Demand drivers spur change in diverse Africa
 
Demand drivers spur change in diverse Africa
15 FEBRUARY 2017 9:30 AM

Energy-producing countries are seeing blips, but a huge swath of different demand drivers and a growing population are slowly improving the African hotel industry each year. 

ABU DHABI, United Arab Emirates—Hoteliers based in Africa said the continent’s hotel industry is evolving with new demand drivers and growing country populations.

The African hotel industry even earned its own panel and discussion for the first time at last week’s Gulf & Indian Ocean Hotel Investors’ Summit. Moderator Trevor Ward, managing director of W Hospitality Group and a resident of Lagos, Nigeria, said the regional hotel performance is no longer dependent on primary monetary contributors such as oil and gas. Instead, markets with wider economic bases are leading the way.

“Angola, Algeria, Gabon and others, those energy-producing countries, are in the doldrums,” Ward said.

Bani Haddad, managing director of Middle East development at Dream Hotel Group—which has four brands and a development pipeline in Africa—said the opposite ends of the chain scale spectrum are performing well.

“The biggest demand is from locals driving midscale and economy segments, and most assets are under 100 keys, although there is a gap for luxury products in key cities,” Haddad said. “What is encouraging is that we are at the beginning of the cycle for many of these countries, and it is a beautiful market for investors.”

Vacation destinations are also thriving, according to Sara Rosso, president and CEO of management company Planhotel Hospitality Group. Planhotel has eight assets under brands Diamonds Hotels & Resorts and Sandies Hotels & Resorts in Kenya, Maldives, Mozambique and Tanzania (Zanzibar).

“If Zanzibar gets the same politics as Maldives, it will be the next star, and Kenya is a huge opportunity coupled with strong local demand,” Rosso said.

Raoul Gufflet (right), of The Mauritius Commercial Bank, tells Sara Rosso of Planhotel Hospitality that some investors might shy away from Africa as it contains only a very small number of investment-grade nations. (Photo: Terence Baker)

Investors are also conscious of that vacation demand, panelists said.

“Visitors look for white sand, and there is a sense that Africa does not have it, which is not true,” said Raoul Gufflet, deputy CEO and head of corporate and institutional banking at The Mauritius Commercial Bank. “Also, Africa only has 5% of the world’s hotel supply.”

Panelists agreed that the most important catalyst in Africa’s hotel evolution is how capital views the continent.

“Only five investment-grade countries exist in all of Africa, and this is something that investors would always want to take a look at,” Gufflet said. “If I was an investor in Africa, I would want 20% yield, and that would require finance to leverage that investment.”

“Much depends on where you get financing from,” Haddad said. “Local financing in Africa is very expensive.”

While tourism marketing still lags in most African countries, Rosso said domestic travel is growing.

“We’re starting to see Nigerians come on vacation to Kenya. That’s a start,” Rosso said.

Risk and reward
It might be a cliché, panelists said, but “slowly, slowly” is the mantra in Africa, and that applies to African hotel development.

“‘Pole, pole’—slowly, slowly—is the expression,” Rosso said. “They say here that everything is impossible, but it becomes possible, as opposed to the West where everything is possible, and then they tell you what can’t be done. You need determination and time.”

Such risks even are inherent in markets that are regarded as being more settled, according to panelists.

“Mauritius has gone through its problems of high-development costs, but if I am to mention problems, I can only do so in comparison with those of the rest of Africa,” Gufflet said. “When I was young everyone talked about Mauritius, and today they’re still talking about Mauritius, but yet the destination has changed.”

Gufflet added hoteliers there are trying to bring guests out of the resorts to savor local attractions.

“They’re doing that just a little, so as not to lose too much revenue, but you have to have something to show,” he said. “That’s not a problem in Africa, parts of which have this in plenty.”

Panelists gave a quick tour of some of the 54 countries making up Africa.

  • Kenya has been negative in the last years, due to security issues on the coast, but Nairobi and Zanzibar are great.” —Sara Rosso, Planhotel Hospitality
  • “We are opening what is the first international brand in Monrovia, Liberia, which has oil, rubber, surfing culture. We believe it will command high prices and thus yield, but as the operator is totally unleveraged, we can only really guess, but under the 20s (percentiles) for sure.” —Bani Haddad, Dream Hotel Group
  • “Liberia was one of only three countries directly affected by the Ebola virus, but which had an impact on all of Africa.” —Trevor Ward, W Hospitality Group
  • “Destinations such as Banjul, Gambia, have just simply gone as vacation destinations.” —Rosso
  • Senegal has been stable in the last six to eight years, but demand has not grown.” —Haddad
  • “Local demand is growing in Kenya on the resort side, too, and it is one of the most developed (in Africa) in terms of banks. Travel around Kenya, Uganda and Tanzania has been helped by cooperation between the three, and there is a very strong Indian community that is very well off, in fact forming the majority of the hotel ownership.” —Rosso

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