Long-term growth prospects in Ghana continue to attract investment in industry

Ghana’s retail sector has grown significantly in recent years, attracting a swathe of international retail chains and brands. This is thanks to a growing middle class, a largely young and urban population and a relatively underdeveloped formal retail market.

With recent changing economic conditions, including high inflation and interest rates, limited and irregular power supplies, currency depreciation and a multiplication of taxes, sector growth may have slowed down, yet there is still room for expansion.

Indeed, investors are increasingly looking to the long term, as business opportunities in a number of areas, such as food and drinks, and garments, promise to open up. Moreover, in addition to the country’s capital, Accra, there is increasing interest in secondary cities, such as Kumasi or Takoradi.

Demographics

The rising middle class and young, urban populace in Ghana have driven retail developments, much like in most of Africa. In 2015 Ghana had a population of 27.4m, of which 58% was under 25 and 54% was urban, according to the UN. A total of 46.6% of Ghana’s population registered as middle class in 2010, according to the African Development Bank, which used a daily consumer spending bracket of between $2 and $20 as the qualifier for middle class. However, if the most vulnerable segment of that population, namely those whose daily consumer spending equalled $2 to $4, is excluded, only 19.8% of the populace made the cut that year.

Alternatively, according to Standard Bank, which instead employed a daily consumer spending range of $15 to $115, Ghana’s middle class comprised 1.3m households, just over 5% of the population in 2014. Standard Bank also includes Ghana on the list of countries in which it expects to see significant growth of middle-class households, adding another 1.6m to the count by 2030, alongside Angola, with 1m, and Sudan, also 1m. Nigeria, holding the second-biggest economy and largest population in Africa, is expected to lead in this arena, adding an additional 7.6m middle-class households to the country’s current 4.1m.

Consumer Spending

Despite this, changing economic conditions, including but not limited to high inflation and interest rates, as well as currency depreciation, are affecting consumer spending. High inflation in particular is cutting into the average person’s purchasing power. According to the Ghana Statistical Service’s consumer price index, year-on-year inflation reached 15.8% in October 2016. The IMF, which is currently assisting Ghana with the implementation of a three-year adjustment programme, expects inflation to decrease to 13.5% by the end of 2016, while the Bank of Ghana, for its part, has expressed confidence in achieving its target of 8%, plus or minus two percentage points, by the second quarter of 2017.

While the situation is expected to improve in the medium to long term, the country must also tackle the high cost of basic goods. Ghana has the fourth-most-expensive basket of essentials in sub-Saharan Africa, at $27.50, according to a February 2016 “Africa Prospects” report by UK-based data firm Nielsen. Ghana is preceded by the Democratic Republic of Congo, at $28.80; Angola, $33.57; and South Sudan, at $38.60. Furthermore, 67% of all Ghanaians surveyed state that they have no spare cash for discretionary spending. Plus, the majority – 79% – of those that do have funds available prefer to save them. Similarly, while most Ghanaians say that their personal finances are in good or excellent state (71%), few believe this is a good time to spend.

Changing Habits

With less disposable income in their pockets, consumers are changing their spending habits. As Sonya Sadhwani, director of brand management at Melcom Group, told OBG, “People are shopping more wisely. They are more selective about their purchases, preferring to save money instead.”

Product affordability is a key, albeit not the most important, factor informing consumer choice in this context. According to Nielsen’s report, during the third quarter of 2015 the majority (67% ) of consumers in sub-Saharan Africa were, on average, more likely to value a trusted, familiar and known product, or as likely to value a product that they had tried before (57%), over an affordable product (57%).

The same logic applies when choosing where to shop. “Ghanaians continue to rely on established retail outlets,” Mahesh Melwani, joint group managing director of Melcom Group, told OBG. “Getting a warranty for a product, or the ability to have it repaired or exchanged, provides an advantage over purchasing a similar item informally at a roadside stall.”

