Ghana: Tapping demand in retail

Ghana | 19 Dec 2012

A rise in purchasing power and a shift towards formal retail space is helping burnish a positive outlook for retailers in Ghana. Mall retailing is still in its infancy, particularly outside the capital, but international brands and developers are increasingly enthusiastic about the country.

Ghana has been attracting growing interest from foreign investors, due to oil-fuelled economic growth in excess of 8%, along with rising incomes, political stability and – crucially for retailers – low level of modern retail penetration. Ghana’s two bona fide malls, Accra Mall and A&C Square, have proved very popular, boasting occupancy rates near 100%, and a waiting list for retailers keen to open outlets. This has pushed target rents up to around $50 per sq metre, from around $25-35 in the past few years.

Real incomes grew 44% between 2009 and 2011 alone, and last year the economy grew by around 14.5%, one of the highest rates in the world. In 2011, Ghana improved its standing to become a low-middle income country, according to World Bank definitions. At present, however, modern retail accounts for only around 5-10% of sales volumes.

“Although there is a high demand for retail space from both foreign and local companies, supply of space has been sluggish,” William Bobie, executive director of Assenta Real Estate Investment Managers, told international press. “With a growing population of 2.5m-plus in Accra, the city has capacity for more retail centres to augment the current 30,000 sq metres of formal retail space.”

However, Ghana’s modern retail potential is no longer a well-kept secret. A number of mall and mini-mall projects are already underway in Accra, some apparently following A&C’s successful model of a “neighbourhood mall”, which has also proved a hit in a number of other countries.

The Marina Mall, a two-story centre near the airport, opened recently, and projects underway include: the West Hills Mall, with 27,300 sq metres of gross leasable area (GLA), due to open in 2014; One Airport Square, an office centre including a mall with 2000 sq metres of retail space, from the same developer as Accra Mall (also due 2014); The Octagon, another office-and-mall development on a 6500-sq-metre plot in Accra Central; (due 2014) and the 5000-sq-metre GLA Oxford Street Mall in Osu (due 2013).

Bobie added that there were “huge opportunities” for modern shopping centre development in Ghana’s growing regional centres, particularly Takoradi, the heart of the country’s oil industry, and Kumasi, the second city and capital of the Ashanti region.

The sector was affected by the unexpected and tragic collapse of Melcom, a newly opened mall operated by an Indian retailer of the same name, in early November. The collapse was reportedly caused by a structural failure and killed nine people. It is likely the authorities may take a tougher approach to mall construction in future.

With a number of new projects in the pipeline, competition among malls is likely to increase, even with the economy doing so well. Existing malls have tended to target high-income Ghanaians, still a relatively small minority of the population, and expatriates. While the small malls coming online will likely lean towards the high end of the segment, some of the newer malls may look to focus on attracting middle-income Ghanaians.

Though the economic outlook remains very good, retailers and mall developers are keeping an eye on two important downside risks: foreign exchange fluctuations and inflation. Modern retailers tend to import a large proportion of the goods they sell – for example, Game, a South African discount household goods chain, imports 95% of its products.

Ghana’s national currency, the cedi, has fallen 17.5% against the US dollar in the first 10 months of the year, substantially pushing up the cost of imports. In a market that is still fairly price-sensitive, this has created challenges for retailers, prompting them to absorb some of the impact of higher costs, and in some cases switch to offering cheaper brands.

Connected with the falling cedi, as well as linked to strong growth in a country that has supply bottlenecks, is inflation, which was running at 9.2% in October. At this rate, many Ghanaians’ real incomes will begin to erode, limiting capacity for the sort of discretionary spending on which modern retailers thrive.

While foreign exchange, inflation and competition remain risk factors, Ghana’s high-growth, low-penetration modern retail market is attracting investment for good reason.

Sectors: Wholesale & Retail
Countries: Ghana
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