The gamble of land: Russians in Africa
By Christina Gossmann, originally published in The Con.
When talking about foreign investment in Africa, China springs to mind first. Chinese malls, Chinese highways, Chinese bridges. But Chinese housing? Not so much. Because like so many other investors, the Chinese failed to link the target market with the much-needed quality social housing. On a continent where mortgage markets barely exceed 5% of GDP (compare that with 40% of GDP in North America and a whopping 80% in Denmark!), owning a house is merely a dream for most — a pretty far-off dream.
Nevertheless, there is a growing demand and a growing property market. Kenya, East Africa’s techno-economic hub, has seen the best residential market performance in the world in 2012. Fueled by its wealthy diaspora and a tiny local upper class, cement consumption and land values have been on the rise. "People want greenery," says Jan Van den Broeck, a Belgian researcher who came to Kenya to study land development. "They want well-planned cities, pedestrian-friendly streets, development certainty — no more chaos," he adds. Like other Africans, Kenyans dream of a better living than China can provide.
This is where the Russians come in.
Renaissance Capital, a Western-style Russian investment bank, was founded in 1995 by an overachieving pair of thirtysomethings — New Zealander Stephen Jennings and an American grandson of Soviet émigrés, Boris Jordan. Rendeavour, the urban development branch of Renaissance Capital, first got involved with Kenyan land when giving into the pleas of businessman Vimal Shah, who wanted to turn the prime agricultural land northeast of Nairobi, previously owned by coffee grower Socfinaf Ltd, into what is considered an even better use of land these days: commercial land. After viewing the site from a helicopter in 2007, Jennings agreed, because, after all, there was a lot of money to be made. The idea for a high-profile, high-end, mixed-use residential and commercial development was planted then, and after several long years of planning and design, the Tatu City master plan was unveiled in 2010.
The name Tatu stems from the coffee farm that was previously located in the place of the development. "To preserve the coffee-farming heritage," Tatu proudly states on its webpage, the name was kept. At the same time, it says, the name represents the city design’s ethos and fusion of three holistic issues: mind, body and spirit (live, work and play). Tatu City strives to decentralise Nairobi, with an autonomous, strategically placed secondary urban node to Nairobi’s city centre. Equipped with commercial, tourist, social and recreational facilities, the development aims to house an estimated 62,000 residents on its 1,000 hectares. When browsing the Tatu City website, one cannot help but notice the overwhelming and slightly sickening sense of corporate responsibility, including a tree farm, job centre and "health and happiness" for the coffee farm children. Tatu City is not the first time Renaissance Capital has dusted its boots on African soil. Having entered the African market seven years ago, Renaissance Capital has since developed the largest on-the-ground presence of any international investment bank, said joint CEO John Hyman at a pan-African investor conference in Nigeria earlier this year. Renaissance Capital has offices in Nigeria, South Africa, Zambia and Zimbabwe, among others, and similar satellite or "new" cities are planned in the DRC and Ghana.
In short, Renaissance Capital has been around the block — a few times. An estimated 25% of Renaissance’s revenue, in fact, comes from Africa, and in 2011 the bank was named best Africa investment bank for the second consecutive year in an Africa Investor ranking. But will a mixed-housing development such as Tatu City actually improve living standards for Nairobi’s residents? If you have not guessed it already, the hard but honest truth is no. Instead, it will recreate the same inequalities that already exist.
Here is why. Let’s begin by examining the mortgage market. The 2012 Year-Book on Housing Finance in Africa, published by the Centre for Affordable Housing Finance in Africa, found that the cheapest house in Kenya — which is not the target pricing of Tatu City — costs between one and two million Kenyan shillings (between about US$11,500 and US$23,000), with a monthly mortgage payment of US$150. Only about 10% of all Kenyans earn enough to support such a mortgage, meaning that most of the so-called "growing middle class" in Kenya cannot buy a simple, entry-level house. Next, consider Tatu City's location. Nairobi is a city where, according to slum-dweller collective Muungano Wa Wanavijiji, 70% of housing stock comprises 10m2 shacks made of wood, mud, tin sheets, wattle. It's a city where recreational spaces have taken on a bigger total landmass than all its slums put together, a city where 60% of the population lives on 5% of the total land area. "This development is not big enough to give proper response to urban poverty," explains Van den Broeck. But at the same time, he does not blame Renaissance Capital for tapping into this market, because "you cannot expect the private sector to do what the government should do." Private banks want revenues, not to improve the world. And even if they did, they could not. Urban poverty is a problem too big to tackle for a small emerging-markets investment firm, as cheeky and daring as it might be.
The problem's scale leaves little wiggle room. Tatu City — if built — would clearly be a city for the upper-middle and high class. "But that's not unconstitutional," Van den Broeck insists. Not even in the eyes of Kenya's 2010 progressive, state-of-the-art, decentralising, rights-granting-and-defending Constitution. Starting in April 2013, under Kenya's new president, this shiny, new Constitution is being implemented, temporarily putting the central and new county governments in a state of perplexed confusion. Not only is the government okay with the massive private development, being a "strategic partner" through the Kenya Vision 2030, but Kenya's government actually seems to like satellite cities such as Tatu. Since 2009, officials have been busy marketing and displacing around Konza Techno City, Tatu City's tech-savvy, somewhat aggressive, publically financed business sister — also known as "Silicon Savannah." Twice the size of Tatu and located 60km from Nairobi in Malili, Konza City is actually written into Vision 2030 as a Ksh800 billion (more than US$9.2 billion) "flagship project."
The most interesting part about all these urban development plans is that nothing is actually happening. Be they privately or publically funded projects, both Tatu and Konza are land speculations, massive gambles based on barely anything more than an ambitious idea. Van den Broeck agrees. "Just the simple fact that people are thinking about the land makes prices go up," he says. "They pick a highway — prices go up. They fence the area — prices go up. They put up a sign saying "Tatu" — prices go way up. But there is nothing actually there."
But times have changed for Renaissance Capital, and the gamble might be coming to an end. After multiple near-bankruptcy experiences during the financial crisis when the bank's credit rating was downgraded, Renaissance Capital had to sell 100% of its shares to Mikhail Prokhorov, the world's 58th richest man and proud owner of another Russian investment bank, Onexim, as well as basketball team the Brooklyn Nets. On top of that, Renaissance Capital is involved in some serious legal complications with minority shareholders, including the (illegal) placing and removal of caveats, a criminal court case and some others — a total of six cases, according to Van den Broeck.
What will happen in this gamble of Russian roulette with African land is unclear, but the trigger has certainly been pulled.
Christina Gossmann is what you might call a self-loathing Russian who writes about cities. Her favourite is Johannesburg, but she's starting to like Nairobi, where she is currently working for UN-Habitat on housing finance and economic development through Information and Communications Technologies. Christina holds a BA in Economics and Psychology from Wellesley College and has just finished her first year in the Master of City Planning degree at the University of California, Berkeley. She also works as a freelance journalist. You can reach Christina at firstname.lastname@example.org or follow her on Twitter: @chrisgossmann.
Photo credit: The Con