A client recently asked me what my crystal ball said about the future of the Nigerian hospitality industry. A fair question – after all, I have spent the last 13-plus years living and working in Lagos, and adding the time I was travelling backwards and forwards from London, I have 25-plus years’ experience of this market.
They say that you cannot know where you are, or where you’re going, if you don’t understand the past. Well, I remember when Lagos was really just a two-horse town, with the Sheraton and the Eko taking the lion’s share of hotel demand. With the return to civilian rule in 1989, GDP growth reached a high of 10% in 2009, and even 2014, with the Ebola crisis and the oil price crash, was 6.3%, well above the SSA average of 5%. Today, there are 20 branded hotels in Lagos, several high quality unbranded properties, and a huge pipeline, some of which are under construction.
Wouldn’t it be nice to look back at the previous 17 years, and input those growth figures into the crystal ball, wave the wand, and create a graph with an upward trajectory shining out from the middle of the orb?
That’s just not going to happen. That much we know. With negative growth in the first two quarters of 2016, Nigeria is in recession. The Naira is in free fall – two years ago it was around 160 to the US dollar, today the ‘official rate’ is around 330, and at the Bureau de Changes, the ‘parallel rate’ it is north of 400, with the probability of reaching 500 by the end of the year. All of which is somewhat academic, as there is very little, and at times no, foreign exchange to be had.
Daily we hear about job losses, in all sectors. The only positivity to come out of this is that it’s clearing out the ghost workers from the civil service.
The hospitality industry is hurting, of course. However, for travellers carrying dollars, Nigeria has become good value, after years of claiming the top slot as the most expensive destination globally. Whilst prices have gone up, as imports become more expensive, they haven’t gone up that much. The official inflation rate is around 17%, but the squeeze on the local consumer has tempered the ability to increase prices. At my local pub, a large beer is now $1.50 at the BdC exchange rate.
The crystal ball is no use right now. Let’s leave it under its cloth.
People have differing opinions about when Nigeria will experience an upturn. Some say mid-2017, others speculate two, three, or even four years. There’s an element of one-upmanship here (“I can be more negative than you!”), but to a man they are all speculating. Like mine, their crystal balls are of no use. But note that no-one says never. Everyone believes that there will be an upturn, at some time in the future.
Because Nigeria is, and always will be, Nigeria. We’ve been here before – remember the recession in the early 1990s and the Abacha years from 1993 to 1998? Nigeria has a huge, young population, many of them tech-savvy, with rapid urbanisation into a growing number of large cities, and a very positive outlook on life. Despite negative growth, the economy is still one of the largest in Africa, with vast natural resources and huge potential for agriculture and manufacturing.
So instead of crystal ball gazing, I say that we must instead make simple assumptions, and build a case for what might happen. It is, my client and I agree, reasonable to assume that there will be a return to growth.
We then discuss when that might occur, and we pencil down 2018, giving time for the government to get its act together regarding the economy, the currency to stabilise, and for the private sector to get used to the new norm. We agree that growth is likely to be in the non-oil sector, and rather slower than previous growth rates, that were driven by prices in exported commodities, not value-added activities. We might be wrong, but it gives us a basis on which to work, to plan new projects which in themselves will contribute to growth and recovery.
So there you have it. We are seriously in the doldrums in Nigeria right now, and could be here for some time, but we’ll pull out if it. Once the currency stabilises, investors will return. That’s something else we know.
Trevor Ward
MD: W Hospitality