Shelter for All: Shelter Afrique offloads risk in its quest to build a nation
September 13th, 2010
Housing in Africa is under-funded and under-developed. The reasons are varied but many seem to agree that the tide is changing. From atop its headquarters in Nairobi, Shelter Afrique principals Karen Kandie and Saïd Diaw provide a lesson in the African housing market.
Founded in 1982 under the impetus of African governments, the African Development Bank and the African Re-Insurance Corporation, Shelter Afrique has survived enough trials to earn the status of wise elder in the African housing market.
The organisation came into existence at the height of an African housing crisis with a mandate to mobilize resources for housing development in Africa. They provide guarantees, direct loans developers and lines of credit to banks and non-bank financial institutions. But perhaps the product that has the most direct impact on the average citizen is the lines of credit Shelter Afrique provides to banks and non-bank financial institutions,, who are then able to on-lend to people for mortgages. In an under-developed mortgage market, as is the case with most in Africa, this can be the difference between owning a home or renting for life.
"We are committed to low and middle cost housing in Africa," explains Saïd Diaw, Acting Director of Operations. "But we face many challenges. Most of these obstacles revolve around financing, either on the part of the developer or the potential home owner."
While Shelter Afrique looks to its own equity resources and medium term borrowings to help facilitate financing there is one challenge that it chooses to manage externally.
According to a 2008 report by Habitat for Humanity, A Right to a Decent Home, Africa and the Middle East have the highest percentage of renters and the highest per capita incidence of war and institutional violence in the world. The latter of these two obstacles can pose the greatest threat to attracting investors to the housing sector.
"Our partners sometimes develop projects in countries that do not have a reputation for stability. This increases our risk and the difficulty of mobilizing financing for them," notes Karen Kandie, Shelter Afrique's Director of Finance.
Several years ago, Shelter Afrique's Board issued a directive to its management to issue political risk insurance and guarantees on specific projects. In response, since 2005, Shelter Afrique has partnered with another African institution to share political risk in countries deemed risky by conventional international markets.
The African Trade Insurance Agency (ATI) was also founded by African countries with a developmental mandate to attract investments into Africa. Synergy in the mandates of both institutions helped forge a relationship that resulted in ATI support to transactions valued at $27.5 million in three East African countries.
One country, in particular, has benefited from the partnership. After years of civil war, this East African country was beginning to rebuild with a national housing scheme at the core of its reconstruction efforts. Donor funding was difficult to mobilise and the private sector shied away from entering an untested market.
"The big pay-off for us was in paving the way for other investors. With ATI covering our risks, we were able to finance developers when even donors refused their support. And now we see this country coming to life with solid financing options from the private sector," adds Diaw.
There is another aspect of this partnership that may pry open the markets even further. ATI is supporting Shelter Afrique with Credit Risk Insurance that protects their loans against non-payment. The pair has already concluded one such deal in Tanzania and another is expected to close in August 2010 in the DR Congo with more in the pipeline.
The partnership between these two multilaterals has helped to build more than 150 apartments, numerous commercial buildings and related infrastructure and to create hundreds of jobs in East Africa. Plans are underway that may see ATI extend its support to Shelter Afrique in more East African countries as well as West Africa.
On this point, Saïd Diaw wants to make one thing clear, "if our internal risk rating on any given country is high, then ATI comes into the picture. Without them, we may not have been able to enter some countries."
With its risks covered, the sky seems to be the limit for this African housing giant as demand continues to outpace capacity in most countries. In Kenya, Shelter Afrique's home base, the housing demand in cities is 150,000 units per year of which the government is only able to produce 50,0001. In neighbouring Tanzania, the story is the same with a housing deficit in its cities estimated at 1.2 million units.
Shelter Afrique is moving to fill not only the housing shortage but also the gap in financing options.
This may seem a lofty goal considering the state of the African mortgage market but this fact doesn't worry Shelter Afrique. After all this is an institution whose mission statement boldly declares "we believe that as we build a house, we build a family and a nation."