there are many opportunities if you know where to look. Zambia’s population is set to triple by 2050, according to the UN. This would make it one of the fastest growing populations, offering savvy investors a fast-growing market.
At the moment, there is much interest in the Sub-Saharan real estate market, largely driven by South African REITs and Africa-focused PE funds. This interest is largely concentrated on servicing large South African retailers, and is consequently primarily deployed in developing or acquiring shopping malls.
This does, of course, provide investors with an attractive US Dollar yield, but there is a lot of money being left on the table. Investors should be looking beyond the traditional five to ten year holding period when considering Sub-Saharan property. They need to be willing to tolerate the exchange rate risk in order to benefit from longer-term economic and demographic trends.
The expected population boom, rapid urbanisation, and moderate to high economic growth offer investors a tremendous opportunity. In our estimation, by far the greatest opportunity is one that provides and services the assets and services needed in growing cities. These would include hotels, schools, single and multifamily housing, logistics centres, bus stations, railway stations, and the more traditional assets like office and retail buildings.
This thinking is also framed by the observation that, as economies experience long term growth, they see a formalisation of their private sectors. This reduces the prevalence of informal commerce. Finally, the growth of populations and cities is generally happening at a rate that puts governments and municipalities on the back-foot. There is typically an inability by governments to fully and properly service their citizens and critical social services. This service deficit is increasingly being met by the private sector, and we see this even more in the Sub-Saharan markets. Examples include Curro and Advtech, building large education service platforms to bridge the gap in public schooling. In our assessments, this will eventually become the norm, creating opportunities for real estate investors to build the infrastructure to support such endeavours.
Mwiya Musokotwane is the co-founder of Thebe Investment Management.