CAPE TOWN // Hotel developers will invest billions of dollars in African projects over the next few years as they seek to take advantage of a fast-expanding middle class and growing business travel.
Overall room revenue in the five markets of South Africa, Nigeria, Mauritius, Kenya and Tanzania rose 6.7 per cent in 2015, the largest gain since 2011, according to PwC’s Hotels Outlook: 2016-20 report. Tanzania had the largest increase with a 14.4 per cent gain, the result of a large increase in the average room rate that offset a drop in stay unit nights. Tanzania’s market is heavily dependent on foreign tourism.
For UAE residents, South Africa is a prime location.
The South African consul general in Dubai, Manabile Shogole, says his country is increasingly becoming a favourite among Emiratis.
“There has certainly been an increase in the number of Emirati travellers to South Africa. Particularly large groups of families who are travelling.”
From April 2014 to March 2015, more than 8,500 visas to South Africa were issued in the UAE, according to statistics data, rising to more than 8,800 last year. For the first seven months of this year, almost 7,000 visas were issued.
PwC says South Africa, Nigeria, Mauritius, Kenya and Tanzania as a group will increase at an 8.6 per cent compound annual rate to 53.4 billion rand (Dh13.69bn) in 2020 from 35.4bn rand in 2015.
It is forecasts like those that have spurred a boom in hospitality investment on the continent.
According to JLL, the US-based financial and professional services firm, nearly US$3.5bn will be invested in hotels over the next two years.
JLL sees the medium-term outlook as broadly positive with a growth of up to 5 per cent in total in the coming two years, it says in a study on sub-Saharan Africa’s hotel prospects.
“From an investment perspective, we forecast $1.7bn to be invested in hotels in sub-Saharan Africa in 2017 and a further $1.9bn in 2018,” says Xander Nijnens, the senior vice president for hotels and hospitality, sub-Saharan Africa at JLL, speaking at the launch of the report in Rwanda, one of the fastest-growing tourism destinations on the continent.
“The new supply pipeline continues to grow with greater efficiency in realising new developments as the sector matures,” he says.
The growth is all the more remarkable as it comes against a backdrop of declining commodity prices that underpinned many African economies.
JLL research indicates the region’s GDP growth has slowed to 3 per cent, down from an average of twice that between 2010 to 2015. However, it is expected to accelerate to 4.1 per cent in 2017 and 2018, driven by the large regional markets.
“Long-term investment fundamentals for the region remain positive despite the short-term challenges that have impacted the hotel sector in sub-Saharan Africa in the past two years,” Mr Nijnens says. “Macro-economic development and government policy towards tourism, investment and economic growth remain critical in a corporate demand-led sector.”
Already international brands have been announcing plans to expand or increase African exposure. Marriott International, the world’s largest hotel company, this month opened its first African property, the Marriott Hotel in Rwanda’s capital, Kigali.
Marriott recently completed its purchase of Starwood Hotels and Resorts, which the US company says will help it to expand its presence in regions such as the Middle East and Africa.
A few days after the Kigali property opened its doors, Marriott announced plans for the construction of three new hotels in Cape Town. This will add another 500 beds to the city, which TripAdvisor recently declared the top destination in sub-Saharan Africa. Marriott also has another two hotels scheduled to open in South Africa’s commercial capital Johannesburg in 2018.
“Africa is particularly important to Marriott International’s expansion strategy because of the continent’s rapid economic growth, expanding middle class and youth population, as well as the increase of international flights into the continent,” says Arne Sorenson, the president and chief executive of Marriott International.
“With over 850 million people in sub-Saharan Africa alone, there are enormous opportunities.”
Over the next decade the company says it will roll out up to 200 hotels and expand to at least 27 countries with 37,000 rooms.
A notable element of this trend is that it is a departure from the bedrock of African tourism, the safari industry. Animal viewing has been a small but important contributor to some countries’ economies, mainly in southern Africa, although Kenya has also benefited.
Safari parks are aimed squarely at leisure tourists and are usually far from the urban centres of the countries in which they are located. One of the world’s largest nature reserves, the Kruger Park in South Africa, is some 400 kilometres from Johannesburg, the country’s industrial heartland.
As a result, the rapidly growing urban centres around Africa have drawn little advantage from tourism. The recent investment in hotels, however, will change this. According to JLL, hotel investment is now almost entirely aimed at business tourism.
This is changing the face of African cities and bringing in a welcome diversion from the focus on commodity investment. The Hilton Group, for instance, is building what it claims will be Africa’s tallest building in Nairobi, Kenya’s capital.
The 330-metre Hilton Nairobi Upper Hill in Kenya’s capital will be completed in 2020 and will underpin a drive for the US company to almost double its presence in Africa. Hilton plans to have at least 80 hotels across the continent within the next five years, the company has said.
Other brands familiar to UAE travellers are also piling in; Best Western, which operates a resort and spa in Abu Dhabi, and Carlson Rezidor, the operator of the Radison Blu brand, have also said they will be expanding across Africa.
Rezidor’s president and chief executive Wolfgang Neumann says that since opening its first African facility in South Africa in 2000, the continent has become the group’s largest growth area.
“We have opened a new hotel in Africa every 60 days over the past two years,” Mr Neumann says. “This year, we have already opened six Radisson Blu hotels and expect to open a Park Inn by Radisson in South Africa in the next six months. We intend to keep up this momentum of signings followed by successful openings.”
Two elements are crucial to fostering hotel investment. The first is the decline of conflict across Africa. The other is a continued growth in continent-wide business.
This has made lenders more willing to consider providing capital for the hotel sector. The hotel industry, as with many other sectors, lives or dies on its ability to raise finance for new ventures. As Africa’s risk perceptions lower, money has become available, notes Mr Nijnens.
“Long-term investment fundamentals for the region remain positive despite the short-term challenges that have impacted the hotel sector in sub-Saharan Africa in the past two years,” he says.
“Macro-economic development and government policy towards tourism, investment and economic growth remain critical in a corporate demand-led sector.”
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