The Chief Executive Officer, Topservices Limited, Chief Tokunbo Omisore, a firm that has through partnership developed several malls in Lagos, Ibadan, and other parts of the country, in this interview, explains that the retail segment has the potential to solve Nigeria’s rising unemployment challenges. He, however, highlights the importance of funding for such projects. Oluchi Chibuzor brings the excerpts:
What’s the potential of the retail industry in Nigeria?
The retail industry has several benefits to the economy: apart from the increase in employment, increase in revenue to the government, modernisation of the environment, tourist attraction, and infrastructural development, it will also drive events in other industrial value chains, such as agriculture and manufacturing. Most of these retailers will buy a large portion of their products from local farmers and manufacturing companies in Nigeria. We have seen this play out with Shoprite, where most of the outlet’s supplies are sourced locally, especially its food supplies.
Some view malls as mere real estate and not as providing significant externalities. Is this a correct view of malls?
This is not a correct view. Malls can be likened to infrastructure like roads, bridges and so on that are capable of providing employment to the youths, starting from the construction stage and its entire lifespan, and contributing more to Gross Domestic Product (GDP) which lies in the Government’s ability to provide a special fund to the sector. The construction of roads and other infrastructure that the government is embarking upon will not automatically translate to reducing unemployment. However, a formal retail industry has the potential to employ millions of Nigeria’s teeming youths and improve incomes.
What are the benefits of organised retailers like Shoprite to the various SMEs, manufacturers and farmers?
An organised retailer like Shoprite who now presently has 25 stores spread across the country will benefit various SMEs to showcase and sell their products with a single transaction, unlike the time when their products are limited to their immediate environment thereby hindering their growth. This large platform as well goes to the manufacturers and the farmers who now have a reliable organised market to sell farm produce without getting spoilt, and suffering loss.
Unemployment is a significant challenge for the country’s development. What potential does the retail industry have to solve this challenge?
Nigeria’s retail sector remains relatively under-developed. Over 80 per cent of the shopping is still carried out at the traditional shops such as corner shops, kiosks, local markets and also from street vendors. According to the International Labour Organisation (ILO), at least 142 million people work in the retail sector in developing countries. Retail employment accounts for an average of 10 to 15 per cent of the job market in any given country. Seeing that the retail industry is very vital to a nation’s economy, the Nigerian market holds significant opportunities for retailers (local and international) and the chance to solve the unemployment challenge in the country. It is proven in the direct and indirect jobs provided by all the malls anchored by Shoprite in Nigeria today.
So, what is hindering the development of malls in Nigeria today?
The interest rates on loans for the development of the mall are high with a short time for the repayment, investors and banks are often only willing to invest in government securities which pay high returns. If I can buy a risk-free 180-day treasury bill that pays me a 20 per cent interest rate, I see little incentive in lending to a risky individual or institution, and if I do, I will charge an exorbitant interest rate. Similarly, if I could get such a risk-free 20 per cent return in half a year, why should I invest in the REIT? In short, high-interest rates on government securities draw investment away from other areas of the economy.
This is not helping the retail sector capable of solving the problem of unemployment in the country.
Can you proffer solutions to these hindrances?
The government needs to provide a specific fund/intervention at a particular interest rate through the CBN/Commercial bank to developers willing to invest in this sector on a long-term basis. The sector thrives in other countries and solves their unemployment problem due to funds available at a single digit interest rate for a long-term period because the development is seen as infrastructural development that will last years.
Is investing in malls a sustainable venture, considering inflation, possible recession and currency devaluation, all of which can affect patronage of the malls?
Presently in Nigeria, investing in mall development is not sustainable to the indigenous developer due to cost of funding, infrastructural decay and stringent regulations/pronouncements amongst other factors. However, it can be a sustainable venture if there are government intervention funds with at most five per cent interest rate and at least a 10-year tenure are made available to indigenous mall developers; commercial banks grant loan facilities at single digit interest rate with at least a 10-year tenure to indigenous developers. The foreign developers in the industry enjoy single digit interest rate on foreign currency as they obtain funds from offshore at an interest rate that is less than five per cent. This obviously gives them an undue advantage over the indigenous developer; business friendly regulations with waivers and prompt approvals, where necessary, are granted; provision/improvement of infrastructure especially electricity.
Energy cost constitutes approximately 75 per cent of the cost of running the mall. An increase in the price of crude in the international market will bring about increase in the diesel cost locally, hence causing service charges to go further north. Running generator for 12 hours or more will also mean high generator maintenance cost and consequently replacement due to over use. All these obviously makes the mall unsustainable as tenants will complain of high cost and may be forced to vacate the mall. Improved electricity supply of at least 10 hours during trading period will reduce drastically the cost of running the mall. There is a partnership/joint venture between developer and land owner; and the most recently introduced Real Estate Investment Trust Scheme (REITS) is encouraged and allowed to work, that is, investors pooling funds to finance mall development.
ith the above, the rent payable will be friendly and affordable and indeed sustainable especially, the neighborhood mall concept with emphasis on affordability and sustainability.
Retail holds the key to solving the menace of unemployment, especially youth unemployment.
What are the benefits for pension or long-term private investments in retail?
Pension fund investment in the retail sector would be an “ideal asset class” providing tangible advantages such as long duration- facilitating cash flow matching with long-term liabilities, protection against inflation and statistical diversification.
The retail sector will show growth in all economic cycles, for instance, a consumer spending on durable items like cars or expensive electronics may decline in a recession. Food consumption, for example, does not as home food expenditures often grows in tough times.