Hoteliers in Nigeria, Africa’s largest country by population, are suffering from the effects of high inflation and its new government’s abandonment of fuel subsidy and currency control.

Some expected the new Nigerian administration — which took office in May 2023 — would reverse some onerous economic woes, but any honeymoon period the new president hoped for was quickly quashed.

“The exchange rate is out of control and inflation is surging,” said Trevor Ward, owner of Lagos-based business consultancy W Hospitality Group and head of consultancy services at Hotel Partners Africa.

Upon taking office 10 months ago, Nigerian President Bola Ahmed Tinubu almost immediately removed the notable gasoline subsidy and allowed the country’s currency, the naira, to float.

The Nigerian people were not pleased to say the least, Ward said.

“The removal of fuel subsidy impacts everything. The price of petrol and diesel have tripled from the price this time last year. Diesel is important because the country runs on generators,” he said.

Prices have gone up, but salaries have not, Ward said.

“Also, the government is broke. … In 2003, 2.4 million barrels of oil a day were produced, but now it is approximately 1.3 million, and the government is massively dependent on oil for its income. That is half what it was 20 years ago,” he said.

The remedy has been to borrow and print more money, but with that comes debt that's very hard to service, Ward said.

Nigeria is not unique in Africa for having severe macroeconomic issues, Ward said, citing Ethiopia and Kenya as two other countries in a similar situation — large countries with plenty of opportunities but low levels of tourism development.

“Nigeria’s future could be rosy if the macroeconomic picture is sorted out. It is a big country with a big population, and it is crying out for more hotels, particularly midscale hotels,” he said.

The inflationary environment has also hampered hotel development in Nigeria.

“The exchange rates issue has really hampered developers. You have to develop in U.S. dollars and then sell hotel rooms in naira, so such fluctuations really hurt,” said David Harper, managing director of United Kingdom-based business consultancy Leisure Property Services. “In effect, projected profits are the same, but build costs have increased exponentially.

“I remember when exchange rates were 120 naira to the dollar. What was the official rate last week? 2,200 naira, or something ridiculous?” he said.

Ward agreed that the declining value of the Nigerian naira has drastically slowed hotel development in the country.

“Getting hold of U.S. dollars is very difficult for any costs, wages or construction. Average daily rate has gone up massively, and more than in 2019 in real terms, but not sufficiently to cover the rapidly increasing cost inflation,” Ward said.

Hotel construction in Nigeria is also very dependent on imported materials, Ward said. Essentially, few projects are likely to reach the finish line in the current environment, he added.

“It is not impossible, but we trade in naira, receive revenue in naira and build in dollars, with 80% to 90% of what you need to build a hotel having to be imported. How can you service that dollar debt with no external income?” Ward said. “To succeed, you need an owner with deep-dollar pockets, and they do exist, but you have to have a long-term view and a view that any return is better than none.

“Currency movement is the biggest risk here. It is difficult to make anything stack up,” he added.

Ward said Lagos — Nigeria's most populous city — is littered with hotels under construction that are not finished.

“Of the 13 hotels under construction in Lagos, I’ve observed that seven sites are closed, three have very little work being done and only three are seeing meaningful work on-site. All of those stalled projects have funding problems,” he said.

Of the 39 hotel projects in Nigeria that CoStar Group's hospitality data has in its February 2024 pipeline report, six have been deferred, 13 are in construction, five are in the final planning stage and 15 are in the planning stage.

“My sympathies are with the people halfway through [development],” Harper added. “All of a sudden, they risk mothballing their whole investment as the increased costs of fit-out mean the projects are hardly viable anymore.”

During 2023 throughout Africa, only 29 branded hotels opened across the continent's 54 countries, Ward said.

“None were in Nigeria. We have 13 hotels under construction in Lagos, one of Africa’s largest cities, but only three are actively under construction, but that is better than none,” he said.

Requests for comment from several Nigerian hotel companies were not returned by publication time.

Inflation in Nigeria has also affected hotel operations, especially food and beverage, Ward said.

“Hoteliers tell me they are coping. … It is the new normal, and customers are well aware prices are going up,” he added.

Domestically, Nigerians have an appetite to travel in their own country, which is a small comfort to hoteliers. Ward said Lagos has the domestic demand for more hotel rooms and that debt can still be obtained.

“Domestic tourism has continued. If there is 1% of population who can and are still traveling, that is a pool of 22 million to 25 million. Nigerians are big travelers,” Ward said.

Until the onset of the pandemic, British Airways' London-to-Lagos service was one of its most valuable routes, Ward said.

“The cost is now prohibitive. Maybe Nigerian families can travel once every other year. It is a myth that Nigeria’s hotels are filled with foreigners and that they pay in dollars,” Ward said, adding that if international travelers are arriving for business, their rooms most often are paid from the Nigerian office in naira.

Ward said that in 2021, during the height of the pandemic, only two global markets saw revenue per available room higher than the pre-pandemic levels from 2019: Lagos, Nigeria’s business center, and Abuja, its capital.

According to CoStar hospitality data, hotel performance metrics for both Lagos and the country of Nigeria appear healthy, but the numbers contain increased value to offset some of the inflation and increased costs.

In January 2024, hotel occupancy countrywide rose 0.7% year over year to 63.9%, average daily rate rose 54.9% to 115,712 naira ($74.73), and RevPAR increased 56.1% to 73,902 naira. In the same month in 2023, ADR was 74,678 naira ($48.23) and RevPAR was 47,344 naira.

In Lagos, occupancy fell 2.1% to 67.7% in the first month of 2024. ADR increased 61.1% to 111,026 naira and RevPAR increased 57.8% to 75,144 naira. In January 2023, Lagos' hotel ADR was 68,904 naira and RevPAR was 47,617 naira.

The January 2024 ADR for both Lagos and Nigeria was the highest across the 13 months from January 2023.

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