– the vital role finance plays in bridging the growing housing gap as a pan-African housing financier.
The United Nations expects Africa’s population to reach 2.5 billion by 2050, nearly double the 2020 population of 1.34 billion. This projection portends many challenges, but also represents huge opportunities for certain sectors. How do you see this boom unfolding for the real estate sector in Africa as a whole?
The impending population boom speaks to the investment horizon for Africa; the African continent is increasingly young and is on the way to benefiting from a demographic dividend. Simply put, Africa will have more people entering the labor market than leaving it.
Africa finds itself on the other side of the debate, but with that come both opportunities and challenges.
This will likely put more pressure on our urban centres; according to UN-Habitat, urbanization in Africa is expected to reach 60% by 2050, the same year we anticipate the population boom.
It is not a coincidence. At the same time, housing deficits in Africa will not remain static. in East Africa, Kenya needs 2 million units and Tanzania needs 3 million units. According to our estimates, the current housing deficit on the continent stands at 56 million.
The increase in demand also means that construction can stimulate economic growth. We believe real estate will be central to this huge growth prospect, but whether the boom materializes as an opportunity or a challenge depends on planning. As an organization, we have placed this advocacy at the heart of our strategy.
Since its inception, Shelter Afrique has facilitated affordable housing on the African continent. In your opinion, what have been the great highlights of this 40-year journey?
Reaching a 40th year is a feat in itself. This means that we have remained a going concern but, more importantly, that we have remained relevant to our shareholders. It’s my privilege to be in charge now, I haven’t been here for 40 years, but the moment is not lost for me. It is very gratifying to see how the organization is redefining itself, how it has adapted and grown. Today, we have 44 member countries, compared to 17 in 1981, and three African regional organizations as shareholders. The landscape is different from when the organization was instituted; many other organizations imitate what we do. Others are at the border of our activities; commercial banks, other development finance institutions, but our member countries still look to us for affordable housing and, increasingly, for large-scale development. This should reassure our shareholders that the organization will always be fit for purpose and remains committed to its founding vision of providing affordable housing for all Africans.
We also have a direct impact on livelihoods and quality of life; in 2019, we estimate to have delivered 3,821 homes and impacted 19,015 beneficiaries, created 26,747 jobs and empowered 242 women with homes.
In 2020, we delivered 5,101 homes, housing 25,505 people; this translates into 15,303 direct jobs and 20,404 indirect jobs created. This is the real way we impact livelihoods and improve the quality of life in Africa.
We also have a very dynamic universe of stakeholders with other organizations such as UN-Habitat, African Union, European Investment Bank, West African Development Bank, BOAD, Islamic Bank of development, the Commonwealth Development Bank, the German Development Agency, KFW, Trade Development Bank, TDB, Agence Française de Développement, the French Development Agency. We are also equity partners in institutions such as the Kenya Mortgage Refinance Company (KMRC) and the Tanzania Mortgage Refinance Company (TMRC), as well as the Nigerian Mortgage Refinance Company, which we helped establish.
Based on your engagements across the continent, what are the main challenges facing the property sector on the continent.
Well, there are four broad ways to categorize the challenges on the continent: government policy and regulation, high cost of finance, prohibitive loan terms and lack of capacity. The government will have to significantly improve the registration of land titles and the digitization of registers. Governments must make housing policy and housing projects a priority issue, which has not been the case.
Along the same lines, transport and infrastructure policies need to be written with housing in mind – This has a ripple effect on housing in terms of land accessibility. Governments should also consider incentivizing developers and developments and reducing administrative bottlenecks. We have found that money tends to follow government interest and direction. As an organization, we have tried to fill these gaps with the Yaoundé Declaration; The Yaoundé Declaration is a policy framework agreed by our 44 member countries at the 40th Annual General Assembly to address affordable housing and governance frameworks.
Second, the high cost of financing and short maturities are prohibitive for investing in affordable housing. Typically, we find that developers are discouraged from participating due to low margins.
To solve this problem, affordable housing needs to be designed as a volume business to make sense to developers. We have remedied this by offering public-private partnerships (PPP) for no less than 1,000 housing units; it is our main product under our revised strategy. We are seeing traction in Rwanda, Togo, Cameroon and concluding conversations in Nigeria to do similar projects.
We also advocate for the strengthening of capital markets as a source of financing. Many African capital markets lack size and liquidity due to the shallow depth and liquidity of local markets; trading is often limited to a few stocks, which represent the bulk of market capitalization. We have often used the capital markets to raise funds for affordable housing, we launched a 10 billion FCFA bond on the West African Economic and Monetary Union (UEMOA), which was oversubscribed by 163% in 2014 and the KES 3.5 billion bond which was oversubscribed. 43% on the Nairobi Stock Exchange in 2013.
We believe capital markets are an underutilized channel for fundraising. Beyond that, we can leverage our partnerships and relationships to fund affordable housing. We have relationships with other multilateral organizations such as the African Development Bank, European Investment Bank, Islamic Development Corporation, German Development Bank (KFW) and French Development Agency (AFD) .
We also have member countries contributing capital. Over the past four years, we have received over $100 million from member countries committing us to participate in their affordable housing programs. Indeed, this is our second strategic pillar, shareholder value and development impact. It guides our investment philosophy in our member countries.
How has the coronavirus pandemic affected this outlook and how have stakeholders managed to weather these uncertain times?
The pandemic has affected the industry, and we are not exempt from it. To begin with, the containment measures that have been decreed by many African countries in response to the pandemic have forced the stoppage of work on many construction sites.
Additionally, there is a natural risk aversion such that many businesses are unable to access credit or funding, which is likely to remain so for the foreseeable future. There has been a disruption in supply chains around the world which has a direct impact on the housing industry as many of our African countries are still import dependent economies.
There is also the very heavy toll that the pandemic is having on human resources in the industry. Workers, temporary and permanent, who work in industry or who have created a mushroom industry around construction, have been laid off; many African countries do not have the same social safety nets available in more developed countries.
In our day-to-day business and operations, like most companies, we have created systems that allow our employees to work remotely and implemented strict COVID-19 protocols and measures. Travel, which is an integral part of our work, has been suspended for the year, so we are holding all important meetings virtually, including our Annual General Meeting.
However, we cannot deny that it has had a significant effect on our business. Initially, when the pandemic broke out and containment measures were put in place in various countries, the level of new business activities decreased due to the social, economic and social problems that customers had to face. Recently, as customers have adapted, there has been improvement as they embrace the technology.
Additionally, our inability to physically engage with the client (specific to due diligence processes in the underwriting process) affected the level of new business activity, resulting in reduced new business underwriting.
However, we also see an opportunity to address the politics surrounding informal settlements; research has shown a direct relationship between the spread of contagion and informal housing where social distancing cannot be successfully implemented. Our COE sees this as an important area of research. It also compels policy makers and decision makers to start developing and encouraging inter-African industrialization, manufacturing and trade. The pandemic has revealed our lack of self-sufficiency as a continent. As an organization, we will explore how we can leverage the African Continental Free Trade Agreement for affordable housing.
Beyond that, we recognize the human cost of the pandemic. We worked through the Shelter Afrique foundation at the height of the pandemic when most African countries went into lockdown and provided relief materials to 4,000 low-income beneficiaries across Africa.