The leasing business in Africa is a promising opportunity with strong prospects on the continent.
I have a friend who owns a small but successful construction company. He has completed several real estate and civil construction projects including roads, family homes and office blocks.
I had an interesting chat with him the other day and discovered one very interesting fact: His company doesn’t own any major equipment.
All the trucks, loaders, bulldozers and cranes he uses on his construction projects and sites are hired or leased. By hiring equipment, instead of owning them, he was able to start and run his business on a small capital.
Since he leases only the equipment he needs for his construction projects, he enjoys a great amount of flexibility and convenience as he doesn’t have to bother about the maintenance, operation and utilization that comes with owning fixed assets and heavy equipment.
Across Africa, leasing is providing a flexible option for small business owners who don’t have to commit huge amounts of capital to purchase machinery, tools or equipment. This option allows young businesses to work with small capital and enjoy a healthy cash flow, as they are able to only hire what they need.
In this article, I’ll share with you the top five categories of leased items on the continent and how you can build a business that makes money from hiring essential tools, equipment and machinery to individuals and small businesses that need them.
Throughout this article, the terms ‘leasing’ and ‘hiring’ shall be used interchangeably. In this article, the term ‘leasing’ does not refer to ‘lease financing’ which is a financial instrument or commercial arrangement between a lessor and lessee for the use of an asset.’
Why is the leasing business in Africa growing very rapidly?
Cash is tight, and startup capital is often hard to find. So, rather than spend thousands of dollars on one piece of machinery or equipment, many entrepreneurs and businesses just prefer to hire/lease and only pay a small amount daily, monthly or yearly.
The growing demand for the flexible use of expensive items means that there’s a huge potential for equipment/property leasing businesses to thrive as Africa’s economy continues to grow.
Here are the top five most leased/hired categories of items in Africa:
1. Construction equipment
According to the recent KPMG Construction in Africa Sector Report, there is a need for basic infrastructure investment of around US$100 billion per year on the African continent over the next decade.
That’s a lot of construction work!
Some of the countries experiencing a significant expansion in construction sector activity include: Angola, Ethiopia, Ghana, Kenya, Lesotho, Mozambique, Nigeria, Tanzania, Uganda and Zambia.
Yes, you’re thinking right; these countries will need extensive supplies of construction materials and equipment to meet their infrastructural growth targets.
As a result of the ongoing (and impending) boom in construction activity across Africa, there is a steady rise in demand for hiring construction equipment, especially by contractors and construction companies that cannot afford to own them.
The most popular categories of construction equipment that are being hired are:
- earth-moving equipment (excavators, bulldozers and loaders),
- construction vehicles (dumpers, tippers and tankers),
- material handling equipment (cranes, forklifts and hoists), and
- other equipment (like concrete mixers, heavy duty pumps and stone crushers).
While the large, established and multinational construction companies have a significant stock of light and heavy-duty equipment at their disposal, the volume of construction work happening across Africa demands that construction contractors will hire equipment from third parties from time to time.
There are also the local construction contractors who will always have need to hire these equipment as they do not yet have the capital and capacity to own them. This makes them a prime target for leasing construction equipment.
There is also a huge demand for simple construction tools and household repair tools like drills, wheelbarrows and pickaxes.
2. Agricultural machinery
Photo credit: wefinance.ie
One of the biggest challenges of agriculture in Africa is poor mechanization.
Most farmers on the continent still use crude tools and manual methods to cultivate the land. As a result, low productivity, poor yields and inefficiency continue to hold back the promising potentials of agribusiness in Africa.
But we can’t blame the farmers. How many of them can afford a tractor or other highly essential farm machinery?
However, with the hiring/leasing option, farmers can hire a tractor and other necessary farm equipment and only pay a small fraction of what these equipment would have cost, if they wanted to buy them.
The truth is, a single tractor can plough more land in far less time, and do a better job than a group of labourers working with hand tools. If all farmers in Africa could afford to use a tractor to work their fields, you can only imagine the transformational effects this would have on productivity and yield.
Unfortunately, many farmers on the continent do not enjoy the flexibility of leasing or hiring the equipment and machinery they need to increase output and productivity on their farms.
As Africa’s population continues to grow and the demand for food increases, there is an interesting business opportunity to support African farmers with farm machinery under flexible, short-term arrangements.
3. Event Supplies
If you’re planning a wedding party, birthday bash, cultural ceremony, community event, or any kind of outdoor or indoor gathering, it’s very likely that you will be hiring a long list of equipment and accessories to make your event a success.
With events happening every other day in Africa’s urban areas, the size of the event rentals business on the continent is quite huge, valued at millions of dollars every year.
Tents and canopies, tables, chairs, china and glassware, portable dance floors, catering equipment and popcorn machines, are just a few of many popular items that are in hot demand, especially during the weekends and in festive seasons.
As the population of Africa’s urban areas continue to grow and the economy remains healthy, there will always be plenty of reasons for people to celebrate.
