Unpacking the Mozambique property investment case with Grit’s CEO Bronwyn Corbett

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Unpacking the Mozambique property investment case with Grit’s CEO Bronwyn Corbett

2:33 CAT | 01 Jun 2018

Photo: Supplied

Grit, the sub-Saharan Africa focussed income property group has continued to acquire significant real estate assets across multiple sectors in Mozambique, while many others have exited the country. With assets totalling over $600 million in key African markets, and an imminent listing on the London Stock Exchange (LSE), Mozambique has remained a key market for the group since its founding in 2014.

Speaking ahead of Mozambique’s largest real estate investment and development conference, MozamReal on the 20th of June, Grit’s CEO and Co-Founder, Bronwyn Corbett, shared why the fund has continued to acquire strategic assets in the country, while other international investors have exited.

Q: What do you think the value is of having an API Events organised forum specifically for Mozambique?

One of the continent’s biggest challenges is that the rest of the world sees it as a country. Most investors forget that there are at least 54 unique investment cases in Africa. A country-focused conference such as API Events’ Mozamreal places the spotlight squarely on the investment merits, opportunities and risks associated with that particular country.

Q: What do you hope to achieve from this event?

Apart from the exposure that the event offers real estate owners such as Grit, it is also a unique platform for anyone with an interest in emerging or frontier market investment to interact with various regulators and businesses.

Q: As one of the largest funds, if not the largest, investors in Mozambique, you have continued to remain and further expand your portfolio in Mozambique.

We have been operating in Mozambique since 2014 and having a more in-depth and first-hand understanding of the local environment is not only a risk mitigator but assists us in making more informed investment decisions. It helps that we have been building a track record with regulators, tenants and other stakeholders during these past four years, the value of which cannot be discounted.

The strength of especially extraction economies is not a primary motivator when it comes to making expansion decisions. For us, the ability to conduct business in hard currency, repatriation of funds, political and currency risk, debt raising ability and land tenure are the salient considerations.

Economic growth does however play a very large role in international companies’ decisions to enter a country or expand their footprint, and it is here where Grit is ideally positioned to assist them with their current and long-term needs.

Many other investors have exited the country, why do you think that is?

We are competing for global capital that is investment agnostic. Emerging markets are exposed to the whims of international capital and perceptions around relative risk vs return.

As far as we can tell, Mozambique is the only country on the continent having been accorded a default rating by S&P, which is often used in motivating the “country risk premium” and resulted in several investors exiting the country.

The risk tolerance for short-term investors is very different to that of long-term investors, and it is important to note the number of new investments into Mozambique in especially the LNG sector and other projects.

Is it simply a question of risk and looking for opportunities elsewhere?

Arguing a relative risk premium is only one side of the coin:

Grit has been invested in Mozambique since 2014 when the Company as it stands today was founded.

Grit have experienced first-hand the importance of having a strong local partner and the difference that complying with the spirit and letter of the law can have in some of the country’s toughest times since the end of civil war.

Yet we have been able to renew corporate leases on favourable terms. We’ve been able to repatriate US dollars and secure debt refinancing at competitive rates. And although there have been one or two protracted periods of payment, there has been no uptick in doubtful provisions or bad debt write offs.

Despite the country’s default credit rating it remains a significant contributor to our distribution.

There are more layers to each country’s investment case that needs to be peeled away to understand its true potential.

Other considerations before property fundamentals come into play are:

Counterparty strength on the back of GDP growth forecasts
Ability to contract in hard currency
Political stability
PPP partnerships and large infrastructure developments, especially ports (air, sea and rail)

How does Mozambique compare regionally and why is Grit more bullish on Mozambique compared to other countries in Africa?

Grit has a diversified portfolio across seven countries and several sectors. Our self-imposed soft target per country and per sector is around 25%. Although we are currently overweight in Mozambique, our recent acquisitions in Ghana will dilute this exposure.

We are indeed bullish on Mozambique, but certain asset classes in Kenya also offer attractive opportunities, with regulatory reforms in Rwanda and Uganda also looking promising.

Is it the yield, number and scale of opportunity in the market, especially with some analysts suggest the GDP will double in the next couple of years?

The key is yield pick-up. We can talk the Africa investment case forever and a day, but without demonstrated return on investment, international capital doesn’t care.

The question is – what are the alternative investments available to long-term international capital?

According to the International Monetary Fund’s (IMF’s) DataMapper, real GDP growth (to 2022) on most of the continent of between 3% and 6% is expected, in line with most other emerging markets.

A number of outliers, including Egypt, Ethiopia, Kenya, Tanzania and Uganda as well as several West African countries expect growth of between 6% and 10%.

Significantly, the situation in Mozambique is a complete inverse in its credit rating – it is the only country on the continent expected to grow its GDP more than 10% in real terms. (IMF: World Economic Outlook (October 2017))

Are you considering new assets in the country? If so, which sector, or region, holds the most promise. You have assets spread across the country.

Given our exposure targets, we will be very selective when it comes to new acquisitions. Corporate accommodation, especially in key nodes in Maputo does however offer some unique opportunities.

Our recent formation of an asset management company, GMS Limitada in partnership with Hodari provides us with unique skills and capabilities which we are very excited about and look forward to growing.

For Kfir Rusin, the managing director of API Events MozamReal, the continued long-term view which Grit has held on the market is the right call. As Rusin commented, “They (Grit) continue to expand and I think they will provide a lot of insight for regional investors investing in the market.