Navigating Challenges and Opportunities In Sub-Saharan Africa

Real GDP growth across the Eastern and Southern Africa subregion is estimated to have expanded by 1.9% in 2023, while the Western and Central Africa subregion is thought to have grown by 3.3% (World Bank).

Source: World Bank

However, risks such as political instability, high debt burdens, elevated costs of living, and depreciating currencies continue to pose risks to the region's 2future economic growth. Amidst these complexities, the real estate market in Sub-Saharan Africa faces both challenges and opportunities.

While the projected growth rates for 2024 and 2025 across Sub-Saharan Africa are encouraging, per capita incomes are not expected to make significant gains, hindering the region's ability to alleviate extreme poverty.

Source: Various Central Banks

Challenges

The economic challenges across Sub-Saharan Africa have implications for the real estate sector across the region, with growth in several countries hampered by conflicts, energy crises, and a subsequent weakening in demand across all real estate sectors.

In Nigeria, for instance, the largest economy in the region, disruptive economic policies and currency demonetisation in 2023 contributed to weakened growth in the business services sector. Furthermore, the continuous rise in inflation in the country, which climbed to a 15-year high of 33.2% in the 12-months to the end of March, has curbed consumer spending and retail footfall.

Over the past 12 months, some prominent retailers such as South Africa’s Mr Price and Shoprite, have exited the market, citing macroeconomic volatility, the depreciation of the naira, and weakened consumer purchasing power. In the wake of their departure, retail developers have turned their attention to expanding small-scale neighbourhood malls to drive growth and footfall.

Similarly, South Africa has faced energy crises, and demand across the country’s real estate sectors has weakened. Unsurprisingly, speculative development has also come to a stand-still, underpinned by escalating construction costs, high levels of inflation, and weak initial returns.

In Angola, government revenues have been impacted by lower oil production, which has subsequently resulted in a fall in public spending levels, which has dampening demand for real estate across all sectors.

Political instability

Elsewhere, political instability in parts of Sub-Saharan Africa, including contested elections and conflicts in countries like the Democratic Republic of Congo, Ethiopia, Somalia, and Sudan, adds yet another layer of complexity to the real estate sector. Recent coups in Niger, Guinea, and Gabon raise concerns about the setback of reforms and potential disruptions in property markets.

Increased conflict and violence in the Sub-Saharan region are further hampering economic activity, while also dissuading real estate investors.

Finally, high levels of national debt leave little room for fiscal manoeuvring amongst Central Banks, which is creating challenges for those seeking real estate financing. Debt service ratios are continuing to rise, with public investments, including infrastructure development, emerging as casualties.

The shift from concessional borrowing to private creditors is increasing the vulnerability of regional economies to economic shocks, which we believe is constraining the real estate market's growth potential.