Business confidence of the rise in Botswana
1st February 2015
As one of Africa’s most stable economies, Botswana has been identified by experts as the most efficient and transparent developing commercial real estate market in the world.
Strategically located in the heart of Southern Africa, Botswana has consistently been one of the world’s best performing economies. According to experts its success can be attributed to high quality mineral and agricultural resources, tourism, political stability and good governance.
In a recent report by property consultant Cushman and Wakefield, Botswana emerged number one among 42 emerging and frontier property markets around the world. The report, which assesses risk and opportunity, identified Botswana as the most efficient and transparent developing commercial real estate market.
Botswana’s economy is anchored by its mining and agriculture sectors. The mining industry accumulates the majority of resource-based income, primarily from diamonds and, to a lesser extent, copper. The agricultural sector provides the most employment for the populace. Economic growth has been steady over the past few years, and Botswana is now established as a middle-income country.
Speaking to Cityscape magazine, Keith Jefferis, Managing Director of Econsult Botswana, an economic and development consultancy firm, said the country’s economy grew by 5.8% in 2013, driven by strong growth in diamond mining. Besides mining, other fast growing sectors were mostly in services such as trade, hotels and restaurants, finance and business services.
“Looking ahead, diamond mining – which is the largest sector of the economy – is expected to continue growing but more slowly, as production reaches a plateau. There is potential for the expansion of other mining activities, such as copper, nickel, coal and uranium, but all of this depends on favourable movements in commodity prices and stronger global economic growth,” said Jefferis.
Jefferis explained that over the next five years, average annual growth is projected to be around 4% per annum. He added that while the figure is not bad by the standards of an upper middle income country it is much lower than the growth Botswana has experienced in the past.
Growth should be spread across a range of economic activities, including agriculture, manufacturing and services. “Although dependence on diamond mining should reduce, the development of downstream activities including diamond cutting, polishing and trading remains a priority. The government is also likely to promote investment in key economic infrastructure such as water, electricity and transport links, whether directly or on a public-private partnership basis,” added Jefferis.
REAL ESTATE SNAPSHOT
Botswana’s residential property market remains strong, amid healthy economic growth and political stability. Stan Garrun, Executive Director of MSCI Real Estate IPD in South Africa, an investment research provider, said the Botswana real estate sector is a small but growing market.
Garrun said the commercial and residential sectors produced a total return of 21.4% in 2013, an improvement from 18.1% recorded in 2012, comprising a 9.9% income return, coupled with 10.5% capital growth for the year.
“The residential sector is open for development due to a large demand,” he said.
According to the IPD Botswana Annual Property Consultative Index, demand remains strong with an increasing value of outstanding property loans. In January 2014, total outstanding property loans to households surged by 44% to BWP 6.79 billion (USD 782 million) from the same period in 2013, thanks to falling mortgage interest rates, based on figures from the Bank of Botswana.
IPD Botswana Annual Property Consultative Index was launched in 2013 to measure total return to directly held standing property investments from one open market valuation to the next. Accordingly, the index tracks the performance of 103 property investments in Botswana, with a total capital of BWP 2.8 billion (USD 322.4 million) in 2012.
David Green, Director of ProAfrica Property and Services, an affiliate of Cushman and Wakefield, said the real estate market is primarily focused in Gaborone and investment grade property is performing well across all sectors including office, industrial, retail and residential.
“Local investors dominate the market, although significant interest is being shown from international buyers already operating in this stable African market,” said Green.
According to Green, the two main office markets in Botswana are Gaborone and to a lesser extent, Francistown. The current occupier demand comes primarily from the public sector and a small amount of international corporates.
“There is currently significant activity within the office market in Gaborone, with major development within the CBD underway. Multiple large-scale projects, such as the Fairscape Precinct are expected to change the Gaborone city landscape,” said Green.
ProAfrica Property believes that the market is entering a new phase as substantial new development is leading to the creation of a new CBD in the heart of the city. The delivery of various new projects will provide occupiers with an unprecedented choice of facilities in central locations.
“However, the scale of development and the amount of speculative space being constructed will see rental growth curtailed. This comes at a time when government occupiers, a major driver of the local market, have been forced to freeze requirements in light of austerity measures. It is possible that a two tier market will emerge as demand from high grade occupiers is likely to focus on new space in the CBD and Gaborone’s premier business parks, while secondary accommodation will struggle to attract tenants,” said Green.
According to a report by ProAfrica Property the principal industrial areas of Botswana are located along the main railway line, primarily in Broadhurst, Gaborone West and in area Phase 4 and with the increasing development of the mining industry, demand for industrial premises is expected to increase.
Additionally, major infrastructure improvements, such as new roads and expanded railways, will help to keep the industrial market active over the next few years.
“A lack of product, both to buy and lease, is frustrating both occupiers and investors. The principal locations in Gaborone remain in strong demand with a relatively diverse occupier base, whereas demand in most other towns is heavily driven by the fortunes of the local mines,” said Green.
For Garrun of MSCI Real Estate the top performing sector for 2013 was the industrial sector, which outperformed as a result of superior income return and a solid capital growth of 13.5%.
“This is a very superior income return in terms of industrial. In most countries the manufacturing sector drives the industrial sector, but in Gaborone there is not much manufacturing so it’s driven at the moment by a lack of available development. It is not a growth market but an insular, well managed market,” said Garrun.
According to Cushman and Wakefield’s Emerging Market Risks report, as economic growth stabilises in Botswana this will help improve business confidence.
“With Botswana being one of Africa’s most stable countries, the outlook is positive. However, activity will focus primarily on prime space, with the proliferation of secondary space likely to remain largely vacant,” said the report.