Consumer preferences in Ghana appear to be in line with this shared set of consumer choice drivers, especially in view of a greater consumer demand for quality products in the country. The emergence of a rising middle class, local retailers argue, is starting to translate into a growing preference for better quality products, including greater attention to detail in purchased products and brand loyalty.

Modern Retail Spaces

Informal shopping areas, including small markets, street-side vendors and family-owned grocery stores or clothing shops, have long dominated Ghanaian retail and still do, despite the change in consumer preferences. According to a report by Deloitte, released in 2015, the overwhelming majority of retail transactions (96%) are still carried out in the informal sector.

The lack of dedicated retail property means that there is ample potential for growth. Most of the action is concentrated within Accra, which has seen the construction of various malls, housing a mix of local and international stores and brands. Accra Mall, the first A-grade mall in Ghana, opened in 2008, with 20,322 sq metres of retail space, and in 2016 has been undergoing expansion work, according to the South Africa-based Broll Property Group, a commercial property services firm. Two additional malls opened in 2013 – the 12,250-sq-metre Marina Mall and the 6230-sq-metre Oxford Street Mall. In 2014 another two developments emerged, the 11,511-sq-metre Junction Shopping Centre and the 27,700-sq-metre West Hills Mall, the latter of which is set to undergo expansion work to add 7000 sq metres of retail space.

More recently, 2015 saw the opening of the Achimota Retail Centre, a 14,622-sq-metre mall. According to Broll, ongoing projects, such as the construction of an 8300-sq-metre mall in Adenta, Accra, called The Edge, are set to go ahead. The Edge project should be ready by September 2017.

Secondary Markets

Still, there is doubt as to whether there is enough room for additional A-grade malls in Accra before the economic situation improves, although many admit that there could be space for smaller neighbourhood centres in the capital or in cities such as Kumasi, the capital of the Ashanti Region and the second-largest city in the country, or Takoradi, which is the centre for the country’s rapidly growing energy sector. As one centre manager in Accra told OBG, “The economic situation may have to improve before another A-grade mall is built in Accra. However, in the short term there is still potential for investment in small neighbourhood shopping centres in the capital or even malls in secondary cities, especially in Takoradi, Kumasi and Tamale.”

According to the Broll Ghana’s “Ghana Retail Barometer second quarter 2016” report, around 67,000 sq metres of space should be delivered in new secondary markets across the country in 2017-18. Broll further envisions a 175,528-sq-metre increase over the next 30 months, with significant deliveries concentrated in secondary markets, including The Edge in Adenta, Kumasi City Mall in Kumasi, Takoradi Mall and Garden City Mall in Kumasi.

Rental Prices

Growing interest in Ghanaian retail has put pressure on retail renting, pushing prices up to $60-65 per sq metre in very well-located malls. Some shops have struggled to keep up with this pace given the sluggish state of the economy, as currency depreciation brings up the cost of retail imports and high inflation cuts into disposable income, ultimately affecting shop and mall performance alike. As a result, a few landlords have introduced rent concessions, at the request of tenants. In some malls, the renegotiation of renting contracts is evaluated based on the merit of individual requests and, if approved, subject to review at a later date.

International Retailers

Ghana has seen a number of international retailers enter the market in recent years. For example, the South African retail giant Shoprite arrived in 2003 and now anchors several malls, including Accra Mall, Oxford Street Mall, Junction Shopping Centre, West Hills Mall and Achimota Retail Centre. Other South African shops present in Ghana include Game, Edgars, Foschini, Woolworths, Truworths, Mr Price and Jet. The South African supermarket chain store, Pick n Pay, is also set to open its first store in Ghana by the end of 2017.

Local Competitors

The new market entrants have faced substantial competition from a number of already well established local firms. Melcom Group, established in 1989, is the largest retailer in Ghana. Melcom currently has 35 department-store-style branches across the country, with a presence in each of the country’s 10 regions.

The vertically integrated company also manufactures its own store label products, such as plastics, and provides supplementary amenities, including travel services. Developing properties also provide Melcom with a comparative advantage, given the shortage of modern retail space and the difficulties typically associated with both acquiring land and developing property in Ghana.

