Posted by: Martin | May 18, 2010

Risks – part 1

Time for a run down of risks associated with real estate investments in the Ivory Coast. What they are, their probabilities, potential impact and how to deal with them:

1) Violent conflict in Abidjan
As discussed in the more politics post, violence erupting in relation the upcoming election is not an unlikely scenario.  It’s the scale and length of it that matters, sporadic small scale violence has happened before and doesn’t affect demand for real estate that much or prevent people from paying their rents.  On the other hand, larger scale, and especially longer lasting violence a la Liberia or Sierra Leone in the 90s, would  be devastating not only destroying demand and making it hard to collect rents, but weakening the rule of law and making it dangerous if not impossible to do business at all.

Probability:  Low but non-zero for the worst case violence    Impact:  High

Riot police in Abobo in the northern part of Abidjan in 2008

2) Anti French/Western riots
Last time it happened it was as a direct reaction to French military activity and supported – and I’d say even organised – by the ruling FPI party. Despite all the anti French and anti neocolonialism rethoric in the FPI, I don’t actually think the elites who take the decisions are very keen on supporting/creating/organising anti-Western riots as the effects hurt all rich people in the Ivory Coast, not only westerners. What happened in 2004 was, I believe, a relatively desperate measure when the FPI felt its grip on power was under direct threat from France.

The effects of the riots in 2004 were big and had a long term effect on practically all business activities. New riots would halt the normalisation going on, make westerners considering to move back to re-evaulate their plans, postpone the resumption of tourism another several years, reduce investments in the Ivory Coast etc.   Regarding real estate, wealthy areas where westerners live would drop in price and attractiveness, but poorer areas such as Yopougon would probably not be affected very much directly.

Probability: Low   Impact: High for well off areas, low for poorer areas

3) Arbitrary tax collection
I don’t consider collection of the tax amount as stipulated by the law as a risk.  The problem is if the tax collector start asking for bribes and coming up with phoney laws and requesting imaginary permits in an attempt to ask for more money.   I haven’t heard of this happening in the real estate sector, but is a risk especially if the tax collectors see that you are foreign and successful.  Ways to deal with it would be to keep a low profile, let the local partner handle all contacts with tax authorities, and if necessary use political connections.

Probability: Low    Impact: Low/Medium – can maybe be contained by having properties in multiple municipalities, hopefully the problem arises for one property at the time and not all at once

4) Scams
There is a common scam involving selling the same plots of land to multiple buyers, especially when it comes to so called terrain villageois where the ownership can be unclear.  Ways to counter this is to buy from big reputable developers, or check with the Ministry for Construction who will know which plots of land have a problem, and from what I have learned recently have a list of plots that are for sale by third parties.  There are many potential scams in the practically all stages of the real estate business, but especially in buying, building and transferring money. And well, one needs to have a bit of a cynical attitude, be careful in all situations where you pay money to someone else  and try to be aware of known scams.  In the construction of the Yopougon building for instance,  my local partner never paid the builder in advance for building material, but instead went with him and made the purchases directly to the supplier.

Probabilty: High to be targeted but not necessarily to fall victim    Impact: Well, there are small and big scams

5) Theft
The builder charged with laying floor tiles for the house in Cocody actually stole a large amount of tiles. We found out about it, went to the builders house and go them back but promised not to raise the matter with the police. If renting something furnished by the day, I guess theft can be a major issue, but I haven’t tried that yet so I don’t really know how bad it is.

Probability: Medium/high  Impact: Low – there just isnt that much of value to steal on a buildning site.   In a furnished apartment it might be different though

6) Tenants not paying rent / falling behind
This issue is obviously not specific to the Ivory Coast, but due to poverty, I think it’s a more common issue than in Western Europe. On the other hand, in Western Europe and the US laws are very pro-tenant and it can be difficult to get a non-paying tenant to move out. In the Ivory Coast, the landlord is in a stronger position both legally and in practice, the latter partially due to the (not unproblematic) fact that in a dispute the party with more resources (ie usually the landlord) has an advantage over the weaker party.  There is a legal procedure for forcing a tenant to move out that can be started after two month’s non payment – I haven’t had to use it myself, but from what I’ve heard it’s not too complicated or expensive.  Additionally, there are more, let’s call them African ways, to sort out issues with tenants, such as discussing things with the parents of the tenant(s) or bringing it up to the head of the local community.

Probability: High  Impact: Low (multiple months’ deposits help)



Responses

  1. Statistically, since I arrived in 2000 and started observe, violence, when it erupts, generally doesn’t last more than 48/72 hours. They run out of food, money, fags, etc, and have to get back to work (no forward planning, not positioning of strategic reserves !!)

    The apparent exception, November 2004, was in fact 2 back-to-back events, each of 72 hours (the retaliation of the French to the boming and killing of their troops in Bouake; followed by the violence at Hotel Ivoire once the evacuation plan had been announced).

  2. Yes, looking at it a bit cynically, in hindsight past episodes of violence have actually been good real estate buying opportunities.

  3. […] still a plunge into the unknown and I can think of an awfully great number of things that can go wrong, so I got to admit that fear is one of the emotions I associate with this […]


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