Sustained growth, returns position Nigeria as next frontier for institutional investments
Notwithstanding Nigeria’s very low ranking for ease of doing business, sustained growth and high return on investment have positioned the country as the next frontier for institutional investments.
Nigeria’s institutional investment market, among the core asset classes like equities and fixed income, has been impressive in the last decade, with large domestic and international institutional investors making investments in different sectors of its economy.
Notably, Actis, an international equity investment firm focused on emerging markets, and African Capital Alliance (ACA), also an international institutional equity investment firm, already have strong footholds in Nigeria, especially in the real estate space.
“Strong demographic profile, an emerging middle class, high consumer spending power, are some of the market fundamentals that we as investors find compelling, explained Michael Chu’di Ejekam, Director, Real Estate at Actis, in an interview with BusinessDay in Lagos.
Actis has made considerable investment in Nigeria, especially in retail and office space, such as the The Palms Shopping Mall in Lekki, Lagos which it has exited, the Ikeja City Mall, Abuja Jabi Lake Mall, still under construction, and The Heritage Place also under construction in Ikoyi, Lagos.
ACA has similarly invested in different sectors of the economy and, in real estate, it has footprints in retail, office space and hospitality. “We’ve seen opportunities in this market and we often deploy capital to leverage those opportunities for investment returns”, an official of the company told this reporter.
In its Q1 report on the real estate market in Africa, Broll Property Services, noted that in recent periods, Nigeria has emerged as an appealing destination for institutional investors worldwide, explaining that this rising interest has been centred on the country’s strong demographic profile, impressive GDP growth rates and inherent opportunities, due to infrastructure deficits.
Though Africa, especially Nigeria’s, infrastructure currently lags well behind that of the rest of the world, with some 30 percent in a dilapidated condition, it has vast business opportunities as a growing infrastructure consumer market.
Bolaji Edun, Broll Nigeria CEO, recalls that institutional investment into the real estate sector was initially sluggish, mainly because of the shortage of investment grade assets, meaning that investors needed to develop to make an entry into the market.
According to Edun, it was not until 2004 when The Palms was developed at the cost of $40 million, that investor confidence and investment awareness gradually grew. He observed that the developer’s exiting of the investment in 2007 demonstrated inherent opportunities and strong returns, thereby encouraging other investors to enter the market through their own developments.
“From the initial investments in retail, the sector now boasts investments in hospitality and office properties from private equity, domestic institutional investors and Africa-focused property funds”, he said, adding, “as a result, the success of the primary market and a strong development pipeline has led to an influx of new global investors and has opened up the way for the secondary investment market, leading to what could be a potentially vibrant market for quality asset acquisitions”.
Side by side with the inherent opportunities, are challenges which the Broll Report says lack of market data remains a major issue, as investors would need information about the market in general to guide their investment decision making.
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