By Courtney Trenwith
With the African population soaring by 30 million people a year and governments desperate to support non-resource sectors, international hoteliers are moving in with multiple new properties at a time in a bid to keep pace with soaring demand. But where are the GCC investors?
Twenty years after a genocide, Rwanda is ranked among the easiest countries to do business in the world, the streets of its capital are considered the safest in Africa and two of the largest international hoteliers have just opened signature properties there.
The transformation is symbolic of a renewed vigour in many pockets of Africa, although the positive advances often remain overshadowed by history and a current commodities downturn.
African leaders striving to develop their economies without relying on resources are turning to tourism, and international hoteliers from Wyndham and Marriott to Hilton, Rezidor and AccorHotels are not only getting in on the action, but picking up their pace of investment.
With population growing by 30 million people each year, and projected to increase to 40 million per year by 2050, plus rapidly increasing income levels, hoteliers are announcing multiple new properties at a time.
“It is hard not to see the potential in Africa purely based on population growth,” says Africa analyst Lars Christensen.
Hilton Worldwide says it will double its presence on the continent to more than 80 hotels in less than five years. Earlier this month it announced it would manage a 255-key hotel in Kenya’s capital, Nairobi, in what would be the tallest development in Africa. It also plans to operate what will likely be the most extravagant airport hotel on the continent, in Lagos, Nigeria.
France-based AccorHotels made an unprecedented commitment in July last year, announcing 50 new hotels in Angola in partnership with local firm AAA Activos Lda. The 6,200 rooms will span economy to luxury and gradually open by 2017, despite the country’s commodity bust.
Its mammoth investment in the southern African state is on top of existing properties across 15 African countries. Chief operating officer for Africa, Antoine Guego, says three of Accor’s Novotel and ibis hotels in Africa are among the brands’ best performers across a region spanning southern Europe, the Middle East and Africa.
The company believes so strongly in the continent’s profitability it is not only managing hotels but buying into them, and there are plans to invest in 18 key cities over the next five years. They include Johannesburg, Cape Town, Nairobi, Abuja, Abidjan and Dakar.
“Africa is definitely the continent of opportunity for the 21st century,” Guego says. “We have an ambition to reach 200 hotels by 2020. We have 106 under operation, it will be 110 by the end of the year.”
Meanwhile, Marriott International was so eager to get its foot holding in Africa in 2013 it bought South Africa’s largest hotelier, Protea, instantly giving it control of more than 23,000 rooms in 138 hotels from Morocco to South Africa. Overnight it jumped from the 13th largest hotel company on the continent (with only ten hotels in North Africa) to number one.
“We did it in part because we had nothing in Sub-Saharan Africa and we view this part of the world as being an enormous long-term growth opportunity,” Marriott International CEO Arne Sorenson told delegates at the Africa Hotels Investment Forum (AHIF) in Kigali in early October.
Having also acquired more than 60 hotels in Africa through its acquisition of Starwood in September, Marriott has moved to open self-branded properties, with the first in Kigali, and now has more than 40,000 rooms in total across the continent.
Sorenson says transparent and stable government have been “fundamental” to the success of tourism growth in African states.
“One of the big risks as foreigners coming in is we talk about the continent as if it’s monolithic; it’s anything but monolithic. There are two handfuls of countries that have got a stability that they didn’t have a generation ago, that is creating economic growth, a growth in business travel and growth in leisure travel. That growth of the upper-middle class will cause greater regional travel and travel into and out of Africa. We want to be there to be part of it,” he says.
Sorenson concedes the economic dynamics of Africa have weakened since Marriott bought Protea, but insists the long-term bet “is still very sound”.
“The next year or two it might be hard to predict in some markets but the long-term question is still one that is still a quite comfortable bet to make,” Sorenson says.
But while international brands are spreading their footprint across Africa, few Gulf hoteliers have shown interest. Qatar’s Retaj owns a resort on Comoros Islands, while Katara Hospitality has signed agreements for one hotel each in Sharm El Sheikh, Egypt, and Tangier, Morocco, and Dubai’s Jumeirah Group is understood to be considering the continent.
Christensen says “foreign investors are largely unaware of the potential in Africa”, while Xander Nijnens, from consultants JLL, says the difficulty in developing scale in Africa can deter international investors, especially smaller players.
“How can they build a meaningful-sized enough portfolio to make all the effort of coming into Africa worthwhile?” Nijnens says.