Other, smaller domestic retailers in the country include Palace, a department store located in Accra; Koala, a shopping centre dealing in groceries and other household goods, which currently has two branches open in the capital; and MaxMart, a supermarket chain and subsidiary of whole-sale company Kwatsons Ghana, which has a total of five branches – four in Accra and one in Kumasi.

Autos

Auto retailing remains a big business in Ghana, although retailers face a large and robust grey market. According to local reports, cars are Ghana’s third-largest import category, costing about $500m per year. There are over 1.5m circulating vehicles in the country, with less than 10,000 new and over 100,000 used vehicles imported every year.

All major car brands are available in the local market. Nissan, Toyota, Hyundai and Kia, among others, represent the larger part of the affordable car segment, with Jaguar, Land Rover, BMW and Mercedes Benz taking up the luxury segment. Licensed distributors include Japan Motors, which manufactures Nissan, Toyota Ghana, producers of Toyota, Hyundai Motors and Auto Plaza (Hyundai), Modern Auto Services (SsangYong, Chana and Lifan), CFAO Motors (Renault and Mitsubishi) and Africa Motors (Suzuki and Chevrolet). In the luxury segment, Silver Star Automobile (Mercedes Benz), Mechanical Lloyd (BMW) Alliance Motors (Land Rover and Jaguar) stood out. However, at the turn of the century new firms, and newer franchises, surfaced. Prestige Motors introduced Peugeot, and Tanink Ghana brought in Alfa Romeo, as well as Jeep and Chrysler later on. Moreover, a new subsector, dubbed the grey market by traditional automobile firms, emerged in the meantime, with Stelin Automotive also selling Mitsubishi and Toyota, albeit from Dubai. Stoub followed, with Toyota Land Cruisers, also from Dubai.

With no regulation reportedly in place to oversee car imports, sales and usage, grey market imports have created a parallel market, increasing competition for traditional auto houses. Such imports are often differentiated from traditional, made-for-Ghana cars in that while they are able to offer extra features at the same or a lower price, they do not include the typical three-year warranties or may not have been built to survive Ghana’s terrain.

Despite the slowdown in economic growth and increased competition from grey market imports, there is still a significant amount of room for expansion in this sector, as evidenced by recent investments in the establishment of auto-assembly plants, aimed at either boosting sales of existing foreign cars or penetrating the market with locally based and branded products (see analysis).

Online Shopping

According to the Ghana National Communications Authority, Ghana had 19.1m mobile data subscribers in 2015, reflecting a penetration rate of 68.62%, compared to an average of 40% in sub-Saharan Africa and an overall International Telecommunication Union estimate of 23.48% for individuals using the internet in Ghana in 2015.

In this context, e-commerce is an emerging trend in the retail sector. While still heavily centred on social platforms, some dedicated platforms, such as Kaymu, Tisu and Jumia, are reportedly making headway. Other major players, including Game and Shoprite, are yet to strengthen their presence.

However, sector stakeholders believe online shopping is likely to require some time to fully get traction. “Online purchases will continue to lag far behind in-country brick-and-mortar retail sales. Ghanaian consumers still have a trust issue and want to spend their money in a store,” Ramesh Sadhwani, joint managing director of Melcom Group, told OBG.

Outlook

Changing economic conditions, including high inflation and currency depreciation, have affected retail sector growth of late, reducing disposable income and purchasing power in Ghana. Moreover, as Accra fills up with modern retail spaces, there are questions over whether the modern retail market is becoming saturated. Notwithstanding this, secondary markets are attracting significant investment and Accra itself may yet harbour space for smaller-sized shops in the formal retail sector. In the meantime, despite the constraints of the current economic situation, some subsectors are still displaying room for expansion, namely, food and drink, and garments. As the economic situation continues to stabilise over the medium to long term, the hope is that a young and growing middle class can boost sector growth