Shelter Afrique predicts a new dawn in construction and housing

Shelter Afrique, the pan-African housing and urban development financier, has effectively became a development finance institution, bringing in shareholders from the private sector and non-regional member states. Its CEO, Thierno-Habib Hann, tells us about the group’s new ambitions.

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Image : Shelter Afrique

Under new CEO Thierno-Habib Hann, Shelter Afrique has been renamed Shelter Afrique Development Bank (ShafDB) to fully reflect its status as a development finance institution. It is ready to resume its quest to help address Africa’s housing deficit, which stands at 52m units and is expected to widen in the absence of concerted efforts.

Before joining Shelter Afrique as CEO and managing director in January this year, Hann had served as head of housing finance in the Asia-Pacific at the World Bank Group’s International Finance Corporation. Before that he had led the IFC’s Africa and Middle East Division. It’s a sector he knows well – and where he has shrewdly observed the impact of pro-housing policies in countries such as India.

His entry into the role coincided with the end of a period of turmoil for the institution. Originally a creation of the African Development Bank during the storied tenure of the late Babacar Ndiaye – also credited with the establishment of the Africa Export-Import Bank – Shelter Afrique was created to respond to the continent’s perennial housing crisis. After a period of some success, it was hit by corporate governance issues which affected its ability to execute its critical mandate.

Hann says the institution is ready to rise to its mission again. One major change has been in the shareholding. The organisation’s rules now allow for three classes of shareholders: its 44 African member states; institutions such as the African Development Bank (AfDB) and African Reinsurance Corporation (Class A and B); and private sector and non-regional shareholders (Class C).

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Bringing in private sector capital

Enabling new, private sector and non-African shareholders is part of a drive to boost not only its capital, but the expertise in the boardroom, Hann explains.

“It’s crucial for us to diversify our sources of funding. Considering the macro-economic challenges that we have [in African countries], we need to recognise the need to engage international investors. It’s also important from a good governance perspective. International stakeholders will have a minimum 10% ownership stake, which grants them representation on the board. This infusion of international best practices, expertise and different strategic perspectives will fortify the institution and enable us to have a more significant impact in areas that truly matter.”

Hann maintains, however, that the organisation will remain overwhelmingly African in its character and composition. “It is still an African institution, no matter what. Overall, African-based institutions will still account for about 75% of shareholding, split 45% for African countries and 30% for African institutions. Non-regional and private sector shareholding will represent 25% of the shareholding.” Its operational headquarters will remain in Nairobi, with offices in Abidjan, Côte d’Ivoire and Abuja in Nigeria. More offices are planned around the continent, he reveals.

One aspect that will remain more or less the same is the operational focus. “Our main mandate is to finance affordable housing and urban development across the housing value chain. We look at the housing sector from an integrated perspective, from access to land to the manufacturing of construction materials and all the way to financing developers and financial institutions for mortgage provisioning. We also develop capital markets through bond issuances.”

One such bond issuance is a N200bn ($253m) medium-term loan to finance the construction of affordable housing and support financial institutions and public-private partnership (PPP) projects in the country. ShafDB issued the first tranche of N46bn.

Funds raised, Hann says, are typically deployed through local financial houses, lines of credit to local developers or equity stakes in apex organisations such as mortgage refinancing institutions.

With its new, diversified sources of financing, ShafDB will now be in a position to more robustly pursue these aims. “We already have an approved capital of $1bn and now we have that room to call in more capital – so we will be looking forward to engaging with other classes of shareholders beyond African countries.”

For the housing ecosystem as a whole

Hann says ShafDB’s approach centres on a holistic strategy that addresses the entire housing ecosystem and provides financial support along the entire value chain. “This includes helping countries with the policies to make sure that the ecosystem is investment-ready. Then we help put in place the institutions and the regulations that are necessary to develop the sector. We also facilitate the establishment of essential institutions and regulations for sector development. In addition, we collaborate with various stakeholders, including developers, construction companies and financial institutions on the supply side, and housing funds and other entitites on the demand side.”

These goals have been compartmentalised into a four-pronged strategic approach that Hann says will drive ShafDB’s ambitions for Africa’s housing sector. The first of these pillars is lending to banks and financial institutions to enable them to on-lend to developers, mortgage companies and construction materials manufacturers and traders. The second is project finance: ShafDB will finance developers, large construction companies and the provision of infrastructure to housing projects.

Support for PPP projects in the areas of urban regeneration, social housing and rent-to-own programmes is the third arm. Hann says that ShafDB will also target diaspora remittances estimated at $95bn, much of which goes into real estate.

The last pillar in the strategy is fund management.

When asked whether there was a serious interest in solving the housing issue, Hann says that the ministers he’s engaged with are particularly keen. “By creating large-scale affordable housing programmes and training these young people to work as masons, plumbers and electricians, we can prevent them from risking their lives on in the Mediterranean.”

African leaders are realising that housing goes beyond mere shelter, and is a critical indicator of economic health. “In major countries, the biggest source of wealth is the home. Governments are seeing this as a priority now and coming to us for support to structure projects and mobilise partners to execute those projects.”

Learning from India

In seeking to address the issue, he says, African governments can learn from other countries. In India, it began with a commitment to a vision of “Housing for All”. “This was a legal instrument that was approved by parliament – and then they came up with the institutions such as mortgage finance and guarantee companies and the regulations to protect buyers. They then put mechanisms in place to create home finance companies, of which there are over 100 now, to finance low-income buyers. They are now setting up shelter funds, like ours.”

India’s priority sector lending law requires banks to lend to five sectors, including housing. Assured financing means that home finance companies can extend support to builders, even those who choose to build on their own, as many do in Africa.

For these builders, the home finance companies provide technical support to improve the quality of their buildings and to make them bankable assets. The government has also extended infrastructure status to housing that makes it attractive and viable for financing institutions, as it comes with tax incentives.

“We have budget constraints in Africa, so it’s important for us to go for private sector funding, to blend and scale up and have government funding play only a de-risking role,” he urges.

It is evident that progress is possible in the face of the challenges that the continent faces in trying to house its growing population. Much will depend on how much support institutions such as ShafDB can procure and leverage into concrete actions.

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Omar Ben Yedder

Omar is Editor-in-Chief of African Business.