“Traditionally, Middle East outbound investors have been into mature markets, rather than emerging markets. [In Africa], there are very specific markets that have inbound Middle East investment: the Seychelles, Mauritius and Tanzania. You’ll find a lot more Middle East money on the east coast than the west coast.”
GCC airlines have cautiously expanded into Africa, helping to draw inbound tourists as well as wet hotel investors’ appetite for new markets south.
“Gulf hotel operators look at Africa and, seeing very good air access and more and more Gulf visitors, are thinking maybe we should be looking at opportunities in the region, which in turn should lead to Middle East investors coming out [to Africa] because they’re more likely to follow the GCC regional brands more than they would a local or African brand,” Nijnens says.
“If you look at hotel investors in Africa at the moment, 80-90 percent are local or regional investors. They tend to be high net worth individuals who have been very successful in other business lines who are diversifying into hospitality, and it tends to be their first or second hotel. They tend to price risk lower because it’s markets that they know, so they’re happy to develop a hotel at a lower return than what international investors might be looking for because they don’t have the same currency challenges or political risk.”
Security remains a concern for some investors, not only for their own money but the impact it has on potential tourist numbers. But despite the continental stereotype abroad, the risk has fallen sharply since the 1990s. Reasonable elections, according to the standard set by the Ibrahim Index of African Governance, are now held in more than 30 of Africa’s 54 countries, while 37 countries have shown improvement in overall governance, measured by 95 indicators, since 2006, representing 70 percent of African citizens.
Of the 11 general elections due in Africa over the next 12 months, Richard Kiplagat, chief operating officer of London-based African consultancy africapractice, says he expects few issues, except in the Democratic Republic of Congo. Yet visitors are likely to stay away from the voting countries.
“The perception gap on Africa continues to be there,” Kiplagat says.
“[Investors] need to focus on one specific market [when assessing feasibility] and avoid lazy analysis. Look at not only headline numbers but get locals to give you a view of the nuanced perspective. Too many investors take snapshots. It’s not a snapshot, [it’s] more of a video.”
Rezidor Hotel Group regional security manager Tony Johnson says while he often assess the risks to be higher in Africa they rarely make a hotel unfeasible.
“I never say no, I just advise … it will cost a lot more to cover security,” he says. “But the cost of physical security is not expensive [in Africa, due to cheaper labour]. London, for example, has an outside company come in for daily or weekly checks, they don’t have permanent security men because of the cost.”
AccorHotels’ Guego says political risks in Africa are generally short-term.
“Most observers were predicting terrible aftermath of elections in Nigeria [in 2015] and everything went smooth. So we can have short bursts [of tension] but in the long run I think Africa is on the right path of stability,” he says.
Christensen says contrary to the media reports, investors look beyond political risks. “I’m much more worried about politics in the US and Europe than in Africa.”
Instead, investors currently in Africa argue that building strong local relationships is more valuable when doing business in Africa.
“It’s very important to have your team on the ground,” says Rahul Chaudhary, executive director of Nepal-based Cinnovation and CG - Zinc Hospitality.
Cinnovation’s foray into Africa, with a hotel in Kigali, has been marred by legal action over branding. But Chaudhary says moving into Africa, and Rwanda in particular, was still “the right decision”.
“Apart from a few aspects that have had us on the back foot… overall Rwanda is a market that has been good to us,” he says. “There is huge potential in Africa.”
Reaching that potential is taking time, however. The period from choosing a location to opening the doors takes an average of seven years in Africa, compared to three or four in more developed parts of the world, including the GCC.
So far this year, only 32 of the 119 hotels that international chains announced would open in Africa in 2016 are operational, according to W Hospitality Group managing director Trevor Ward. That compares to more than 50 percent of new hotels opening on time in North America.
“The long-term fundamentals in Africa are extremely positive but what you need to actually make things happen is better governance, better education, better frameworks for people to be able to work together and get these pipelines moving,” Ward says.
In many places, building supplies and expertise are scarce, adding additional costs for them to be imported. Those costs are often duplicated by low exchange rates and import duties, which are still common in Africa. In countries exposed to the resources downturn, accessing foreign exchange also has been difficult.
Marriott’s Middle East and Africa head Alex Kyriakidis says the lack of local supplies is “costing everybody significant economic development”, not least the local economy.
“It’s actually very frustrating, because you can see this hotel will be enormously successful, will provide employment, but it takes, six, seven, eight, sometimes nine years to open its doors because the infrastructure is not there to deliver. And that’s an opportunity missed,” Kyriakidis says.
