5 January 2017

East Africa: What Makes Nairobi the Only African City in Global Investors Top Five Watchlist

Photo: Mkimemia /Wikipedia
Nairobi at sunrise.

Nairobi is on the global watchlist of top five fast modernising cities that are attracting new global business on growing realisation that big companies cannot operate from one sub-Saharan location in South Africa.

The city is also taking off as a hub for global corporations looking to establish an office to cover the East African region, according to Global Cities - The 2016 Report by Knight Frank.

Big companies with global reach have come to the conclusion that they need to operate from multiple locations and Nairobi is a natural starting point in entering or expanding to new regions.

Nairobi has been termed as demonstrating Africa's rapid modernisation and joins other cities like Dubai, United Arab Emirates capital, which is said to have pulled clear of past difficulties and is expanding as a hub for investment, tourism and transport.

Others are Kuala Lumpar in Malaysia, Bangkok in Thailand and Moscow, Russia.

The report indicates that around 1.8 million square feet of modern shopping mall space was opened in 2015 and the space forecast to increase.

"Given that the mall stock previously had totalled 980,000 square feet, this amounts to a revolution in the city's retail experience, which matches the huge economic and demographic changes that have unfolded in Kenya," said James Roberts, the chief economist at Knight Frank.

With the world's cities predicted to add 380 million new citizens in the next five years, new mass transit systems, utilities and faster connections to markets will be needed.

The Lamu Port and Lamu-South Sudan-Ethiopia transport Corridor (Lapsset) has been termed as one of the global infrastructure projects that will be generating new business clusters and creating real estate opportunities.

The project consists of a new 30-berth port and oil refinery at Lamu, which will be connected to Nairobi and the borders of Ethiopia and South Sudan by rail, road and oil pipeline.

Other mega infrastructure projects include; China's global railway links - China is using rail to speed up freight transport to Europe on a route running through Russia or via Iran and Turkey.

The Chinese are also constructing the Standard Gauge Railway (SGR) from the Port of Mombasa to Nairobi and these projects form part of China's one belt, one road programme to enhance trade routes.

In Ethiopia, a new Chinese-funded railway line between Addis Ababa and the Red Sea port of Djibouti was expected to begin operations before end year.

In Nigeria, a Chinese firm won the $12 billion (Sh1.212 trillion) contract to build an 870 mile railway between Lagos in the West and Calabar in the East.

Other projects are; The Delhi - Mumbai Industrial Corridor - This is a development zone that will be targeted for investment to build up new industries to support India's rapid urbanisation.

Expanding the Panama and Suez Canals is another mega project. Presently, ships queue to transit the Panama Canal whose original locks are restricted to 'panamax' ships that carry around 5,000 containers.

A new set of locks completes construction by end year that will offer passage to 'post-panamax' ships that can carry up to 13,000 containers.

A super airport - In Dubai, Al Maktoum International Airport which opened in 2010, is to be expanded from a current freight capacity of one million tonnes of cargo per annum to 16 million tonnes.

The report notes that Kenya is seeing a surge in electronic payments via mobile phone.

"The country is undoubtedly a developing world success story," said Mr Roberts.

Kenya's Economic Survey 2016 Outlook showed that last year mobile telephone subscriptions increased to 37.7 million, resulting to penetration rate of 85.4 per cent.

Swelling middle class

Internet subscriptions increased significantly from 16.4 million in 2014 to 23.9 million in 2015. The number of licensed Internet Service Providers (ISPs) increased from 177 to 221 over the same period.

The number of mobile money transfer service subscribers grew to 26.8 million last year, with total amount of money transacted through mobile platform expanded by 18.7 per cent to Sh2.816 trillion over the review period.

The global cities report said that while agriculture retains a large share of Gross Domestic Production (GDP), the country is developing a broad-based economy with rising services and production industries.

"The country is a fast growing centre for Information Technology (IT) and telecom industries in Africa, and output from Information and Communication industries has risen by 30 per cent between 2011 and 2014 in constant prices.

Finance and insurance output is up by 24 per cent over the same period," the report showed.

For 2016, the International Monetary Fund (IMF) is forecasting Kenyan GDP to expand by nearly 7.2 per cent, compared to 2.1 per cent for South Africa and five per cent for Nigeria.

As a result of this economic transformation, Mr Roberts said the ranks of Kenya's middle class are swelling thanks to so much growth in service industries.

"They are now living, working and shopping ever more in line with developed world expectation, as well as a modern retail experience and international brands, there is rising demand for food and leisure outlets, now that shopping is increasingly combined with socialising. This is why Nairobi needs more modern retail stock," said Mr Roberts in the report.

United Nations (UN) is forecasting that by 2020, the country's urban population will expand to 14.7 million people, an increase of nearly 2.8 million.

Knight Frank's head of London Residential Research, Tom Bill said that for investors and landlords there are clear long-term rewards in the world of short-term rental accommodation.

"Cities that embrace the flexibility of models like serviced apartments will reap the economic rewards," said Mr Bill.

The report said ensuring quality levels of short-term accommodation will be a challenge, particularly given that future economic growth will be dominated by emerging markets.

For the serviced apartment market, it underlines the growing importance of branding and the uniform quality of services and booking systems.

For example, the report said the quality of serviced apartments in Kenya matches that of a hotel, but it's done relatively informally to date. "The next level will mean more professionalism and a branded type of offer," it stated.

The country has also been identified as easy in doing business.

In the World Bank's Doing Business Index for 2017, Kenya climbed 21 positions to rank 92nd out of 190 countries.

That included jumps of 34 positions for 'Starting a Business', 21 positions for 'Getting Electricity', 25 positions in 'Protecting Minority Investors', and 48 positions for 'Resolving Insolvency'.

UN notes that there is going to be more demand for modern retail over the next five years, although the shopping development pipeline is ready to meet the challenge.

By next year, a further 1.3 million square feet of modern retail space will complete development in Nairobi, as the city is expanding from being the economic focus of East Africa into its biggest modern shopping destination.

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