Chinwendu Obienyi
Chief Tokunbo Omisore, CEO of Topservices Limited, has participated in the development of several malls in Lagos, Ibadan, and other parts of the country.
In this interview, he explains that organised retail trade has potential to solve Nigeria’s rising unemployment challenge. This, according to him, will only happen if government and banks provide the right kind of funding to support the industry.
Excerpts:
Ignorance about the potential of Nigeria’s retail industry
The retail industry holds several benefits to the economy given that apart from the increasing employment generation, raising government’s revenue, modernisation of the environment, tourist attraction, and infrastructural development, it also drives events in other industrial value chains, such as agriculture and manufacturing.
That is because 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 items.
Miscoception about malls
That is not the 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 government’s ability to provide a special fund to the sector. The construction of roads and other infrastructure that governments often embark 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 their incomes.
Benefits of organised retailer like Shoprite to SMEs, manufacturers and farmers
An organised retailer like Shoprite which presently has 25 stores spread across the country will enable 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.
Retail industry’s potential to solve Nigeria’s unemployment 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.
Factors hindering mall development in Nigeria
The interest rates on loans for the development of malls is rather too high and also has short time repayment. This explaines why 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 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’s capable of solving the problem of unemployment in the country.
Solutions to challenges
The government needs to provide a specific intervention fund at single digit interest rate through the CBN/commercial banks to developers willing to invest in this sector on a long-term basis.
The sector thrives in other countries and solves their unemployment problems due to funds made available at a single digit interest rate for a long-term period because the development is seen as infrastructural development that will last years.
Effects of inflation, recession on investment in malls patronage
Presently in Nigeria, investing in mall development is not sustainable to indigenous developer due to cost of funding, infrastructural decay and stringent regulations/pronouncements amongst other factors. However, it can be a sustainable venture if government intervention funds with at most 5 per cent interest rate coupled with 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 5 pe cent. This obviously gives them an undue advantage over the indigenous developer. It means that business friendly regulations with waivers and prompt approvals, where necessary should be granted;
It must also make provision for improvement of infrastructure especially electricity. Energy cost constitutes approximately 75 per cent of the cost of running a 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 could also be a partnership/joint venture between developers and land owners; and the most recently introduced Real Estate Investment Trust Scheme (REITS) should be encouraged and allowed to work. That means that investors pooling funds to finance mall development.
With the above, the rent payable will be friendly and affordable and indeed sustainable especially, the neighbourhood malls concept with emphasis on affordability and sustainability. Indded retail industry holds the key to solving the menace of unemployment, especially youth unemployment.
Benefits of pension or long-term private savings investing in retail sector
Pension fund investment in the retail sector would be an “ideal asset class” that provides 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.