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Nigeria's Retail Revolution by nameo: 8:03pm On Oct 30, 2013

On Wednesday 9th, October 2013, Nigeria’s leading online shopping outfit Jumia won “The Best New Retail Launch of the Year” award at the 2013 World Retail Congress held in Paris. With this distinction, Jumia became the first African company to ever win the most important retail award worldwide. That Jumia, a Nigerian start up won this award, ahead of established retail operators in advanced economies points to the fact that Nigeria has become the latest frontier market for retail sales in the world.

The reasons for this frontier position and the rapid growth in the retail market are associated with the increased urbanization, rising population, rise of a working class desirous of convenience and also increased purchasing power.

The nation’s population of over 170 million is growing at 2.7 percent per annum, with a median age of 18.6, while the urban population is estimated at 42 percent, compared with 19 percent in East Africa.Income per head has grown from $378 in 2000, to $1615 at YE 2012, as the economy expanded five-fold in the period. Gross domestic product (GDP) is forecast to expand an average of 6 percent a year for the next five years, according to International Monetary Fund (IMF) data. We also note that the huge remittance flow to Nigeria from Nigerians abroad is also giving a boost to disposable incomes and retail spending. The World Bank recorded that remittance flow to Nigeria from Nigerians living in Diaspora in 2012 was up to 21 billion US dollars.

India may provide an example of how the Nigerian retail growth story unfolds in the future, as analysts say Nigeria is in a similar place as India was 10 years ago just before the Indian retail boom took off. In 2001, India had 142,000 sq m of modern retail space. By 2006, the number had spiked to 2.7m sq m, moving from 30 malls in 2003 to 230 malls by 2007.

Analysts predict that Actis may make investments of as much as $1.5 billion in African commercial real estate, including Nigeria. Already Shoprite the South African retail giant sees Nigeria as its growth market as purchasing power plummets in home country.Retail property plans for Nigeria include the Jabi Lake mall in Abuja, and Ado Bayero Mall in Kano.

The most attractive locations for new retail outlets are often the first tier cities of Lagos and Abuja, due to ease of access and superior infrastructure. Second tier cities like Port Harcourt, Kano, Warrri, Owerri and Onitsha are also providing opportunities.

One major challenge facing investors in Nigeria’s retail market is capital. While large equity requirements of between $30 – $70 m are often needed, naira debt is expensive as prime lending rates are north of 20 percent with the central bank’s (CBN) benchmark monetary policy rate at 12 per cent. The cost of projects is also expensive often with limited local expertise. Informed estimates reveal that the cost of completing a project in Nigeria is 2.5 times that of a similar sized one in South Africa. Costs are often passed on to tenants, leading to few anchor options. Thus investors will have to navigate the challenge with prudential risk management strategies.

One other challenge that must be overcome for enhanced retail growth and expansion is the poor transportation and distribution system that is largely road based with attendant delays resulting from poor road infrastructure. Distribution will be better enhanced in a transportation system where the rail system is quite efficient and effective.

As services are steadily experiencing growth in many economies, the retail services is a new frontier that needs to be better tapped for economic growth in Nigeria

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