With tourism such a young industry in Africa, skill development also is needed.
“Eighty-five percent of employees in this hotel have never worked in a hotel before, so this is really developing a new industry,” Rezidor Hotel Group CEO Wolfgang Neumann says of the Radisson Blu Hotel & Convention Centre, Kigali.
Westmont Hospitality Group, one of the largest hospitality management companies in the world, has attempted to avoid such issues in Africa by buying existing assets and renovating them to target the lower end of the market.
“Building a five-star hotel requires a lot of different innovation, [whereas] select service or limited service [hotels] are a more consistent product and you can roll those out a lot easier than trying to develop a lot of luxury hotels on a multiple scale,” president Majid Mangalji says. “As we’re learning the market we try to develop modifications that are [unique] to Africa.”
Similarly, Hilton has developed a modular hotel constructed in China and shipped in parts to Africa, where it is quickly assembled. Hilton senior vice president of development, EMEA, Patrick Fitzgibbon says the concept almost halves typical construction time in Africa from 30-36 months to 18-24 months.
“There’s an opportunity to build hundreds [of the modular hotels] over 10-15 years,” he says. “The driver for me was looking at a solution for a continent where there isn’t the same depth of construction development expertise because there hasn’t been as much development.”
The resources downturn in recent years has perhaps provided a clearer picture for long-term investors, as the shine wears off some cities reliant on exports, while others have proven their versatility.
Nijnens says there has been “an incredibly diverse” set of changes in markets across Africa over the past two to three years but the fundamentals “are very, very strong”, with consistent population growth, urbanisation and formalisation of trade.
“Whereas, broadly speaking, five to six years ago somebody could have a view about the east, west, north and south, that has changed completely,” he says. “What used to be the real hotspots two-three years ago — [the] very resource-driven cities — have very much come off, and to an extend we have seen a shift from hotspots in West Africa to East Africa, because Eastern Africa has more diverse economies and higher growth recently compared to the West, which has had a lot of challenges.”
During AHIF, Rwanda was described as “setting the benchmark” for the rest of the continent. Its friendly, safe and clean capital Kigali and its brand new convention centre were on show, and Rwanda Development Board CEO Francis Gatare says revenues from tourism had exceeded any other export sector over the past five years, to more than $300m annually.
The number of hotel rooms across the country had skyrocketed from 630 in 2003 to 10,000 in 2016, Gatare says. Marriott and Radisson Blu opened in Kigali this year, while several others are close to closing deals. The city also has begun building a new international airport that it promises will become the hub for East Africa.
Gatare says the growth has helped lift 1 million Rwandans — of 12 million — out of poverty.
“Over the last ten years we’ve seen the services sector grow from just over 35 percent of GDP [gross domestic product] to now close to 49 percent of GDP,” he says.
Even Nigeria, where the economy fell into recession in the second quarter of this year, the currency is in freefall and inflation has skyrocketed 20 percent since the oil price decline, remains a long-term prospect, according to Ward.
“Boy have things changed there in the last few years,” he says. “But the long-term fundamentals are very good.”
Stakeholders argue there is one key priority that would catapult African tourism: breaking down protectionist borders. It is usually easier to fly outside of the continent and back in again to reach a fellow African state, while visas are notoriously difficult to obtain. Only one in five African countries allows other Africans entry without a visa, while only 13 states offer visa on arrival to fellow Africans, according to the United Nations World Tourism Organisation Visa Openness Report.
Kenya, Rwanda and Uganda have created an East Africa Visa, and neighbouring states are expected to join, too. The African Union announced in July it would introduce a pan-Africa passport by 2018. But it faces a series of enormous hurdles: Few African countries have the smart technology required; dozens of governments would need to agree to remove current visa restrictions for fellow Africans; and in the more developed states there is a fear that citizens of neighbouring countries will take their jobs.
Raphael Kuuchi, vice president Africa for the global airline body IATA, says a pan-Africa passport will eventually happen but not in the way it is currently envisaged.
“To assume that all 54 countries will wake up one day and all agree to open up their markets, it will take a long time to realise that,” he says.
“Market liberalisation among African states that are willing and able to do so is the fastest way to get liberalisation in Africa going. If we do that you’ll see the traffic flows will begin to converge around those countries that have opened up their markets, hubs will generate in those markets; the countries that are left… that haven’t opened up their markets will realise they’re losing traffic, they’re losing business and they will want to join.”
The same could be said for investors. Africa is a place to be, it is only a matter of where, not if.