It’s budgeting season again, when hotel owners and managers seek to identify what’s going to happen in 2018. It all used to be so simple – inflation was running at x%, so let’s use that plus a little bit more to increase what we achieved this year, and that’s the budget.
Today it’s very different. We live in an environment of constant change and uncertainty – imagine you are a hotel manager in Barcelona; you did your budget in September, and then tourism collapses because of the referendum called by the Catalan government in October. How does the manager in Nairobi factor in this political scenario, with the cancelled election, the question marks over re-run, and so on? It’s almost inevitable that foreign governments will issue travel advisories, and we all know the impact that has had on the Kenyan coast’s tourism industry.
Despite this, the hotel industry in many cities remains optimistic about the future of their business. Sure, there are pockets of doom and gloom, with fears about over-supply particularly prevalent in cities such as Nairobi, Kigali and Conakry.
No one travelling in Africa can have failed to notice the increase in branded hotels, as well as in some places high-quality unbranded properties opening. It’s mainly been the march of the chains; in Nigeria there were just four branded hotels when I started studying the market in the 1980s. Now there are 42, with more under construction, mainly in Lagos.
The fundamentals are, on the whole, good. In his keynote presentation at the Africa Hotel Investment Forum in Kigali in early October, Daniel Silke of Political Futures Consultancy noted that, with the exception of coal, most commodities (on which so many African economies depend) are forecast to have stable or increasing price levels through to 2020. Nigeria and South Africa are both out of recession (just) and, according to Silke, over 60% of respondents to an ECN survey said that they would increase their investments in East and West Africa.
Silke also presented the World Bank’s Top Ten 2018 growth countries. In order from most to least growth, they are: Ethiopia, Tanzania, Côte d’Ivoire, Senegal, Ghana, Burkina Faso, Rwanda, Benin and Kenya. Uganda and Mali tied for tenth place.
Including Mali, which crept into the Top Ten because it and Uganda have the same projected figures, six of these 11 countries are in West Africa. Countries whose economies are solely reliant on oil and gas, such as Nigeria, Angola and Gabon, don’t feature. Silke quotes a McKinsey study which showed that growth in oil-exporting countries has slowed from an average of 7.3% to 4%, whilst non-oil-exporting countries have accelerated their growth, from 4.1% to 4.4%.
At the AHIF Marriott announced seven new signings, of which five are in West Africa – two each in Abidjan and Lagos, and one in Accra. The other two are Zanzibar and Addis Ababa.
Hyatt announced two in West Africa, in Douala and Dakar, plus others in Algiers, Marrakech, Arusha and Addis Ababa, whilst Carlson Rezidor has three new properties in the pipeline, in Bishoftu and Addis Ababa in Ethiopia, and Abuja.
Of great interest was the announcement by Hilton that it has established a fund for investment in hotels in Africa. Yes, an international chain is using its own balance sheet to support the expansion of its footprint in sub-Saharan Africa! For those African travellers who don’t get the significance of this, you should be aware that the international chains practically never invest a penny in the hotels they manage – they brand and manage on behalf of the owner of the property, who brings all the funding required.
For Hilton to say that it has $50 million to assist owners is, in recent times, ground breaking. It’s not the first investment fund – Carlson Rezidor has quietly invested in some hotels in Africa, alongside the Nordic governments, but that fund is now closed – and maybe not the last. The fact is that getting new hotels built and opened in Africa takes much, much longer than on other continents, for a variety of reasons. Hilton needs growth, which is not being achieved through the normal route, so it is specifically targeting conversions, which should mean faster expansion. Although the investment per property might be small (the $50 million is for a targeted 100 hotels) it can be of considerable assistance to owners, not only for the conversion, but also to assist in raising funds from other investors, and from lenders, who see the operator (Hilton) sharing the risk.
I’ve been saying for years that the operators need to consider making some investment in the properties they take on, and I am pleased to see that Hilton is taking the plunge.
So we could see more brand activity in 2018, with Hilton already announcing two conversions – the Amber Hotel in Nairobi and the Ubumwe Grande Hotel in Kigali, which will both be converted to Hilton’s DoubleTree brand in the next few months.
Back to that budget. Did you know that “Africa is home to 700 companies with annual revenue of more than $500 million, including 400 with annual revenue above $1 billion, and these companies are growing faster and are more profitable than their global peers”? (McKinsey 2016)
The growth is there, you just need the mindset to find it.