JOHANNESBURG—The climate for developing and operating hotels in Africa is as unpredictable and diverse as the continent itself, according to speakers at the recent Hospitality Investment Conference Africa.
The common denominator throughout the three-day conference? Being part of the emerging hotel industry in Africa is not for the faint of heart:
- “The ease of doing business and the cost of doing business—you’re navigating a minefield out there,” said Ronak Gopaldas, head of country risk for Rand Merchant Bank, during the “Mitigating risk in Africa’s hotel development & operational cycle” panel. “Each country is different. You have to customize when doing business in Africa.”
- “You would be a fool if you went into Africa and not think it would be challenging,” said Henri Joubert, international business development manager for City Lodge Hotel Group, during the “Spotlight on East Africa” session. “If you’re not patient, you’re going to lose.”
- “One of the biggest problems for Africa and it emerges time and time again … we’re not taking advantage of our own market strength because it’s so difficult to fly from one market to another,” said Derek Hanekom, minister of tourism for South Africa, during a one-on-one on-stage interview conducted by AE Consultancy’s Jackie Asheeke. “There’s too little recognition of the importance of domestic tourism, and regional tourism for that matter.”
The countries in Africa have been greatly affected by the steep drop in oil prices during the past couple of years, according to Daniel Silke, independent political analyst, who presented the “Africa’s perspective in the global economy” session.
“The oil slide wipes off billions of U.S. dollars from many African nations,” he said, adding that Africa has 12% of global oil reserves, 40% of gold reserves and 80% of chromium and platinum reserves, but just 1% of global manufacturing and 2% of world exports.
But the tough landscape doesn’t mean there aren’t opportunities through Africa even as it faces challenges.
Zahra Peera, VP of development in sub-Saharan Africa for AccorHotels, said the region is “looking at a billion in the middle class by 2050,” including 90 million people who now have an annual income of more than $5,000. That bodes well for the hotel industry, she said.
Silke agreed.
“There is a dearth of economy hotels in Africa,” he said, adding that it could present an opportunity for developers as more of the current 300 million middle-class Africans begin traveling.
Guy Stehlik, CEO of Bon Hotels, said growth could come quickly and there’s enough space in Africa for regional and international brands of all classes to co-exist.
“We’re not going to take our foot off the pedal here in South Africa,” he said. “The big question is who can put the most bums in beds.”
According to Mark Wynne-Smith, global CEO of the hotels & hospitality group for JLL, a plethora of dynamics are driving interest in hotel growth in Africa, including: favorable demographics—the population is growing and getting younger; an expanding middle class; expanding corporate footprints; improved economic management; infrastructure investment; rapid urbanization; and a rapidly evolving commercial real estate market.
The challenges
On the other hand, issues affecting the continent that were mentioned often during the conference included: The massive drop in oil prices has negatively affected many African nations; massive rolling blackouts in Zambia; fuel shortages in Nigeria; terrorism in Kenya; the far-reaching effect of South Africa’s economic woes; and the pan-continent effect of 2014’s Ebola outbreak.
“One of the challenges with Africa is the way the world perceives Africa,” Hanekom said. “Ebola was a very significant factor (in lower tourist arrivals). Clearly, visa regulations have had a negative impact.”
Volker von Widdern, managing director of risk consulting for Marsh Africa, said during the “Mitigating risks” panel that risks vary by country, but in most cases the hotel operator is responsible for insuring the hotel. That creates some pressure beyond the control of the operator.
“If there’s not power and you can’t run the water to run fire pumps, you’ve got a problem,” von Widdern said.
Significant dependence on critical resources such as airstrips, water supply and the electrical grid can make situations tenuous at times, he added.
There are ways for hoteliers to work around the challenges, speakers said.
“You’ve got to do the due diligence properly,” said Adrian Gardiner, founder and chairman of the Mantis Collection, during the “Mitigating risk” session. “The one thing (the industry seems) to get wrong is we seem to take a lot on face value. … We like to do the due diligence ourselves rather than from … someone who hasn’t been a practitioner.”
“Make yourself more competitive; lower your operation costs; make yourself less vulnerable to energy cuts,” Hanekom added. “The emphasis is on sustainability, supporting a transformation process. It’s a socially responsible form of tourism.”
A quick look at specific markets
With an audience in Lagos, Nigeria, remotely connected to the conference via video, conversations regularly addressed the condition of that region’s hotel industry.
The scale of Nigeria is substantial and is among the must-have markets for hotel companies, Gopaldas said.
“You can’t do Africa without Nigeria,” he said. “It’s difficult; at times it’s volatile. Kenya is also non-negotiable. Zambia has a lot of untapped tourism potential.”
The hotel operating conditions in Nigeria are unique, starting with corporate bookings often coming directly to a hotel’s GM, Stihlek said.
“The booking behavior we’re seeing at the moment—it’s important to develop the relationship directly with the customer,” he said.
South Africa also was frequently mentioned during panel discussions. While South Africa is undoubtedly the economic leader for the continent, there are issues surrounding the country, speakers said.
Stihlek, a South African native, said the perceived arrogance of South African business is real and needs to be scaled back for there to be a more cohesive economic approach for Africa.
Gopaldas agreed.
“South Africa … we’re not embracing the rest of the continent the way that I think we should be,” Gopaldas said. “There’s a lot of the low-hanging fruit across the region.”
“There are substantial headwinds affecting the continent right now,” Silke said. “Africa’s broad growth is brought down by the weakness of the South African economy.”
Since 1990, the rand has lost 80% of its value, Silke said.
Silke pointed to a 21% year-on-year decline in visitors into South Africa through July as a wake-up call for governments to ease visa restrictions—particularly for Chinese travelers.
The East Africa region, which includes Kenya, Uganda, Rwanda, Burundi and Tanzania, has a population of 140 million. In addition, nearby Ethiopia has 99.5 million people. That makes the area a prime target for hotel expansion, according to speakers.
Moseketsi Mpeta, head of tourism and manufacturing for the Industrial Development Corporation of South Africa, said East Africa is a lot easier to conduct business in than West Africa because of taxes and other issues.
“We find it a lot more resilient,” Mpeta said.
Another country to watch is the Democratic Republic of Congo. Wivine Mumba Matipa, director general of ANAPI, said the eastern part of the DRC is where tourism can be capitalized on.
“We need international money to come into the region,” Matipa said. “Tourism in DRC doesn’t play a big part in (gross national product) but that’s why the focus is on it now. Tourism in DRC really needs hotels.”