Hotel Business in Africa 1c

Afrca is growing fast with the hotel business in the warm continent reaping immense benefits from the ensuing influx of business and destination tourists. The growth in the hospitality sector of Africa witnessed a lot of progressive changes in the operations of hotel business in major cities in the region.  International hotel management firms have increased their activities in the African hotel market, bringing with them innovative and dynamic business expertise that is much needed to grow the budding sector. The attraction for hotel groups is the growing ‘global focus’ on Africa, as the new business frontier. A Financial Times report came out in January 2014 with a title screaming; “Africa is new battleground for global hotel industry”, in a story that covered the biggest merger in Africa’s hospitality history.

Investment in Hotel business is capital intensive with the special requirement to providing a good atmosphere and offer comfort to guests and customers. Hence, there is the need for the governments of African countries and local private sector stakeholders in the Hotel business to strengthen their operational and infrastructural assets for the imminent growth in the sector. The public sector in most African business communities seem to see the hospitality business as an exclusive business for the wealthy, causing the local financial institutions to shy away from funding development of hospitality infrastructures. The local community also see the hotel business as a foreign culture because of the deep sense of hospitality that stipulates that your guests should be hosted in your house as a matter of courtesy.  Urban dwellers in most African cities have embraced the culture of taking vacations at selected destination hotels in neighbouring countries. This factor and the increasing flux of foreign business and destination tourists have given the African tourism sector the needed boost to attract global attention.

Existing investors in the African hotel business are growing their businesses by opening new hotels across the continent. More than 20 new 5-star hotels are under construction across Africa. The international media is awash with reports about increasing interest of global hotel brands in the African market. Marriot is planning to open over 40 hotels before the end of 2020. Accor, a French group, plans to deliver over 4500 rooms in 30 hotels by 2016. According to a report by W. Hospitality Group, a Lagos based hotel Consultancy firm, international hotel chains are planning 208 new hotels across the continent. This expansion will result in the addition of 38,000 rooms; with Egypt, Nigeria, Morocco, Tunisia and Algeria embracing the immediate development. The growth in the development of 5-star hotels is in response to projected growth in international tourist numbers. Private equity funds are springing up in the developed countries targeted at hotel acquisitions specifically in Africa. These funds however, specify that target hotel assets must be managed by notable hotel management companies.

Hotel Business in Africa 3

Investment Drivers and Investors confidence:

In 2013, the International Monetary Fund reported that sub-Saharan Africa’s economy was expected to expand by 5.6% and 6.1% in 2014, outpacing the global average of 3.3% and 4% in accordance. The United Nations World Tourism Organisation reported in December 2014 that Africa’s international tourist numbers grew by 3% (through October) with North Africa consolidating its recovery (+2%). Sub-Saharan Africa’s arrivals were up by 3% despite the challenges of the Ebola disease outbreak in a few West African countries. The report however, cautioned that data for Africa and the Middle East, nonetheless, should be read with caution as it is based on limited and volatile data for these regions.

By April 2014, the World Bank reported that ‘Capital flows to Sub-Saharan Africa continued to rise, reaching an estimated 5.3% of regional GDP. This was significantly above the developing-country average of 3.9 percent. Net Foreign Direct Investment (FDI) inflows to the region grew 16% to a near-record of $43 billion in 2013, boosted by new oil and gas discoveries in many countries including Angola, Mozambique, and Tanzania’.

International arrivals were expected to increase from 50million in 2011 to 134million in 2030. In the first six months of 2012, international tourism to Africa increased by 7% compared to a 5% growth overall in the world. This growth was influenced by increased political and economic stability in the continent. Africa also presents economically viable platform for launching into the Asia, Europe and the Middle East market for Western investors. Recent investment success stories emanating from Africa is drawing the attention of major global investment organisations.

In August 2014, CNN carried a special edition report on the African hotel business sector tagged, Latest African gold rush: Hotels”. According to this report,  ’From Lagos and Kigali to Nairobi and Johannesburg, the world’s best known hoteliers are targeting Africa’s growing urban centres to benefit from a rising number of business travellers and a huge undersupply in the available rooms’.

These and the readiness of development finance institutions to fund hospitality development facilitate quick investment recoveries. Marriot and Hilton have demonstrated that returns from investment in the African Hospitality sector have been satisfactory and rewarding. International Finance Corporation (IFC) has been involved in over 75 hotel projects in 29 African countries with 19 countries located in the Sub-Saharan Africa.

Low Budget Hotels:

While the major investors target development of 5-star hotels, the market for low budget represents a major investment prospects in the African continent. There are growing proportions of travellers between major African cities. Increasing business travellers between and within African countries presents opportunities for low budget hotels. Lonrho Hotels plans to roll out 50 easyHotel units by 2016 in the continent’s high-growth destinations to cater for the needs of African business travellers. According to Ewan Cameron, “the plan is to invest in budget hotels that would be located in city centers where the market is, unlike the competition who wants to be in the beautiful parts of the city alone. We will sacrifice this for economic drivers; we want the trade and want to be where you want to do business.” Also, the completion of the acquisition of Protea Hospitality Group (PHG), based in South Africa by Marriot in 2014 was a significant testimony of the investment potential in the continent.

African Hotel Infrastructure Investment Potential:

Most African nations are increasing government expenditure in telecommunications, airports, roads, and hotels. The administrators are now open to promoting business-friendly incentives such as was recently launched in Zambia, on taxation and fiscal legislation with a keen drive towards ensuring political stability. Governments of African nations are benefiting from investments in hospitality infrastructure. These benefits include; government taxes, job creation, knowledge and technology transfer.

Rooms for Improvement:

Experts at the 2014 Edition of V Tourism Investment and Business Forum for Africa (INVESTOUR), held in Madrid – Spain, positioned that there is need for increased efforts in the following areas:

  • Tourism project financing and investments
  • The transfer of technology and technical know-how in the hotel business and tourism sector
  • Ecotourism operations in National parks and protected areas.
  • The promotion and representation of destinations in the global outbound market
  • The creation and improvement of hotel establishments
  • The promotion of cultural tourism
  • Infrastructure and transport

Finally, political stability and consistent public policies are top on the list of key factors that can determine the pace of the current growth in the hospitality sector. African nations (such as Mauritius, Morocco and South Africa) that have made significant improvements in their policies have been reaping major economic rewards. The development impact of hospitality investments in Africa weighs more than the lack of it.

Hotel Business in Africa 2

By: Segun Oriade

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Hospitality Afrik is published to provide insight into the African Hospitality and Tourism Industry