But remember, except you’re in the party rentals business yourself, it doesn’t make any sense to invest in, or permanently own dozens of chairs, tables and glassware. It’s always cheaper and more flexible to hire these things when you need them.
As a result of the huge market demand for event supplies, it will remain a significant business opportunity on the continent.
Back in the day, most companies owned an extensive fleet of vehicles in the company car pool. These fleets often cost the company thousands of dollars on top of the responsibilities of maintenance and operation that come with vehicle ownership.
These days, rather than tie down thousands of dollars of precious capital in a fleet of vehicles, companies simply prefer to hire or lease. It’s more flexible, more convenient, and healthier for cash flows.
Photo credit: alldubai.ae
In almost every sector, from banking, manufacturing to oil and gas, many companies are choosing to lease vehicles instead of full ownership.
Another smart friend of mine operates a business that leases vehicles to companies. His clients include individual entrepreneurs, small businesses and multinational companies. These clients would hire his cars on a daily, weekly or monthly basis, depending on the duration and occasion they need it for.
On one occasion, a small company in Lagos (Nigeria) was expecting a team of representatives from its foreign business partner, and wanted to impress them. The company hired an SUV for the duration of the visit and this service was more valuable than a taxi service, and cheaper than owning the SUV.
Although my friend’s cars are mostly hired on a day-to-day basis, there are also clients who hire his cars on a monthly basis. In addition to the amount paid to hire a vehicle, clients are responsible for fueling and keeping the car neat at all times.
It’s not just small vehicles that are getting hired. Larger vehicles like vans and trucks are in top demand too.
Many businesses that produce or trade in heavy bulk products (like cement, petroleum products, agricultural produce etc.) now hire trucks and tankers to transport their goods. It’s a cheaper and more scalable option for them.
5. Commercial Real Estate
Wouldn’t it be great if every business built and owned its own offices?
Unfortunately, only the really big companies can afford to own commercial real estate assets like a corporate head office, retail outlets and warehouses.
In reality, the cheapest and most flexible option for most businesses is to hire commercial real estate that suits their needs.
It’s no surprise that in many of Africa’s big cities and economic hotspots like Lagos, Nairobi, Johannesburg and Addis Ababa, there is a fast rising demand for commercial real estate to meet the needs of businesses that are scrambling for office, retail and warehouse space.
Over the coming years, as business activity continues to grow in line with economic growth, I expect that the demand for office space, retail, warehouses and other types of commercial real estate will grow accordingly across Africa.
3 Things To Keep in Mind Before You Start an Equipment/Property Leasing Business
Like every business opportunity I’ve shared with you on Smallstarter, the leasing/hiring business has its own critical success factors.
In this section, I’ll share three very important things you should keep in mind before you make a move to enter this interesting industry.
(i) It’s a capital intensive business
If everybody could afford their own tractor, warehouse or construction equipment, they would own them.
The edge you will have in this business is the high cost of the hired items, which is exactly the reason why customers will come to you to hire or lease.
If you’re interesting in this business, but do not have the capital to get started, you’re in luck.
I wrote an interesting article that reveals a few ways to raise startup capital for this kind of business: Here it is: 10 Guaranteed Ways to Raise The Capital You Need to Start and Grow Your Small Business
(ii) Your equipment is the heart of this business. Take good care of them.
One of the great things about the leasing/hiring business is that anytime your equipment is with a client, it’s very likely making money for you. And this is why you need to ensure that your property/equipment is in good working condition at all times.
As the owner of the equipment, it is your responsibility to ensure they are operated, managed and maintained according to the recommended standards. It’s important that you strike the balance between utilization and maintenance.
Don’t forget, your assets/equipment cannot make you money if it’s broken down or out of service.
Poor maintenance and management is the single biggest reason why many hiring businesses go out of business. The owners are often carried away by the money they’re making and forget to properly service and maintain these assets.
Your equipment/property is the heart of this business. If you take good care of them (good care and proper maintenance), they will take care of you (steady income).
(iii) The terms and conditions of hiring your equipment must always be clear
In dealing with clients who hire your equipment/property, you must always set clear terms and conditions for the use of your asset. If not, you’ll be encouraging people to cross the line, and they may be reckless with your equipment, and probably damage it.
Here are a couple of issues that must be addressed in your hiring/lease agreements with clients:
If your equipment is damaged during use, who takes care of it?
Who will be responsible for things like fuel (especially for vehicles), transportation to/from the site, operation and servicing?
It always helps to have your clients sign your Standard Terms and Conditions of Use during the hiring transaction to ensure that each party knows their responsibilities and expectations.
Interested in the Leasing Business In Africa?
Though capital intensive, the leasing business can be a very promising venture that can continue to bring in a steady stream of income for many years, if the lifespan of the lease equipment is ensured.
If you have little or no experience in the leasing business, it’s best to start small. Start with one piece of equipment to test the market and learn the ropes. You can scale up and buy more equipment as you progress.
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To your success!