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BusinessDay
Nigeria's leading finance and market intelligence news report.

AfCFTA seen as major event that will shape African economy in 2021

…real estate developers see opportunities in the enlarged market

Friday, January 1, 2021, is expected to mark a turning point for African economy with the commencement of the much awaited African Continental Free Trade Agreement (AfCFTA) which analysts say will be a major event that will shape the continent’s economy in the new year.

Expectation is high that the trade agreement will boost intra regional trade with the continent’s largest economies, including South Africa, Ghana and Nigeria to benefit the most from its single tariff-free market valued at $3 trillion. The trade agreement promises to eliminate cross border tariffs on 90 percent of goods which is quite significant.

Experts project that the AfCFTA could raise Africa’s nominal GDP to $6.7 trillion (from $2.6 trillion) by 2030 if all African countries abide by the rules of the game. All African nations, except Eritrea, have ratified the trade pact— a testament that the continent is now ready to trade and tap economies of scale associated with expansion.

Besides facilitating job creation and greater competitiveness of African micro, small and medium-sized enterprises (MSMEs), the analysts say there are also opportunities for real estate investors in the trade agreement also seen as a crucial ingredient for lifting people out of poverty.

“We expect that AfCFTA will invigorate Africa’s growth trajectory and will make Africa one of the biggest economic bloc in the world because the continent will now be borderless such that businesses can move from one country to another,” Mustapha Njie, CEO, Taf Africa Homes, said in an interview.

Njie is optimistic that Nigeria, which he described as “Africa’s Big Brother” to take the lead in opening up its borders so that other African countries can tap opportunities which abound in the country.

He hopes that free movement of businesses from one country to another means there will be increased demand for both residential and commercial real estate, including office, retail and industrial space in which investments could be made.

MKO Balogun, PFI Global CEO, shares this view, adding, “the free trade agreement allows entities across markets to explore opportunities in those markets. Real Estate opportunities abound in most African countries waiting to be developed and tapped; many Sub-Saharan African countries have shown huge potential for real estate.”

Balogun pointed out, however, that there were challenges. He explained that Nigerian real estate developers, for instance, have had bad reputation of killing markets, citing Ghana property market where over-investment by Nigerians have had negative impact on the local economy and created investor-apathy

“When Ghana real estate market started booming, Nigerians flooded the country, got involved and clogged the market into recession. There were too many properties; values started going down. Government didn’t do anything other than to direct that property should be valued in Ghana currency and not US dollar,” he said, recalling that he warned them in 2012.

Though Kenya is beginning to see falling demand and price decline, Ayo Ibaru, Director, Real Estate at Northcourt, insists Nairobi remains an investment destination, giving high yield year-on-year on mixed use developments comprising office, retail and residential apartments.

Ibaru noted four nodes in Nairobi, the country’s capital, where because of developed infrastructure, demand from expatriates is relatively high. They are also attracted by retail malls and security in those nodes which include Kiambu, Limuru, Ridgeway and Chinbingwa.

In Nigeria, there are opportunities especially in the low income residential segment of the market where demand is high for small unit apartments such as studio, one-bedroom and two-bedroom apartments.

Balogun confirmed to BusinessDay in an interview that demand is more in this segment of the market than any other, explaining that over 60 percent of those looking for houses to buy or rent in Nigeria today are looking for these small units apartments, not three, four or five-bedroom apartments.

But Nigerian market can also dampen investment interest. It is estimated that 95 percent of houses in Nigeria have no title which is linked to the high cost and long procedures for registering property.

It takes an average of 12 procedures and 105 days or as long as two years to register a property. This does not encourage formal declaration of assets and discourages people from registering their properties.

Nigeria ranks 149 on the ease of obtaining Construction Permit and requires 17 procedures, 118 days, and 27.5 percent of property value, a factor that encourages more informal construction of properties and increases risks in the real estate sector.

In Lagos which is Nigeria’s economic heart beat, it is estimated that 97 percent of lands in the city is unregistered, making it difficult for banks to validate claims to land or for land occupants to use their land to create wealth. This, more than anything else, accounts for Nigeria’s over 20 million housing units deficit.

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